83 FR 27922 - Standards of Conduct and Referral of Known or Suspected Criminal Violations; Standards of Conduct
FARM CREDIT ADMINISTRATION Federal Register Volume 83, Issue 116 (June 15, 2018)
Federal Register Volume 83, Issue 116 (June 15, 2018)
| Page Range | 27922-27932 | |
| FR Document | 2018-12874 |
[Federal Register Volume 83, Number 116 (Friday, June 15, 2018)] [Proposed Rules] [Pages 27922-27932] From the Federal Register Online [www.thefederalregister.org] [FR Doc No: 2018-12874] ======================================================================= ----------------------------------------------------------------------- FARM CREDIT ADMINISTRATION 12 CFR Part 612 RIN 3052-AC44 Standards of Conduct and Referral of Known or Suspected Criminal Violations; Standards of Conduct AGENCY: Farm Credit Administration. ACTION: Proposed rule. ----------------------------------------------------------------------- SUMMARY: The Farm Credit Administration (FCA, we, or our) proposes to amend our regulations governing standards of conduct of directors and employees of Farm Credit System (FCS or System) institutions, excluding the Federal Agricultural Mortgage Corporation. The proposed rule would replace the original proposed rule, and would require every System institution to have or develop a Standards of Conduct Program based on core principles to put into effect ethical values as part of corporate culture. DATES: You may send comments on or before September 13, 2018. ADDRESSES: We offer a variety of methods for you to submit your comments. For accuracy and efficiency reasons, commenters are encouraged to submit comments by email or through FCA's website. As facsimiles (fax) are difficult for us to process and achieve compliance with section 508 of the Rehabilitation Act, we are no longer accepting comments submitted by fax. Regardless of the method you use, please do not submit your comment multiple times via different methods. You may submit comments by any of the following methods:Email: Send us an email at [email protected]. FCA Website: http://www.fca.gov. Select ``Public Commenters,'' then ``Public Comments'' and follow the directions for ``Submitting a Comment.'' [[Page 27923]] Federal eRulemaking Portal: http://www.regulations.gov. Follow the instructions for submitting comments. Mail: Barry F. Mardock, Deputy Director, Office of Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive, McLean, Virginia 22102-5090. You may review copies of comments we receive at our office in McLean, Virginia, or from our website at http://www.fca.gov. Once you are in the website, select ``Public Commenters,'' then ``Public Comments'' and follow the directions for ``Reading Submitted Public Comments.'' We will show your comments as submitted but, for technical reasons, we may omit items such as logos and special characters. Identifying information that you provide, such as phone numbers and addresses, will be publicly available. However, we will attempt to remove email addresses to help reduce internet spam. FOR FURTHER INFORMATION CONTACT: Jacqueline R. Melvin, Senior Policy Analyst, Office of Regulatory Policy, (703) 883-4498, TDD (703) 883- 4056, [email protected], or Mary Alice Donner, Senior Counsel, Office of General Counsel, (703) 883-4020, TDD (703) 883-4056, [email protected]. SUPPLEMENTARY INFORMATION: I. Objectives The objectives of this proposed rule are to: Establish principles for ethical conduct and recognize each System institution's responsibility for promoting an ethical culture; Provide each System institution flexibility to develop specific guidelines on acceptable practices suitable for its business; Encourage each System institution to foster core ethical values and conduct as part of its corporate culture; Require each System institution to develop strategies and a system of internal controls to promote institution and individual accountability in ethical conduct, including by establishing a Standards of Conduct Program and adopting a Code of Ethics; and Remove prescriptive requirements that do not promote these objectives. II. Background Our standards of conduct regulations have not been significantly changed since their 1994 publication.\1\ Over the past few years, there have been increasing concerns with governance, oversight, management practices and standards of conduct in the financial services industry. The proposed rule would update FCA's regulations in view of these concerns, and would address the ethical culture under which System institutions should operate.\2\ --------------------------------------------------------------------------- \1\ The original proposed regulation was published in the Federal Register on February 20, 2014, (79 FR 9649). The objective was to build on the existing standards of conduct rules by adding a few new provisions, clarifying or augmenting some current provisions, and providing additional flexibility for others. After receiving comments, FCA determined to use a different approach. \2\ ``The Directors Role'' booklet states that sound ethics and adherence to standards of conduct, among other things, are essential to effective oversight. --------------------------------------------------------------------------- III. The Importance of Ethical Culture Public confidence in the integrity and ethical business practices of any financial institution is fundamental to its ongoing viability. Unethical or preferential business practices can damage a financial institution's reputation and lead to earnings and credit risk. Congress granted the Farm Credit System certain attributes that result in Government-sponsored enterprise (GSE) status. This status confers on System institutions additional responsibility to strive for high ethical standards and business practices. IV. The Proposed Rule This rule would establish core principles for ethical conduct. It would set forth basic tenets of ethical business practices to compel each System institution to foster a culture of loyalty, honesty, integrity and accountability. The proposed rule would set forth principles by which a System institution must do business. The System institution would be responsible for establishing and enforcing policies that expand on these principles, and for clearly communicating expectations for acceptable behavior to directors and employees. FCA believes that the proposed rule would promote ethical conduct. At the same time, because it is less prescriptive than the current rule, it could reduce regulatory burden. A. Organization The proposed rule would change the organization of the current rule. It would consolidate, rename and assign new numbers to some sections and remove other sections altogether. The following bullets summarize the changes: Proposed Sec. 612.2136 would set forth the principles that serve as the foundation for the rule. It would substantively revise and rename current Sec. 612.2135 ``Director and employee responsibilities and conduct--generally''. Proposed Sec. 612.2137 ``Elements of a Standards of Conduct Program,'' would consolidate current Sec. 612.2160 ``Institution responsibilities'' and current Sec. 612.2165 ``Policies and procedures''. Proposed Sec. 612.2138 ``Conflicts of interest, reporting of financial interests'' would consolidate current ``Director reporting'' and current Sec. 612.2155 ``Employee reporting''. Proposed Sec. 612.2139 ``Prohibited conduct'' would consolidate current Sec. 612.2140 ``Directors--prohibited conduct'' and Sec. 612.2150 ``Employees--prohibited conduct''. It would also include the prohibitions in current Sec. 612.2157 ``Joint employees'' and current Sec. 612.2270 ``Purchase of System obligations''. Proposed Sec. 612.2137 would require that institutions develop policies and procedures with respect to agents to avoid conflicts of interests and would replace current Sec. 612.2260 ``Standards of conduct for agents''. B. Definitions [Proposed Sec. 612.2130] The proposed rule would define ``Code of Ethics,'' ``resolved'' and ``Standards of Conduct Program''. We would change the term ``controlled entity and entity controlled by'' to ``reportable business entity'' and modify the definition of ``employee''. We would omit the definitions of ``officer'' and ``service corporation'' as redundant with the definitions of ``employee'' and ``System institution'', respectively. We would omit the definition of ``relative'' as redundant with the definition of ``family'' in the current rule and ``immediate family'' in Sec. 620.1(e). We would make the definition of System institutions more concise. These and other changes and clarifications are discussed below. Agent. We would modify the definition of ``agent'' to clarify that an agent includes someone who currently represents a System institution as a fiduciary in contacts with third parties. The proposed rule adds the language ``as a fiduciary'' to the definition of agent to explain that not all outside parties performing services for the System institution require the conflict of interest disclosure required of agents. For example, the contractor responsible for maintaining grounds would not be an agent. However, those with fiduciary responsibilities, such as lawyers, accountants, and those representing the System institution in contacts with third parties would be an agent. Each System institution should review the risks associated with its use of third parties and should expand or elaborate on the definition of agent, depending on the System institution's need for conflict disclosures in those relationships. Special consideration should be given to cyber security issues in third party relationships and information technology specialists should be subject [[Page 27924]] to especially heightened ethical controls and confidentiality requirements. Code of Ethics. The proposed rule would define ``Code of Ethics'' as a written statement of the principles and values the System institution follows to establish a culture of ethical conduct. The Code of Ethics directs professionalism and discourages misconduct so that the best interests of the institution and the System are advanced. Conflict of interest. This definition would explain that a conflict can arise whenever a secondary or non-work-related interest might unduly influence or materially impact a director's or employee's work- related decision-making. Employee. The proposed rule would define ``employee'' to mean any individual, including an officer, who works for the System institution. Every individual who works for the System institution, including temporary employees and interns, would be part of the ethical corporate culture, regardless of length or term of employment. System institutions should also consider whether and when third-party contractors should be included in the definition of employee or agent. Entity. The proposed rule would add ``sole proprietorship'' to the definition of ``entity'' in the current rule and make other non- substantive changes. Family. The proposed rule would include ``significant others'' in the definition of ``family''. The System institution could elaborate on this definition, and consider whether to include cousins or civil union partners. Material. The definition of ``material'' in the proposed rule is not substantively different from the definition in the current rule. Each System institution must set its own specific parameters for what would constitute a material financial interest or transaction. The dollar amount or value of material, in the context of a financial interest or transaction, should be determined by the System institution board. This should be based on the institution's needs for tracking and supervising the potentially conflicting business and financial activities of its directors and employees. Ordinary course of business. We would clarify that an ordinary course of business transaction is one that is usual and customary ``in the business in question'', on terms that are not preferential. Each System institution must determine what activities and transactions are in the ordinary course of business. Generally, a person provides goods or services in the ordinary course of business if the transaction is usual or customary for the kind of business in which the seller or service provider is engaged or with the seller's or service provider's own usual or customary practices. So, for example, a borrower sells crop inputs (seed, fertilizer, etc.), and a System institution director or employee wishes to purchase the crop inputs. A transaction in the ordinary course of business would mean that the borrower sells the crop inputs at the price and terms common to others in the industry. It would mean that the director or employee is typical of an ordinary purchaser of crop inputs in the industry. Also, the terms of the arrangement should be consistent with the other transactions, if any, between this borrower/seller and director or employee/buyer. Another example involves services in the ordinary course of business, such as accounting, legal or medical. A System institution director may need a lawyer. The fact that the best lawyer is a borrower, does not preclude the director from engaging that lawyer for personal use, assuming no conflict, if the terms of the engagement are usual or customary practices in the legal field. The director must pay the lawyer at the going rate, the legal services must be of the kind the lawyer typically provides in the business, and the relationship cannot have any preferential terms or discounts. Preferential. The proposed rule would not change the definition of ``preferential'' but would list it separately from the definition of ``ordinary course of business''. Reportable business entity. The proposed rule would change the term ``controlled entity and entity controlled by'' and replace it with ``reportable business entity''. The proposed rule would provide that a reportable business entity is an entity in which the reporting individual, directly or indirectly or acting through or in concert with one or more persons, owns a material percentage of the equity; owns, controls, or has the power to vote a material percentage of any class of voting securities; or has the power to exercise a material influence over management of policies of such entity. We would make this change to avoid confusion with the term ``control'' in the corporate context, and to allow the System institution discretion to determine how much interest represents a conflict. This determination may vary depending on whether the entity is private, public, profit, or not for profit. The intent of this provision is to require directors and employees to identify and report any business interest that is significant enough to create a conflict of interest or the appearance of a conflict of interest when considered from the perspective of an ordinarily prudent and reasonable person. Resolved. We would define ``resolved'' to mean an actual or apparent conflict of interest that has been addressed with an action such as recusal, divestiture, approval or exception, job reassignment, employee supervision, employment separation or other action, with the result that a reasonable person with knowledge of the relevant facts would conclude that the conflicting interest is unlikely to adversely affect the person's performance of official duties in an objective and fair manner and in furtherance of the interests and statutory purposes of the Farm Credit System. Standards of Conduct Official. The proposed rule would modify the definition of Standards of Conduct Official (or Official). Because of the variety of institution sizes and resources, we do not require the Standards of Conduct Official to be a senior officer. However, the focus of this proposal is on accountability in ethical conduct; therefore, the Official must be an employee who is an officer appointed under Sec. 612.2137(b), and must have the authority to report directly to the System institution board or designated board committee on standards of conduct matters. The Official should be an employee who is able to exert a positive influence in ethical matters on System institution directors and employees. The Official would be independent in his duties related to standards of conduct. It may be practical for some larger System institutions to appoint more than one Standards of Conduct Official. Standards of Conduct Program. The proposed rule would define ``Standards of Conduct Program'' to mean the policies and procedures, internal controls, and other actions a System institution must implement to put into practice the requirements of this rule. The Standards of Conduct Program is the totality of the policies and procedures, internal controls, audit, training, and other activities that promote ethical behavior. C. Standards of Conduct--Core Principles [Proposed Sec. 612.2136] As mentioned in Section A, we would substantively revise and rename current Sec. 612.2135 ``Director and employees responsibilities and conduct--generally'' as proposed Sec. 612.2136 ``Standards of conduct--core principles.'' Proposed Sec. 612.2136 would establish principles that directors and employees must follow in performing [[Page 27925]] official duties. We specifically request comment on the effectiveness of the proposed principles in reaching the objective of fostering a culture of ethical conduct. Paragraph (a) would establish core principles. Paragraph (b) would set forth certain basic minimum requirements to comply with the principles. Proposed Sec. 612.2136(a)(1) would set forth the first principle: To maintain the highest ethical standards of the financial banking industry, including standards of care, honesty, integrity and fairness. This principle establishes that these standards, important in the financial banking industry, are critical to the conduct expected of a GSE. System institution directors and employees should consider ethical conduct beyond reproach a component of their job responsibilities. System institution directors and employees must avoid self-serving practices and hold performance of their duties to the institution above personal concerns. They must not use their position for personal advantage. Proposed Sec. 612.2136(a)(2) would set forth the principle that institution directors and employees must act in the best interest of the institution. Proposed Sec. 612.2136(a)(3) would set forth the principle to preserve the reputation of the institution and the public's confidence in the Farm Credit System. Proposed Sec. 612.2136(a)(4) would set forth the principle to exercise diligence and good business judgment in carrying out duties and responsibilities. Proposed Sec. 612.2136(a)(5) would state as a principle the responsibility to report, vet and make all reasonable efforts to resolve conflicts and the appearance of conflicts in business relationships and activities. As a corollary, proposed Sec. 612.2136(a)(6) would set forth the principle that directors and employees must avoid self-dealing and acceptance of gifts or favors that may influence or have the appearance of influencing official actions or decisions. Proposed rules concerning acceptance of gifts are set forth in proposed Sec. 612.2137(d)(6). Proposed Sec. 612.2136(a)(7) would require directors and employees, if applicable, to fulfill fiduciary duties. Proposed Sec. 612.2136(b)(1) would require institution directors and employees to comply with their System institution's Standards of Conduct Program and Code of Ethics. Proposed Sec. 612.2136(b)(2) would require institution directors and employees to comply with all applicable laws and regulations when carrying out official duties. Applicable laws and regulations would include all FCA regulations and Federal laws. Proposed Sec. 612.2136(b)(3) would require institution directors and employees to participate in annual standards of conduct training, and to acknowledge participation with a written certification. Section 612.2136(b)(4) would require directors and employees to report, under Sec. 612.2137(e), known or suspected illegal or unethical activities, and known or suspected violations of the institution's rules on standards of conduct and Code of Ethics. Reporting would be made to the Standards of Conduct Official or through the institution's hotline or other method consistent with the institution's procedures for anonymous reporting. D. Elements of a Standards of Conduct Program [Proposed Sec. 612.2137] The proposed rule would consolidate current Sec. 612.2160 ``Institution responsibilities'' with current Sec. 612.2165 ``Policies and procedures,'' in proposed Sec. 612.2137 ``Elements of a Standards of Conduct Program.'' This section would require each System institution to establish a Standards of Conduct Program that incorporates the principles established in proposed Sec. 612.2136 and provide resources for its implementation. A System institution may continue to use its existing Standards of Conduct Program if it incorporates the core principles and satisfies the requirements of this proposed rule. The Standards of Conduct Program would set forth specific guidelines on acceptable and unacceptable business practices. Policies and procedures should include requirements and prohibitions as necessary to promote public confidence in the institution and the System, and further the objectives of the principles and this proposed rule. Each System institution should enhance these requirements with comprehensive rules as necessary to meet System institution goals. Each System institution would be required to allocate resources to administer the Standards of Conduct Program. This could include hiring personnel in addition to the Standards of Conduct Official, if necessary, to assist in responsibilities such as reviewing reports, providing training, and conducting investigations. It could include use of outside counsel, especially if the Standards of Conduct Official is not an attorney, and whatever additional resources are necessary to implement the Standards of Conduct Program and promote the ethical culture of the System institution. The System institution board is ultimately responsible for implementing the principles and for compliance and oversight of the Standards of Conduct Program. Proposed Sec. 612.2137(a) would require each institution to establish a Standards of Conduct Program that sets forth the core principles in Sec. 612.2136. Proposed Sec. 612.2137(b) would require the board of directors to appoint a Standards of Conduct Official, defined as an employee, who would be responsible for carrying out the duties set forth in proposed Sec. 612.2170. To carry out these responsibilities and promote the ethical culture required by the proposed rule, the Standards of Conduct Official should have a close relationship with the employees of the System institution and be in a position of authority and trust. Because the board of directors is ultimately responsible for compliance, the Standards of Conduct Official must have direct access to the board or designated board committee on standards of conduct matters. The Standards of Conduct Official would be required to meet periodically with the board or designated board committee as proposed in Sec. 612.2170(g). Proposed Sec. 612.2137(c) would require each System institution to adopt a written Code of Ethics that states the institution's principles and values and guides directors and employees in ethical conduct. These principles and values must include standards for appropriate professional conduct at the workplace and in matters related to employment. The Code of Ethics would be a component of the Standards of Conduct Program. To demonstrate commitment to its values and to provide transparency and accountability in ethical conduct, the proposed rule requires each System institution to post its Code of Ethics on the System institution's external (public) website. Proposed Sec. 612.2137(d) would require each System institution to establish policies and procedures to put into operation the Standards of Conduct Program and to comply with the provisions of this proposed rule. Proposed Sec. 612.2137(d)(1) would require each System institution to establish policies and procedures for reporting. At a minimum, these would include reporting requirements sufficient to identify any conflicts of interest, actual or apparent; any business transactions with directors, employees, borrowers and agents that are not in the ordinary course of business; any gifts; names of family members; and reportable business entities (or other related party as determined by the System institution). As defined in proposed Sec. 612.2130, ordinary course of business means a transaction that is usual and customary in the business in question, on terms [[Page 27926]] that are not preferential. We believe the System institution is in the best position to determine that which is an ordinary course of business transaction and that which is favorable or preferential in its region. Therefore, each System institution should develop policies and procedures to identify transactions that are preferential and not in the ordinary course of business and report the transactions pursuant to Sec. 612.2137(d)(1)(ii). Generally, ordinary course of business means business procedures and practices consistent with usual customs and practices in that line of business. Is the transaction of a type that other similar businesses and their customers would engage in as ordinary business? Is the transaction, and its terms, common in the specific industry? From an industry-wide perspective, is the transaction of the sort commonly undertaken? The practices of others in the industry would be helpful in making the determination. Another consideration is the parties' own past relationship and past practice. Is the transaction ordinary in the context of the relationship already existing between the parties? A review of the parties' prior conduct and practices would be helpful in making this determination. Certain special situations bear discussion. Transactions between a director/employee and that director's/employee's loan officer should be specifically addressed, and the general nature of these transactions should always be reported because of the high potential for conflict, even if the transactions are in the ordinary course of business. System institution policies and procedures should require reporting for other ordinary course of business transactions that may have a high potential for conflict. Compliance with proposed Sec. 612.2137(d)(1) would require the System institution to develop a method to monitor related-party transactions and make sure that directors and employees do not transact business on preferential or favorable terms and do not take advantage of their employment or position with the Farm Credit System in their business affairs. The policies and procedures should include specific dollar amounts as appropriate, and other criteria for pre-event versus post-event reporting. Reporting should include, at a minimum, financial transactions (recurring or one-time), and other relationships or arrangements (monetary or non-monetary) between directors, employees, agents or borrower/stockholders. Proposed Sec. 612.2137(d)(2) would require each System institution to establish policies and procedures to address how conflicts of interest would be resolved through an action such as recusal, divestiture, approval or exception, job reassignment, employee supervision, employment separation or other action. To resolve conflicts of interest, the director or employee should cooperate with the Standards of Conduct Official. Policies and procedures would include action taken in the event a conflict cannot be resolved. Compliance with proposed Sec. 612.2137 requires that the System institution establish a process to report, vet, and resolve conflicts of interest effectively. It would be read in tandem with proposed Sec. 612.2138, which speaks directly to directors and employees and sets forth their reporting requirements. Agents, consultants and other third parties who represent the institution to the public, or upon whom the institution relies for professional services, must be bound by the same ethical responsibilities to the System institution and its borrower/ shareholders as directors and employees. Proposed Sec. 612.2137(d)(3) would require each System institution to establish policies and procedures to make sure that agents file conflict of interest disclosures, and that agents, consultants and other third-party contractors avoid misconduct and conflicts of interests. These third parties must be notified that their engagement is conditioned upon their agreement to avoid misconduct and conflicts of interest. These policies and procedures should include a mechanism to report, vet and resolve any conflicts of interest between third parties representing the institution and the System institution itself or its directors and employees. The System institution should also consider having the agent or consultant acknowledge its Code of Ethics, depending on the relative importance of the agent or consultant services to the institution. Consideration should be given to the sensitivity of the services, for example third-party performers of internet technology or cyber security services should be subject to a high degree of scrutiny. Consideration also should be given to whether the third party is covered by a professional code or standard that prescribes ethical conduct. The rule provides specific authority to each System institution to monitor and enforce its standards of conduct rules and Code of Ethics. Violators should be subject to specific and appropriate action, as determined by the System institution. Proposed Sec. 612.2137(d)(4) would require each System institution to establish policies and procedures for the enforcement of its Standards of Conduct Program. This would provide the mechanism by which the institution takes action against any person who violates the standards of conduct rules, Code of Ethics, or these regulations. This section places accountability for enforcing the ethical conduct outlined in this proposed rule and fundamental to the health and viability of the System institution directly with the System institution itself. Proposed Sec. 612.2137(d)(5) would require each System institution to establish policies and procedures to apply and enforce the prohibitions set forth in proposed Sec. 612.2139 and any other provision in this subpart A. Proposed Sec. 612.2137(d)(6) would require policies and procedures to prohibit gifts. These should include a definition of gifts, and explanation of prohibited sources. Directors and employees are prohibited from accepting gifts or favors that could be viewed as offered to influence or give the appearance to influence decision- making or official action or to obtain information. A System institution may determine that certain gifts, for example those valued at $25.00 or less, are so low in value (de minimis) that they could not be perceived as influencing decision-making or official action. The System institution may allow its directors and employees to accept gifts of little or no value. However, it may do so only if it has policies and procedures in place that set forth controls that are consistent with the core principles established in this proposed rule and with the requirements of Federal laws including FCA regulations and the Federal Bank Bribery Act.\3\ These policies and procedures would set forth the maximum value of any individual gift that a director or employee may accept, and the maximum value of gifts in the aggregate per year that a director or employee may accept. The policies and procedures would include reporting requirements for gifts and rules for disposing of impermissible gifts. --------------------------------------------------------------------------- \3\ See 18 U.S.C. 215 and 18 U.S.C. 20. --------------------------------------------------------------------------- Proposed Sec. 612.2137(e) would set forth minimum requirements for internal controls for all aspects of the System institution's Standards of Conduct Program. Proposed Sec. 612.2137(e)(1) would require the System institution to maintain all reports generated under subpart A of the Standards of Conduct regulations including those required by Sec. 612.2137(d)(1) and records on any ethics investigations and [[Page 27927]] determinations, for a minimum of 6 years. Proposed Sec. 612.2137(e)(2) would require internal controls to preserve the confidentiality of reports and other information maintained under the Standards of Conduct Program. Proposed Sec. 612.2137(e)(3) would require each System institution to establish a process for anonymous reporting of suspected standards of conduct or Code of Ethics violations. A reporting hotline is most effective when both internal parties (directors and employees) and external parties (agents, borrowers, shareholders, applicants, and others) can report a complaint, misconduct, or tip for corrective action without fear of retribution such as termination of employment, suspension, or other similar action. Proposed Sec. 612.2137(e)(4) requires periodic review of the Standards of Conduct Program for consistency with current practices at the System institution, financial banking industry best practices, and FCA regulations. Internal controls to prevent self-dealing and conflict situations should be monitored and evaluated with an effective audit program. Proposed Sec. 612.2137(e)(5) would require each System institution to arrange for periodic internal audits of the Standards of Conduct Program. The audit would identify weaknesses, review and measure the effectiveness of the Standards of Conduct Program, and prescribe necessary corrective actions. The audit would cover the entire System institution and include all activities conducted by the System institution including through an unincorporated business entity (UBE), such as those organized for the express purpose of investing in a Rural Business Investment Company pursuant to Sec. 611.1150(b). The audit would test for compliance and recommend corrective action as necessary, and the results should be reported directly to the institution's board or designated board committee. The scope and depth of the audit would be determined by the needs of the institution. The System institution would document the audit process and results. Proposed Sec. 612.2137(f) would require each System institution to establish and provide standards of conduct training at least annually. This section should be read in tandem with Sec. 612.2170. The institution's Standards of Conduct Program and ongoing training would encourage directors and employees to obtain counsel from the Standards of Conduct Official prior to engaging in transactions that could be perceived as preferential or not in the ordinary course of business. The Standards of Conduct Official could then provide advice to the director or employee on the permissibility of the transaction under the institution's Standards of Conduct Program and these proposed rules, or prescribe actions that would be necessary before or following the transaction to resolve a conflict of interest or the appearance of a conflict of interest. Training must include updates, if any, to the Standards of Conduct Program and Code of Ethics, and discussion of the System institution's procedures for the anonymous reporting of violations. It must include education on prohibited conduct, conflicts of interest and reporting requirements. Training on fiduciary responsibilities would be required, although the System institution may elect to have that service performed by outside counsel. E. Conflicts of Interest, Reporting of Financial Interests [New Sec. 612.2138] It is incumbent upon each System institution to adopt the standards of conduct core principles, to make them part of the culture and lexicon of every director and employee. In addition, certain prescriptive rules directed to employees and directors are necessary to realize a baseline ethical standard. The baseline prescriptive requirements are set forth in proposed Sec. Sec. 612.2138 and 612.2139, and each System institution should expand upon these prescriptive requirements as appropriate. Section 612.2138 of the proposed rule would specifically address conflicts of interest and reporting of financial interests. This section would require directors and employees to take affirmative action to identify, report and resolve conflicts or potential conflicts of interest of which they are aware. It is intended to compel each director and employee to take ownership of and invest in ethical responsibilities. Proposed Sec. 612.2138(a) would require each director and employee to identify, report and resolve conflicts and potential conflicts. Proposed Sec. 612.2138(b) would require that if a director or employee has a conflict of interest in a matter, transaction or activity that is subject to official action, or that is being considered by the board of directors, then that director or employee must disclose relevant non- privileged information including the existence, nature, and extent of his or her interests; refrain from participating in the official action or board discussion on the matter, activity or transaction (Sec. 612.2138(b)(2)); and not vote on or influence the decision-making on the matter, transaction or activity (Sec. 612.2138(b)(3)). Working together with other provisions of the proposed rule, this section is intended to bolster loyalty to the System institution and to reinforce personal responsibility and accountability in avoiding conflicts and acting ethically. Proposed Sec. 612.2138(c) would require a director or employee to report conflicts of interest to the Standards of Conduct Official at year-end and at such other times as may be required by the institution. At a minimum, this section would require reporting of information sufficient for a reasonable person to make a conflict of interest determination on any business matter to be considered by the System institution. Reporting consistent with part 620 is also required. Proposed Sec. 612.2138(c)(1) would require directors and employees to report any interest that they may have in any business matter before the System institution. This would include any interest in a loan, or in an entity making a loan application, or any other direct or indirect interest in a matter that pertains to the business of the System institution. Proposed Sec. 612.2138(c)(2) would require directors and employees to report the names of any family member who has transacted or is currently transacting business with the System institution. The System institution should determine how best to capture reporting of current transactions, and should consider whether to require a director or employee to report the name of a family member who has engaged in a transaction in the past. Proposed Sec. 612.2138(c)(3) would require directors and employees to report all material financial interests with any director, employee, agent, borrower or business affiliate of the System institution, supervised institution or supervising institution. Proposed Sec. 612.2138(c)(4) would require directors and employees to report any matter required to be disclosed by Sec. 620.6 of this chapter, in accordance with System institution policies and procedures. Proposed Sec. 612.2138(c)(5) would require directors and employees to report the names of reportable business entities. Proposed Sec. 612.2138(c)(6) would require directors and employees to report the names of any person residing in the home if such person transacts business with the System institution, or any institution supervised by the System institution. All the reporting in this section would be based on information the reporting [[Page 27928]] individual knows or has reason to know. F. Prohibited Conduct [Proposed Sec. 612.2139] As stated in Section A, we would consolidate current Sec. 612.2140 ``Directors--prohibited conduct'' with current Sec. 612.2150 ``Employees--prohibited conduct,'' in proposed Sec. 612.2139 ``Prohibited conduct.'' We would also incorporate current Sec. 612.2157 ``Joint employees'' and current Sec. 612.2270 ``Purchase of System obligations'' requirements in this section. Most of our revisions to the prohibited conduct rules are straightforward and provide clarification of an intended prohibition. For example, we would clarify that lending transactions with a party related to the System institution such as a director, employee or a borrower is permitted, but only if on terms that are not favorable or preferential. We would also add a new provision that would prohibit directors and employees from acting inconsistently with the core principles. Proposed Sec. 612.2139(a) would set forth the general prohibitions and their related exceptions for directors and employees, and proposed Sec. 612.2139(b) would set forth additional prohibitions specifically for employees with their related exceptions. Proposed Sec. 612.2139(a)(1) would prohibit acting inconsistently with the core principles in proposed Sec. 612.2136. Proposed Sec. 612.2139(a)(2) restates the director and employee prohibitions on participation in matters affecting financial interests in current Sec. Sec. 612.2140(a) and 612.4150(a), respectively. Proposed Sec. 612.2139(a)(3) restates the director and employee prohibitions on use of information in current Sec. Sec. 612.2140(b) and 612.4150(b), respectively. Proposed Sec. 612.2139(a)(4) would prohibit directors and employees from soliciting, obtaining or accepting, directly or indirectly, any gift, fee or other compensation that could be viewed as offered to influence decision-making, or official action or to obtain information. The System institution may determine that a gift that has an insignificant value would not trigger this prohibition, and may develop rules under which directors and employees may accept de minimis gifts. However, these System institution rules must be consistent with Federal rules and regulations including FCA rules and the Federal Bank Bribery Act. De minimis gifts may be accepted only as set forth under the institution's properly established policies and procedures (see Sec. 612.2137(d)(6)). Proposed Sec. 612.2139(a)(5) would provide that, among other things, a director or employee may not knowingly purchase or otherwise acquire, directly or indirectly, unless through inheritance, any interest (including mineral interests) in any real or personal property that is currently owned, or within the 12 past months was owned, by the System institution, supervising institution or any supervised institution as a result of foreclosure, deed in lieu, or similar action. Like the current rule, the proposed rule would allow a director to purchase such property only through public auction or similar open, competitive bidding. By open competitive bidding, we mean bidding that is both competitive, allowing involvement of all interested parties, and open and unsealed. Open competitive bidding affords all interested parties an opportunity to counter-bid. The advantage to open bidding is that it discourages unethical behavior or favoritism. A public auction can be accomplished on-line only if there is an opportunity for all who may be interested in the auction to participate in the bidding process. A director may purchase acquired property through open competitive bidding only if the director did not participate in the decision to foreclose or dispose of the property, including setting the sale terms, and did not receive information that could provide an advantage over other potential bidders or purchasers of the property. The proposed acquired property prohibitions do not reflect a substantive change from the current rule. We made revisions because the scope of misunderstanding and misapplication of the original provision warranted further clarification of the current rule's intent. The prohibition would apply to collateral acquired by a System institution, including collateral acquired directly or through use of an acquired property UBE. This provision of the rule does not change or alter any rights a borrower may have under title IV, part C of the Farm Credit Act of 1971, as amended, 12 U.S.C. 2199-2202, or FCA regulations promulgated thereunder. Proposed Sec. 612.2139(a)(6) would provide that a director or employee must not directly or indirectly borrow from, lend to, or become financially obligated with or on behalf of a director, employee, or agent of the System institution, supervising institution, or supervised institution or a borrower or loan applicant of the System institution. This section prohibits a director or employee from entering into a lending or borrowing transaction with those who may have a financial relationship with the System institution. Lending and borrowing relationships include providing loan guarantees or stand-by letters of credit and similar forms of financial obligation. FCA recognizes that there are many situations in which a director or employee may enter into lending transactions or business relationships that involve other directors, employees, agents, borrowers, or loan applicants in the ordinary course of business. Financing in the ordinary course of business, as discussed earlier, is not a prohibited lending transaction. Each System institution should develop policies and procedures governing ordinary course of business transactions that include rules for reporting. The proposed rule requires every System institution to develop policies and procedures for directors and employees to identify, vet, and resolve any lending transactions with prohibited sources that are on preferential terms. Evidence of a director or employee engaging in a preferential business arrangement with a borrower or other party related to the System institution would be a safety and soundness concern and might be evidence of non-compliance. Proposed Sec. 612.2139(a)(7) restates the prohibitions in current Sec. 612.2270 on purchasing System obligations; and Sec. 612.2165(b)(14) on purchasing or retiring preferred stock in advance of the release of material non-public information. Proposed Sec. 612.2139(b)(1) restates the prohibition in current Sec. 612.2150(d) on serving as an officer or director of an entity other than a System institution, except that the proposed revisions would not include the exception in current Sec. 612.2150(d) that allows an employee of a Farm Credit Bank or association to serve as a director of a cooperative that borrows from a bank for cooperatives. This exception has been dropped because of the conflicts that would arise as a result of merger activity. Proposed Sec. 612.2139(b)(2) and (b)(3) restate the prohibitions in current Sec. 612.2150(j) on acting as a real estate agent or broker; and current Sec. 612.2150(k) on acting as an agent or broker; respectively. Proposed Sec. 612.2139(b)(4) restates the prohibition in current Sec. 612.2157 on joint employees, but allows an employee of a bank to serve as an officer of a supervised association in its district in an extraordinary situation if: Both boards authorize the service, the duties and compensation at each institution [[Page 27929]] are set forth in writing, and reasonable notice prior to the assumption of duties is provided to FCA. G. Standards of Conduct Official [Proposed Sec. 612.2170] The proposed rule would enhance the role of the Standards of Conduct Official. The System institution board of directors is responsible for creating and fostering the institution culture, and for development of the Standards of Conduct Program. The institution board is also responsible for compliance with the Standards of Conduct Program. Proposed Sec. 612.2170(a) would require that the Standards of Conduct Official must implement the Standards of Conduct Program. The Standards of Conduct Official is the authority to whom directors, employees, agents and consultants turn for advice on conflict of interest situations. Proposed Sec. 612.2170(b) would require the Standards Conduct Official to provide guidance and information to directors and employees on conflicts of interest. Proposed Sec. 612.2170(c) should be read in tandem with proposed Sec. 612.2137(f) and would require the Standards of Conduct Official to provide annual and new director and employee training. The training would review the institution's standards of conduct rules and the Code of Ethics and discuss any updates; review and discuss the anonymous reporting hotline or other reporting procedure; prohibited conduct; directors' and employees' fiduciary duties (this training could be separate from the training of employees who do not have fiduciary duties); the importance of identifying conflicts of interests and reporting of financial interests; and annual and ongoing reporting requirements. The proposed rule would require the Standards of Conduct Official to report periodically to the board of directors or designated board committee on the Standards of Conduct Program and Code of Ethics matters. Proposed Sec. 612.2170(d) would require the Standards of Conduct Official to help directors and employees identify conflicts of interest and report financial interests, in accordance with proposed Sec. 612.2138. The Official would make written determinations on conflicts of interest and determine how to resolve them including by recusal, divestiture, approval or exception, job reassignment, employee supervision, employment separation, or other action consistent with the institution's Standards of Conduct Program as provided in proposed Sec. 612.2170(e). Proposed Sec. 612.2170(f) would require the Standards of Conduct Official to document all resolved and unresolved material or significant conflicts of interest. The Standards of Conduct Official would be required to maintain documentation that explains how conflicts are handled. Proposed Sec. 612.2170(g) would require the Standards of Conduct Official to report to the institution's board of directors or designated board committee any instance of non-compliance with the System institution's standards of conduct rules or Code of Ethics. It would also require periodic reporting on the administration of the Standards of Conduct Program. These reports would include a review of the Standards of Conduct Program required under proposed Sec. 612.2137. V. Regulatory Flexibility Act Pursuant to section 605(b) of the Regulatory Flexibility Act (5 U.S.C. 601 et seq.), FCA hereby certifies that the proposed rule would not have a significant economic impact on a substantial number of small entities. Each of the banks in the System, considered together with its affiliated associations, has assets and annual income in excess of the amounts that would qualify them as small entities. Therefore, System institutions are not ``small entities'' as defined in the Regulatory Flexibility Act. List of Subjects in 12 CFR Part 612 Agriculture, Banks, banking, Conflict of interests, Crime, Investigations, Rural areas. For the reasons stated in the preamble, part 612 of chapter VI, title 12 of the Code of Federal Regulations is proposed to be amended as follows: PART 612--STANDARDS OF CONDUCT AND REFERRAL OF KNOWN OR SUSPECTED CRIMINAL VIOLATIONS 0 1. The authority citation for part 612 continues to read as follows: Authority: Secs. 5.9, 5.17, 5.19 of the Farm Credit Act (12 U.S.C. 2243, 2252, 2254). 0 2. Subpart A, consisting of Sec. Sec. 661.2130 through 612.2270, is revised to read as follows: Subpart A--Standards of Conduct Sec. 612.2130 Definitions. 612.2135 [Reserved] 612.2136 Standards of conduct--core principles. 612.2137 Elements of a Standards of Conduct Program. 612.2138 Conflicts of interest, reporting of financial interests. 612.2139 Prohibited conduct. 612.2140-612.2165 [Reserved] 612.2170 Standards of Conduct Official. 612.2260-612.2270 [Reserved] Subpart A--Standards of Conduct Sec. 612.2130 Definitions. For purposes of this section, the following terms are defined: Agent means any person, other than a director or employee, who currently represents a System institution as a fiduciary in contacts with third parties or who currently provides professional services to a System institution, such as legal, accounting, appraisal, cyber- security, internet technology and other similar services. Code of Ethics means a written statement of the principles and values the System institution follows to establish a culture of ethical conduct for directors and employees. Conflicts of interest means a set of circumstances that creates a risk that actions or judgments regarding a primary interest will be unduly influenced by a secondary interest. A conflict of interest (or the appearance of a conflict of interest) may exist when a person has a financial interest in a transaction, relationship, or activity that could materially impact that person's ability to perform official duties and responsibilities in a totally impartial manner and in the best interest of the institution, when viewed from the perspective of a reasonable person with knowledge of the relevant facts. Employee means any individual, including an officer, working part- time, full-time, or on a temporary basis for the System institution. Entity means a corporation, company, association, firm, joint venture, partnership, sole proprietorship, trust or other organization whether or not incorporated. Family means spouse or significant other and anyone having the following relationship to either: Parent, spouse, son, daughter, sibling, stepparent, stepson, stepdaughter, stepbrother, stepsister, half-brother, half-sister, uncle, aunt, nephew, niece, grandparent, grandson, granddaughter, and the spouses of the foregoing. Financial interest means an interest in an activity, transaction, property, or relationship with a person that involves receiving or providing something of monetary value or other present or deferred compensation. Financially obligated with means having a legally enforceable joint obligation with, being financially obligated on behalf of (contingently or otherwise), having an enforceable legal obligation secured by property owned by another person, or owning property [[Page 27930]] that secures an enforceable legal obligation of another. Material, when applied to a financial interest or transaction (including a series of transactions viewed in the aggregate), means that the interest or transaction is of sufficient magnitude that a reasonable person with knowledge of the relevant facts would question the ability of the person who has the interest or is party to such transaction(s) to perform the person's official duties objectively and impartially and in the best interest of the institution and its statutory purpose. Mineral interest means any interest in minerals, oil or gas, including but not limited to, any right derived directly or indirectly from a mineral, oil, or gas lease, deed or royalty conveyance. Ordinary course of business, when applied to a transaction, means: (1) A transaction that is usual and customary in the business in question on terms that are not preferential; or (2) A transaction with a person who is in the business of offering the goods or services that are the subject of the transaction on terms that are not preferential. Person means individual or entity. Preferential means that the transaction is not on the same terms as those prevailing at the same time for comparable transactions for other persons who are not directors, employees or agents of a System institution. Reportable business entity means an entity in which the reporting individual, directly or indirectly, or acting through or in concert with one or more persons: (1) Owns a material percentage of the equity; (2) Owns, controls, or has the power to vote a material percentage of any class of voting securities; or (3) Has the power to exercise a material influence over the management of policies of such entity. Resolved means an actual or apparent conflict of interest that has been addressed with an action such as recusal, divestiture, approval or exception, job reassignment, employee supervision, employment separation or other action, with the result that a reasonable person with knowledge of the relevant facts would conclude that the conflicting interest is unlikely to 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 Farm Credit System. Standards of Conduct Official means a System institution employee who is appointed as an officer under Sec. 612.2137(b), and who reports directly to the board of directors or designated board committee on Standards of Conduct and Code of Ethics matters. Standards of Conduct Program means the policies and procedures, internal controls and other actions a System institution must implement to put into practice the requirements of this rule and the System institution's Code of Ethics. Supervised institution is a term that only applies within the context of a System bank or employee of a System bank and refers to each association supervised by that System bank. Supervising institution is a term that only applies within the context of an association or employee of an association and refers to the System bank that supervises that association. System institution and institution means any Farm Credit System bank, association, or service corporation chartered under section 4.25 of the Act, and the Federal Farm Credit Banks Funding Corporation. It does not include the Federal Agricultural Mortgage Corporation. Sec. 612.2135 [Reserved] Sec. 612.2136 Standards of conduct--core principles. (a) If you are a System institution director or employee, you must: (1) Maintain the highest ethical standards of the financial banking industry, including standards of care, honesty, integrity, and fairness. (2) Act in the best interest of the institution. (3) Preserve the reputation of the institution and the public's confidence in the Farm Credit System. (4) Exercise diligence and good business judgment in carrying out official duties and responsibilities. (5) Report, vet, and work with the Standards of Conduct Official to resolve conflicts of interest and the appearance of conflicts of interest in System business relationships and activities. (6) Avoid self-dealing and acceptance of gifts or favors that may be deemed as offered, or have the appearance of being offered, to influence official actions or decisions. (7) Fulfill your fiduciary duties, as applicable. (b) To comply with core principles, all System institution directors and employees must: (1) Comply with the institution's standards of conduct and Code of Ethics. (2) Comply with all applicable laws and regulations. (3) Certify, in writing, participation in the institution's annual standards of conduct training. (4) Timely report to the Standards of Conduct Official or through the institution's reporting procedures under Sec. 612.2137(e)(3) known or suspected: (i) Illegal or unethical activities; and (ii) Violations of the institution's standards of conduct and Code of Ethics. Sec. 612.2137 Elements of a Standards of Conduct Program. The System institution board is ultimately responsible for the implementation and oversight of, and compliance with, the Standards of Conduct Program. Each System institution board of directors must: (a) Establish a Standards of Conduct Program that sets forth the core principles in Sec. 612.2136 and provide adequate resources for its implementation. (b) Appoint a Standards of Conduct Official. Provide the Standards of Conduct Official: (1) Authority to carry out responsibilities set forth in this subpart A; and (2) Direct access to the System institution board of directors or designated board committee on standards of conduct matters. (c) Adopt a written Code of Ethics that establishes the System institution's values and expectations for the ethical conduct of directors and employees. Include standards for appropriate professional conduct at the workplace and in matters related to employment. Post the Code of Ethics on the institution's external website with access for the public. (d) Establish policies and procedures to: (1) Institute requirements for directors and employees to comply with the Standards of Conduct Program, including at a minimum, annual and interim reporting of: (i) Actual or apparent conflicts of interest; (ii) Transactions not in the ordinary course of business; (iii) Names of family members; (iv) Reportable business entities; and (v) Gifts under paragraph (d)(6) of this section. (2) Address how conflicts will be resolved, and provide action(s) to be taken when a conflict cannot be resolved to the satisfaction of the System institution; (3) Address third-party relationships. Include policies and procedures to: (i) Require agents to disclose conflicts of interest and act in a manner consistent with the ethical standards of the System institution; and (ii) Notify agents, consultants and other third parties who represent the [[Page 27931]] institution, or who provide expert or professional services to the System institution that their engagement is conditioned upon their agreement to avoid misconduct and conflicts of interest; (4) Enforce and monitor the System institution's Standards of Conduct Program. Take appropriate action against any director or employee who violates the standards of conduct rules, Code of Ethics or the regulations under this subpart A; (5) Apply and enforce the prohibited conduct rules set forth in Sec. 612.2139 and any other Farm Credit Administration rules in this subpart A; and (6) Set forth rules prohibiting gifts. If the System institution allows directors and employees to accept de minimis gifts, establish a de minimis threshold dollar amount per gift and an aggregate amount per year consistent with applicable laws. Establish rules for disposing of impermissible gifts. (e) Provide for Standards of Conduct Program internal controls to include at a minimum, a process to: (1) Maintain conflicts of interest and other reports required under this subpart A, including paragraph (d)(1) of this section, along with any investigations, determinations and supporting documentation, for a minimum of 6 years. (2) Protect against unauthorized disclosure of confidential information maintained by the institution, pursuant to this subpart A. (3) Report anonymously known or suspected violations of the institution's Standards of Conduct Program and Code of Ethics, through a hotline or other reporting procedure. (4) Periodically review the Standards of Conduct Program to ensure continued adequacy and consistency with changes in institution practices, financial banking industry best practices and Farm Credit Administration regulations. (5) Perform internal audits of the Standards of Conduct Program to: (i) Review the effectiveness of advancing the core principles, (ii) Identify weaknesses; (iii) Recommend and report necessary corrective actions directly to the institution's board or designated board committee; and (iv) Cover the entire Standards of Conduct Program across the System institution and include all activities conducted through a System institution unincorporated business entity (UBE), including UBEs organized for the express purpose of investing in a Rural Business Investment Company pursuant to Sec. 611.1150(b) of this chapter. The System institution must determine and document the scope and depth of the audit. (f) Establish periodic standards of conduct training required under Sec. 612.2170(c) at least annually. Sec. 612.2138 Conflicts of interest, reporting of financial interests. (a) If you are a director or employee of a System institution you must, to the best of your knowledge and belief: (1) Identify conflicts of interest and potential conflicts of interest; (2) Report conflicts of interest and potential conflicts of interest in any matters, transactions or activities pending at the System institution to the Standards of Conduct Official; and (3) Cooperate with and provide information requested by the Standards of Conduct Official to resolve conflicts of interest and potential conflicts of interest. (b) If you are a director or employee of a System institution and you have a conflict of interest in a matter, transaction or activity subject to official action, or before the board of directors then you must, to the best of your knowledge: (1) Disclose relevant information including: (i) The existence, nature, and extent of your interest; and (ii) The facts known to you as to the matter, transaction or activity under consideration; (2) Refrain from participating in the official action or board discussion of the matter, transaction or activity; and (3) Not vote on, or influence the vote on, the matter, transaction or activity. (c) If you are a director or employee, at least annually and at such other times as may be required by your institution policies and procedures, you must report to the Standards of Conduct Official, in sufficient detail for a reasonable person to make a conflict of interest determination, the following information to the best of your knowledge or belief: (1) Any interest you have in any business matter to be considered by the System institution; (2) The names of your family members who have transacted or are currently transacting, business with the System institution; (3) All material financial interests with any director, employee, agent, borrower or business affiliate of your System institution, or supervised or supervising institution; (4) Any matter you are required to disclose under Sec. 620.6(f) of this chapter; (5) The names of entities that are reportable business entities to you; and (6) The name of any person residing in your home if, you know or have reason to know, such person transacts business with your System institution, or any institution supervised by the System institution. Sec. 612.2139 Prohibited conduct. (a) If you are a System institution director or employee you must not: (1) Act inconsistently with the core principles. You must follow the core principles set forth in Sec. 612.2136. (2) Use your position for personal gain or advantage. Do not participate in deliberations on, or the determination of, any matter affecting your financial interest. Matters affecting your financial interest include financial interests of a family member, a person residing in your home, or a reportable business entity. You may participate in matters of general applicability affecting shareholders/ borrowers of a particular class in a nondiscriminatory way. (3) Divulge confidential information. Do not make use of any fact, information or document not generally available to the public that you acquired by virtue of your position. You may use confidential information in the performance of your official duties. (4) Accept gifts. Do not solicit, obtain, or accept, directly or indirectly, any gift, fee or other compensation that could be viewed as offered to influence your decision-making, or official action, or to obtain information. (5) Purchase property owned by the institution. Do not knowingly purchase or otherwise acquire, directly or indirectly except through inheritance, any interest (including mineral interests) in any real or personal property that currently is owned, or within the past 12 months was owned, by your employing or supervising institution, or any supervised institution as a result of foreclosure, deed in lieu, or similar action. Exceptions: As a director, in addition to the inheritance exception, you may purchase such property if you: (i) Purchase the property through public auction or similar open, competitive bidding process; (ii) Did not participate in the decision to foreclose or dispose of the property, including setting the sale terms; and (iii) Have not received information as a result of your position that could give you an advantage over other potential bidders or purchasers of the property. (6) Enter into loan transactions with prohibited sources. Do not directly or indirectly borrow from, lend to, or become financially obligated with or on behalf of a director, employee, or agent of your employing or supervising [[Page 27932]] institution, supervised institution, or a borrower or loan applicant of the employing institution. Exceptions: You may enter into transactions with family members and transactions in the ordinary course of business as determined and documented by the written policies and procedures of your institution. (7) Purchase System obligations. (i) Do not purchase any obligation of a System institution, including any joint, consolidated or System-wide obligation, unless such obligation is part of an offering available to the public; and purchased through a dealer or dealer bank affiliated with a member of the selling group designated by the Federal Farm Credit Banks Funding Corporation or purchased in the secondary market. (ii) Do not purchase or retire any stock in advance of the release of material non-public information concerning the institution to other stockholders; (iii) If you are a director or employee of the Federal Farm Credit Banks Funding Corporation, do not purchase or otherwise acquire, directly or indirectly, except by inheritance, any obligation or equity of a System institution, including any joint, consolidated or System- wide obligations, unless it is a common cooperative equity as defined in Sec. 628.2 of this chapter. (b) In addition to the prohibitions under paragraph (a) of this section, if you are a System institution employee you must not: (1) Serve as a director or employee of certain entities. Do not serve as a director or employee of an entity that transacts business with your institution, another System institution in the district, or of any commercial bank, savings and loan or other non-System financial institution. For the purpose of this paragraph, ``transacts business'' does not include System institution loans to a reportable business entity; service on the board of directors of the Federal Agricultural Mortgage Corporation; or transactions with non-profit entities; or entities in which the System institution has an ownership interest. Exceptions: You may serve as a director or employee of an employee credit union, and you may serve as an employee of another System institution as permitted under paragraph (b)(4) of this section. (2) Act as a real estate agent or broker. Do not act as a real estate agent or broker, unless you are buying or selling real estate for your own use or for a family member or a person living in your home. (3) Act as an insurance agent or broker. Do not act as an insurance agent or broker for the sale and placement of insurance, unless authorized by section 4.29 of the Act. (4) Serve as a joint employee. (i) If you are currently employed as an officer with a System bank, you cannot serve as an employee of a supervised association. (ii) If you are currently employed with a bank, but not as an officer, you may be an officer of a supervised association only if: (A) Both boards authorize such service in an extraordinary situation; (B) The duties and compensation at each institution is delineated in the board's approval; and (C) Reasonable prior notice is provided to the Farm Credit Administration. (iii) You may be both a non-officer employee at a System bank and a supervised association, if employee expenses are appropriately reflected in each institution's financial statements. Sec. Sec. 612.2140-612.2165 [Reserved] Sec. 612.2170 Standards of Conduct Official. The Standards of Conduct Official must: (a) Implement and enforce the institution's Standards of Conduct Program. (b) Provide guidance and information to directors and employees on conflicts of interest. (c) Administer periodic, but at a minimum, annual standards of conduct training to directors and employees that includes: (1) Procedures for the review of and recommendation for any revisions to the institution's standards of conduct rules and Code of Ethics; (2) Procedures for reporting anonymously known or suspected violations of standards of conduct, Code of Ethics and unethical conduct; (3) Rules for prohibited conduct; (4) Fiduciary duties; (5) Conflicts of interest and apparent conflicts of interest; (6) Reporting requirements; and (7) New director training within 60 calendar days before the beginning of the director's election or term; and new employee training within 5 business days of the beginning of employment. (d) Help all directors and employees identify conflicts of interest and report financial interests in accordance with Sec. 612.2138. (e) Make written determinations on how conflicts of interest will be resolved consistent with your institution's Standards of Conduct Program. (f) Document resolved and unresolved conflicts of interest that are material or significant. Maintain documentation that explains how conflicts are being handled. (g) Report to your institution's board of directors or designated board committee: (1) Instances of standards of conduct or Code of Ethics non- compliance, promptly upon completion of any investigation or determination; and (2) Administration of the Standards of Conduct Program, periodically as determined by the written policies and procedures of your institution. Sec. Sec. 612.2260-612.2270 [Reserved] Dated: June 12, 2018. Dale L. Aultman, Secretary, Farm Credit Administration Board. [FR Doc. 2018-12874 Filed 6-14-18; 8:45 am] BILLING CODE 6705-01-P
![27922 Federal Register / Vol. 83, No. 116 / Friday, June 15, 2018 / Proposed Rules
to the United States until APHIS and the awaiting packing. The avocados must be (g) Phytosanitary certificate. Each
NPPO of Ecuador conduct an packed in insect-proof cartons or consignment of avocado fruit must be
investigation and appropriate remedial containers, or covered with insect-proof accompanied by a phytosanitary
actions have been implemented. mesh or plastic tarpaulin, for transit into certificate of inspection issued by the
(3) Fallen avocado fruit must be the continental United States. These NPPO of Ecuador that states that the
removed from the production site at safeguards must remain intact until fruit in the consignment was produced
least once every 7 days, starting 2 arrival at the port of entry into the in accordance with the requirements of
months before harvest and continuing continental United States or the § 319.56–84.
through the end of the harvest, and consignment will be denied entry into Done in Washington, DC, this 11th day of
fallen fruit may not be included in field the continental United States. June 2018.
containers of fruit to be packed for (3) All openings to the outside of the
Kevin Shea,
export. packinghouse must be covered by
(4) At each non-Hass avocado Administrator, Animal and Plant Health
screening with openings of not more
Inspection Service.
production site, no other host of A. than 1.6 mm or by some other barrier
fraterculus, A. serpentina, A. striata, or [FR Doc. 2018–12827 Filed 6–14–18; 8:45 am]
that prevents pests from entering. The
C. capitata can be grown within 100 packinghouse must have double doors BILLING CODE 3410–34–P
meters of the edge of the place of at the entrance to the facility and at the
production. interior entrance to the area where the
(5) At each non-Hass avocado avocados are packed.
production site, the NPPO of Ecuador (4) During the time the packinghouse FARM CREDIT ADMINISTRATION
must conduct a fruit fly trapping is in use for exporting avocados to the
program beginning at least 2 months 12 CFR Part 612
continental United States, the
before the beginning of harvest and packinghouse may only accept avocados
continuing for the duration of the from registered approved production RIN 3052–AC44
harvest period for the detection of A. sites and the fruit must be segregated
fraterculus, A. serpentina, A. striata, from fruit intended for other markets. Standards of Conduct and Referral of
and C. capitata in accordance with the (5) The identity and origin of the fruit Known or Suspected Criminal
operational workplan. must be maintained from the Violations; Standards of Conduct
(6) The NPPO of Ecuador must packinghouse through export of AGENCY: Farm Credit Administration.
maintain records of fruit fly detections consignments to the United States.
(e) Treatment. If the non-Hass variety ACTION: Proposed rule.
for each trap in a non-Hass avocado
production site and update the records avocados are ineligible for export under SUMMARY: The Farm Credit
each time the traps are checked. The the systems approach due to the place Administration (FCA, we, or our)
trapping records must be maintained for of production exceeding the trapping proposes to amend our regulations
at least 1 year and provided for APHIS’ threshold for fruit flies as established in governing standards of conduct of
review, if requested. the operational workplan, they may still directors and employees of Farm Credit
(7) If the number of flies per trap per be exported, but only after undergoing System (FCS or System) institutions,
day exceeds levels specified in the an APHIS approved treatment in excluding the Federal Agricultural
operational workplan for more than 2 accordance with part 305 of this Mortgage Corporation. The proposed
consecutive weeks, the place of chapter. rule would replace the original
production will be prohibited from (f) Phytosanitary inspection. (1)
proposed rule, and would require every
exporting avocados to the continental Inspectors from the NPPO of Ecuador
System institution to have or develop a
United States until APHIS and the must inspect a biometric sample of the
Standards of Conduct Program based on
NPPO of Ecuador jointly agree that the fruit from each avocado consignment
core principles to put into effect ethical
risk has been mitigated. jointly agreed upon by APHIS and the
values as part of corporate culture.
(8) All avocados must be placed in NPPO of Ecuador, following post-
field cartons or containers that are harvest processing. The inspectors must DATES: You may send comments on or
marked to identify the production site visually inspect for quarantine pests before September 13, 2018.
from which the consignment of fruit listed in the operational workplan ADDRESSES: We offer a variety of
originated. The fruit must either be required by paragraph (a) of this section methods for you to submit your
moved to the packinghouse within 3 and must cut fruit if signs of quarantine comments. For accuracy and efficiency
hours of harvest or protected from fruit pests that are internal feeders are reasons, commenters are encouraged to
fly infestation until moved. observed. If quarantine pests are submit comments by email or through
(d)(1) Packinghouse requirements. detected in this inspection, the FCA’s website. As facsimiles (fax) are
Avocados must be packed for export to consignment will be prohibited entry difficult for us to process and achieve
the continental United States in pest- into the United States unless it is treated compliance with section 508 of the
exclusionary packinghouses that are with an APHIS-approved quarantine Rehabilitation Act, we are no longer
approved by and registered with the treatment in accordance with part 305 of accepting comments submitted by fax.
NPPO of Ecuador in accordance with this chapter. Regardless of the method you use,
the requirements of the operational (2) Fruit presented for inspection at a please do not submit your comment
workplan. U.S. port of entry must be identified in multiple times via different methods.
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(2) The avocados must be packed the shipping documents accompanying You may submit comments by any of
within 24 hours of harvest in a pest- each consignment of fruit that specify the following methods:
exclusionary packinghouse in the place of production in which the • Email: Send us an email at reg-
accordance with the requirements of the fruit was produced and the comm@fca.gov.
operational workplan. The avocados packinghouse in which the fruit was • FCA Website: http://www.fca.gov.
must be safeguarded by an insect-proof processed. This identification must be Select ‘‘Public Commenters,’’ then
mesh screen or plastic tarpaulin while maintained until the fruit is released for ‘‘Public Comments’’ and follow the
in transit to the packinghouse and while entry into the continental United States. directions for ‘‘Submitting a Comment.’’
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![Federal Register / Vol. 83, No. 116 / Friday, June 15, 2018 / Proposed Rules 27923
• Federal eRulemaking Portal: http:// past few years, there have been responsibilities’’ and current § 612.2165
www.regulations.gov. Follow the increasing concerns with governance, ‘‘Policies and procedures’’.
instructions for submitting comments. oversight, management practices and • Proposed § 612.2138 ‘‘Conflicts of
• Mail: Barry F. Mardock, Deputy interest, reporting of financial interests’’
standards of conduct in the financial
would consolidate current ‘‘Director
Director, Office of Regulatory Policy, services industry. The proposed rule reporting’’ and current § 612.2155 ‘‘Employee
Farm Credit Administration, 1501 Farm would update FCA’s regulations in view reporting’’.
Credit Drive, McLean, Virginia 22102– of these concerns, and would address • Proposed § 612.2139 ‘‘Prohibited
5090. the ethical culture under which System conduct’’ would consolidate current
You may review copies of comments we institutions should operate.2 § 612.2140 ‘‘Directors—prohibited conduct’’
receive at our office in McLean, and § 612.2150 ‘‘Employees—prohibited
III. The Importance of Ethical Culture conduct’’. It would also include the
Virginia, or from our website at http://
Public confidence in the integrity and prohibitions in current § 612.2157 ‘‘Joint
www.fca.gov. Once you are in the
ethical business practices of any employees’’ and current § 612.2270
website, select ‘‘Public Commenters,’’ ‘‘Purchase of System obligations’’.
then ‘‘Public Comments’’ and follow the financial institution is fundamental to
• Proposed § 612.2137 would require that
directions for ‘‘Reading Submitted its ongoing viability. Unethical or
institutions develop policies and procedures
Public Comments.’’ We will show your preferential business practices can with respect to agents to avoid conflicts of
comments as submitted but, for damage a financial institution’s interests and would replace current
technical reasons, we may omit items reputation and lead to earnings and § 612.2260 ‘‘Standards of conduct for
such as logos and special characters. credit risk. Congress granted the Farm agents’’.
Identifying information that you Credit System certain attributes that
result in Government-sponsored B. Definitions [Proposed § 612.2130]
provide, such as phone numbers and
addresses, will be publicly available. enterprise (GSE) status. This status The proposed rule would define
However, we will attempt to remove confers on System institutions ‘‘Code of Ethics,’’ ‘‘resolved’’ and
email addresses to help reduce internet additional responsibility to strive for ‘‘Standards of Conduct Program’’. We
spam. high ethical standards and business would change the term ‘‘controlled
practices. entity and entity controlled by’’ to
FOR FURTHER INFORMATION CONTACT:
Jacqueline R. Melvin, Senior Policy IV. The Proposed Rule ‘‘reportable business entity’’ and modify
Analyst, Office of Regulatory Policy, the definition of ‘‘employee’’. We would
This rule would establish core omit the definitions of ‘‘officer’’ and
(703) 883–4498, TDD (703) 883–4056, principles for ethical conduct. It would
Melvinj@fca.gov, or Mary Alice Donner, ‘‘service corporation’’ as redundant with
set forth basic tenets of ethical business the definitions of ‘‘employee’’ and
Senior Counsel, Office of General practices to compel each System
Counsel, (703) 883–4020, TDD (703) ‘‘System institution’’, respectively. We
institution to foster a culture of loyalty, would omit the definition of ‘‘relative’’
883–4056, Donnerm@fca.gov. honesty, integrity and accountability.
SUPPLEMENTARY INFORMATION:
as redundant with the definition of
The proposed rule would set forth ‘‘family’’ in the current rule and
I. Objectives principles by which a System ‘‘immediate family’’ in § 620.1(e). We
institution must do business. The would make the definition of System
The objectives of this proposed rule System institution would be responsible
are to: institutions more concise. These and
for establishing and enforcing policies other changes and clarifications are
• Establish principles for ethical conduct that expand on these principles, and for discussed below.
and recognize each System institution’s clearly communicating expectations for
responsibility for promoting an ethical acceptable behavior to directors and Agent. We would modify the
culture; employees. FCA believes that the definition of ‘‘agent’’ to clarify that an
• Provide each System institution agent includes someone who currently
proposed rule would promote ethical
flexibility to develop specific guidelines on represents a System institution as a
acceptable practices suitable for its business; conduct. At the same time, because it is
less prescriptive than the current rule, it fiduciary in contacts with third parties.
• Encourage each System institution to The proposed rule adds the language
foster core ethical values and conduct as part could reduce regulatory burden.
‘‘as a fiduciary’’ to the definition of
of its corporate culture;
A. Organization agent to explain that not all outside
• Require each System institution to
develop strategies and a system of internal The proposed rule would change the parties performing services for the
controls to promote institution and organization of the current rule. It System institution require the conflict of
individual accountability in ethical conduct, would consolidate, rename and assign interest disclosure required of agents.
including by establishing a Standards of new numbers to some sections and For example, the contractor responsible
Conduct Program and adopting a Code of remove other sections altogether. The for maintaining grounds would not be
Ethics; and an agent. However, those with fiduciary
following bullets summarize the
• Remove prescriptive requirements that responsibilities, such as lawyers,
do not promote these objectives. changes:
accountants, and those representing the
• Proposed § 612.2136 would set forth the
II. Background principles that serve as the foundation for the
System institution in contacts with third
rule. It would substantively revise and parties would be an agent. Each System
Our standards of conduct regulations
rename current § 612.2135 ‘‘Director and institution should review the risks
have not been significantly changed
employee responsibilities and conduct— associated with its use of third parties
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since their 1994 publication.1 Over the
generally’’. and should expand or elaborate on the
1 The original proposed regulation was published
• Proposed § 612.2137 ‘‘Elements of a definition of agent, depending on the
Standards of Conduct Program,’’ would System institution’s need for conflict
in the Federal Register on February 20, 2014, (79
FR 9649). The objective was to build on the existing consolidate current § 612.2160 ‘‘Institution disclosures in those relationships.
standards of conduct rules by adding a few new Special consideration should be given to
provisions, clarifying or augmenting some current 2 ‘‘The Directors Role’’ booklet states that sound
provisions, and providing additional flexibility for ethics and adherence to standards of conduct,
cyber security issues in third party
others. After receiving comments, FCA determined among other things, are essential to effective relationships and information
to use a different approach. oversight. technology specialists should be subject
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![27924 Federal Register / Vol. 83, No. 116 / Friday, June 15, 2018 / Proposed Rules
to especially heightened ethical controls transaction is usual or customary for the interest or the appearance of a conflict
and confidentiality requirements. kind of business in which the seller or of interest when considered from the
Code of Ethics. The proposed rule service provider is engaged or with the perspective of an ordinarily prudent and
would define ‘‘Code of Ethics’’ as a seller’s or service provider’s own usual reasonable person.
written statement of the principles and or customary practices. So, for example, Resolved. We would define
values the System institution follows to a borrower sells crop inputs (seed, ‘‘resolved’’ to mean an actual or
establish a culture of ethical conduct. fertilizer, etc.), and a System institution apparent conflict of interest that has
The Code of Ethics directs director or employee wishes to purchase been addressed with an action such as
professionalism and discourages the crop inputs. A transaction in the recusal, divestiture, approval or
misconduct so that the best interests of ordinary course of business would mean exception, job reassignment, employee
the institution and the System are that the borrower sells the crop inputs supervision, employment separation or
advanced. at the price and terms common to others other action, with the result that a
Conflict of interest. This definition in the industry. It would mean that the reasonable person with knowledge of
would explain that a conflict can arise director or employee is typical of an the relevant facts would conclude that
whenever a secondary or non-work- ordinary purchaser of crop inputs in the the conflicting interest is unlikely to
related interest might unduly influence industry. Also, the terms of the adversely affect the person’s
or materially impact a director’s or arrangement should be consistent with performance of official duties in an
employee’s work-related decision- the other transactions, if any, between objective and fair manner and in
making. this borrower/seller and director or furtherance of the interests and statutory
Employee. The proposed rule would employee/buyer. purposes of the Farm Credit System.
define ‘‘employee’’ to mean any Another example involves services in Standards of Conduct Official. The
individual, including an officer, who the ordinary course of business, such as proposed rule would modify the
works for the System institution. Every accounting, legal or medical. A System definition of Standards of Conduct
individual who works for the System institution director may need a lawyer. Official (or Official). Because of the
institution, including temporary The fact that the best lawyer is a variety of institution sizes and
employees and interns, would be part of borrower, does not preclude the director resources, we do not require the
the ethical corporate culture, regardless from engaging that lawyer for personal Standards of Conduct Official to be a
of length or term of employment. use, assuming no conflict, if the terms senior officer. However, the focus of this
System institutions should also consider of the engagement are usual or proposal is on accountability in ethical
whether and when third-party customary practices in the legal field. conduct; therefore, the Official must be
contractors should be included in the The director must pay the lawyer at the an employee who is an officer
definition of employee or agent. going rate, the legal services must be of appointed under § 612.2137(b), and
Entity. The proposed rule would add the kind the lawyer typically provides must have the authority to report
‘‘sole proprietorship’’ to the definition in the business, and the relationship directly to the System institution board
of ‘‘entity’’ in the current rule and make cannot have any preferential terms or or designated board committee on
other non-substantive changes. discounts. standards of conduct matters. The
Family. The proposed rule would Preferential. The proposed rule would Official should be an employee who is
include ‘‘significant others’’ in the not change the definition of able to exert a positive influence in
definition of ‘‘family’’. The System ‘‘preferential’’ but would list it ethical matters on System institution
institution could elaborate on this separately from the definition of directors and employees. The Official
definition, and consider whether to ‘‘ordinary course of business’’. would be independent in his duties
include cousins or civil union partners. Reportable business entity. The related to standards of conduct. It may
Material. The definition of ‘‘material’’ proposed rule would change the term be practical for some larger System
in the proposed rule is not substantively ‘‘controlled entity and entity controlled institutions to appoint more than one
different from the definition in the by’’ and replace it with ‘‘reportable Standards of Conduct Official.
current rule. Each System institution business entity’’. The proposed rule Standards of Conduct Program. The
must set its own specific parameters for would provide that a reportable proposed rule would define ‘‘Standards
what would constitute a material business entity is an entity in which the of Conduct Program’’ to mean the
financial interest or transaction. The reporting individual, directly or policies and procedures, internal
dollar amount or value of material, in indirectly or acting through or in controls, and other actions a System
the context of a financial interest or concert with one or more persons, owns institution must implement to put into
transaction, should be determined by a material percentage of the equity; practice the requirements of this rule.
the System institution board. This owns, controls, or has the power to vote The Standards of Conduct Program is
should be based on the institution’s a material percentage of any class of the totality of the policies and
needs for tracking and supervising the voting securities; or has the power to procedures, internal controls, audit,
potentially conflicting business and exercise a material influence over training, and other activities that
financial activities of its directors and management of policies of such entity. promote ethical behavior.
employees. We would make this change to avoid
Ordinary course of business. We confusion with the term ‘‘control’’ in the C. Standards of Conduct—Core
would clarify that an ordinary course of corporate context, and to allow the Principles [Proposed § 612.2136]
business transaction is one that is usual System institution discretion to As mentioned in Section A, we would
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and customary ‘‘in the business in determine how much interest represents substantively revise and rename current
question’’, on terms that are not a conflict. This determination may vary § 612.2135 ‘‘Director and employees
preferential. Each System institution depending on whether the entity is responsibilities and conduct—
must determine what activities and private, public, profit, or not for profit. generally’’ as proposed § 612.2136
transactions are in the ordinary course The intent of this provision is to require ‘‘Standards of conduct—core
of business. Generally, a person directors and employees to identify and principles.’’ Proposed § 612.2136 would
provides goods or services in the report any business interest that is establish principles that directors and
ordinary course of business if the significant enough to create a conflict of employees must follow in performing
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![Federal Register / Vol. 83, No. 116 / Friday, June 15, 2018 / Proposed Rules 27925
official duties. We specifically request Federal laws. Proposed § 612.2136(b)(3) oversight of the Standards of Conduct
comment on the effectiveness of the would require institution directors and Program. Proposed § 612.2137(a) would
proposed principles in reaching the employees to participate in annual require each institution to establish a
objective of fostering a culture of ethical standards of conduct training, and to Standards of Conduct Program that sets
conduct. acknowledge participation with a forth the core principles in § 612.2136.
Paragraph (a) would establish core written certification. Section Proposed § 612.2137(b) would require
principles. Paragraph (b) would set forth 612.2136(b)(4) would require directors the board of directors to appoint a
certain basic minimum requirements to and employees to report, under Standards of Conduct Official, defined
comply with the principles. § 612.2137(e), known or suspected as an employee, who would be
Proposed § 612.2136(a)(1) would set illegal or unethical activities, and responsible for carrying out the duties
forth the first principle: To maintain the known or suspected violations of the set forth in proposed § 612.2170. To
highest ethical standards of the financial institution’s rules on standards of carry out these responsibilities and
banking industry, including standards conduct and Code of Ethics. Reporting promote the ethical culture required by
of care, honesty, integrity and fairness. would be made to the Standards of the proposed rule, the Standards of
This principle establishes that these Conduct Official or through the Conduct Official should have a close
standards, important in the financial institution’s hotline or other method relationship with the employees of the
banking industry, are critical to the consistent with the institution’s System institution and be in a position
conduct expected of a GSE. System procedures for anonymous reporting. of authority and trust. Because the board
institution directors and employees of directors is ultimately responsible for
should consider ethical conduct beyond D. Elements of a Standards of Conduct
compliance, the Standards of Conduct
reproach a component of their job Program [Proposed § 612.2137]
Official must have direct access to the
responsibilities. The proposed rule would consolidate board or designated board committee on
System institution directors and current § 612.2160 ‘‘Institution standards of conduct matters. The
employees must avoid self-serving responsibilities’’ with current Standards of Conduct Official would be
practices and hold performance of their § 612.2165 ‘‘Policies and procedures,’’ required to meet periodically with the
duties to the institution above personal in proposed § 612.2137 ‘‘Elements of a board or designated board committee as
concerns. They must not use their Standards of Conduct Program.’’ This proposed in § 612.2170(g).
position for personal advantage. section would require each System Proposed § 612.2137(c) would require
Proposed § 612.2136(a)(2) would set institution to establish a Standards of each System institution to adopt a
forth the principle that institution Conduct Program that incorporates the written Code of Ethics that states the
directors and employees must act in the principles established in proposed institution’s principles and values and
best interest of the institution. Proposed § 612.2136 and provide resources for its guides directors and employees in
§ 612.2136(a)(3) would set forth the implementation. A System institution ethical conduct. These principles and
principle to preserve the reputation of may continue to use its existing values must include standards for
the institution and the public’s Standards of Conduct Program if it appropriate professional conduct at the
confidence in the Farm Credit System. incorporates the core principles and workplace and in matters related to
Proposed § 612.2136(a)(4) would set satisfies the requirements of this employment. The Code of Ethics would
forth the principle to exercise diligence proposed rule. be a component of the Standards of
and good business judgment in carrying The Standards of Conduct Program Conduct Program. To demonstrate
out duties and responsibilities. would set forth specific guidelines on commitment to its values and to provide
Proposed § 612.2136(a)(5) would state acceptable and unacceptable business transparency and accountability in
as a principle the responsibility to practices. Policies and procedures ethical conduct, the proposed rule
report, vet and make all reasonable should include requirements and requires each System institution to post
efforts to resolve conflicts and the prohibitions as necessary to promote its Code of Ethics on the System
appearance of conflicts in business public confidence in the institution and institution’s external (public) website.
relationships and activities. As a the System, and further the objectives of Proposed § 612.2137(d) would require
corollary, proposed § 612.2136(a)(6) the principles and this proposed rule. each System institution to establish
would set forth the principle that Each System institution should enhance policies and procedures to put into
directors and employees must avoid these requirements with comprehensive operation the Standards of Conduct
self-dealing and acceptance of gifts or rules as necessary to meet System Program and to comply with the
favors that may influence or have the institution goals. Each System provisions of this proposed rule.
appearance of influencing official institution would be required to allocate Proposed § 612.2137(d)(1) would
actions or decisions. Proposed rules resources to administer the Standards of require each System institution to
concerning acceptance of gifts are set Conduct Program. This could include establish policies and procedures for
forth in proposed § 612.2137(d)(6). hiring personnel in addition to the reporting. At a minimum, these would
Proposed § 612.2136(a)(7) would require Standards of Conduct Official, if include reporting requirements
directors and employees, if applicable, necessary, to assist in responsibilities sufficient to identify any conflicts of
to fulfill fiduciary duties. such as reviewing reports, providing interest, actual or apparent; any
Proposed § 612.2136(b)(1) would training, and conducting investigations. business transactions with directors,
require institution directors and It could include use of outside counsel, employees, borrowers and agents that
employees to comply with their System especially if the Standards of Conduct are not in the ordinary course of
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institution’s Standards of Conduct Official is not an attorney, and whatever business; any gifts; names of family
Program and Code of Ethics. Proposed additional resources are necessary to members; and reportable business
§ 612.2136(b)(2) would require implement the Standards of Conduct entities (or other related party as
institution directors and employees to Program and promote the ethical culture determined by the System institution).
comply with all applicable laws and of the System institution. As defined in proposed § 612.2130,
regulations when carrying out official The System institution board is ordinary course of business means a
duties. Applicable laws and regulations ultimately responsible for implementing transaction that is usual and customary
would include all FCA regulations and the principles and for compliance and in the business in question, on terms
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![Federal Register / Vol. 83, No. 116 / Friday, June 15, 2018 / Proposed Rules 27927
determinations, for a minimum of 6 Conduct Official could then provide (§ 612.2138(b)(3)). Working together
years. Proposed § 612.2137(e)(2) would advice to the director or employee on with other provisions of the proposed
require internal controls to preserve the the permissibility of the transaction rule, this section is intended to bolster
confidentiality of reports and other under the institution’s Standards of loyalty to the System institution and to
information maintained under the Conduct Program and these proposed reinforce personal responsibility and
Standards of Conduct Program. rules, or prescribe actions that would be accountability in avoiding conflicts and
Proposed § 612.2137(e)(3) would necessary before or following the acting ethically.
require each System institution to transaction to resolve a conflict of Proposed § 612.2138(c) would require
establish a process for anonymous interest or the appearance of a conflict a director or employee to report
reporting of suspected standards of of interest. Training must include conflicts of interest to the Standards of
conduct or Code of Ethics violations. A updates, if any, to the Standards of Conduct Official at year-end and at such
reporting hotline is most effective when Conduct Program and Code of Ethics, other times as may be required by the
both internal parties (directors and and discussion of the System institution. At a minimum, this section
employees) and external parties (agents, institution’s procedures for the would require reporting of information
borrowers, shareholders, applicants, and anonymous reporting of violations. It sufficient for a reasonable person to
others) can report a complaint, must include education on prohibited make a conflict of interest determination
misconduct, or tip for corrective action conduct, conflicts of interest and on any business matter to be considered
without fear of retribution such as reporting requirements. Training on by the System institution. Reporting
termination of employment, suspension, fiduciary responsibilities would be consistent with part 620 is also
or other similar action. required, although the System required.
Proposed § 612.2137(e)(4) requires institution may elect to have that service Proposed § 612.2138(c)(1) would
periodic review of the Standards of performed by outside counsel. require directors and employees to
Conduct Program for consistency with report any interest that they may have
current practices at the System E. Conflicts of Interest, Reporting of
Financial Interests [New § 612.2138] in any business matter before the
institution, financial banking industry System institution. This would include
best practices, and FCA regulations. It is incumbent upon each System
any interest in a loan, or in an entity
Internal controls to prevent self- institution to adopt the standards of
making a loan application, or any other
dealing and conflict situations should conduct core principles, to make them
direct or indirect interest in a matter
be monitored and evaluated with an part of the culture and lexicon of every
effective audit program. Proposed that pertains to the business of the
director and employee. In addition,
§ 612.2137(e)(5) would require each System institution.
certain prescriptive rules directed to
System institution to arrange for employees and directors are necessary Proposed § 612.2138(c)(2) would
periodic internal audits of the Standards to realize a baseline ethical standard. require directors and employees to
of Conduct Program. The audit would The baseline prescriptive requirements report the names of any family member
identify weaknesses, review and are set forth in proposed §§ 612.2138 who has transacted or is currently
measure the effectiveness of the and 612.2139, and each System transacting business with the System
Standards of Conduct Program, and institution should expand upon these institution. The System institution
prescribe necessary corrective actions. prescriptive requirements as should determine how best to capture
The audit would cover the entire appropriate. reporting of current transactions, and
System institution and include all Section 612.2138 of the proposed rule should consider whether to require a
activities conducted by the System would specifically address conflicts of director or employee to report the name
institution including through an interest and reporting of financial of a family member who has engaged in
unincorporated business entity (UBE), interests. This section would require a transaction in the past.
such as those organized for the express directors and employees to take Proposed § 612.2138(c)(3) would
purpose of investing in a Rural Business affirmative action to identify, report and require directors and employees to
Investment Company pursuant to resolve conflicts or potential conflicts of report all material financial interests
§ 611.1150(b). The audit would test for interest of which they are aware. It is with any director, employee, agent,
compliance and recommend corrective intended to compel each director and borrower or business affiliate of the
action as necessary, and the results employee to take ownership of and System institution, supervised
should be reported directly to the invest in ethical responsibilities. institution or supervising institution.
institution’s board or designated board Proposed § 612.2138(a) would require Proposed § 612.2138(c)(4) would
committee. The scope and depth of the each director and employee to identify, require directors and employees to
audit would be determined by the needs report and resolve conflicts and report any matter required to be
of the institution. The System potential conflicts. Proposed disclosed by § 620.6 of this chapter, in
institution would document the audit § 612.2138(b) would require that if a accordance with System institution
process and results. director or employee has a conflict of policies and procedures.
Proposed § 612.2137(f) would require interest in a matter, transaction or Proposed § 612.2138(c)(5) would
each System institution to establish and activity that is subject to official action, require directors and employees to
provide standards of conduct training at or that is being considered by the board report the names of reportable business
least annually. This section should be of directors, then that director or entities.
read in tandem with § 612.2170. The employee must disclose relevant non- Proposed § 612.2138(c)(6) would
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institution’s Standards of Conduct privileged information including the require directors and employees to
Program and ongoing training would existence, nature, and extent of his or report the names of any person residing
encourage directors and employees to her interests; refrain from participating in the home if such person transacts
obtain counsel from the Standards of in the official action or board discussion business with the System institution, or
Conduct Official prior to engaging in on the matter, activity or transaction any institution supervised by the
transactions that could be perceived as (§ 612.2138(b)(2)); and not vote on or System institution.
preferential or not in the ordinary influence the decision-making on the All the reporting in this section would
course of business. The Standards of matter, transaction or activity be based on information the reporting
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![27928 Federal Register / Vol. 83, No. 116 / Friday, June 15, 2018 / Proposed Rules
individual knows or has reason to established policies and procedures (see employee from entering into a lending
know. § 612.2137(d)(6)). or borrowing transaction with those
Proposed § 612.2139(a)(5) would who may have a financial relationship
F. Prohibited Conduct [Proposed provide that, among other things, a with the System institution. Lending
§ 612.2139] director or employee may not and borrowing relationships include
As stated in Section A, we would knowingly purchase or otherwise providing loan guarantees or stand-by
consolidate current § 612.2140 acquire, directly or indirectly, unless letters of credit and similar forms of
‘‘Directors—prohibited conduct’’ with through inheritance, any interest financial obligation.
current § 612.2150 ‘‘Employees— (including mineral interests) in any real FCA recognizes that there are many
prohibited conduct,’’ in proposed or personal property that is currently situations in which a director or
§ 612.2139 ‘‘Prohibited conduct.’’ We owned, or within the 12 past months employee may enter into lending
would also incorporate current was owned, by the System institution, transactions or business relationships
§ 612.2157 ‘‘Joint employees’’ and supervising institution or any that involve other directors, employees,
current § 612.2270 ‘‘Purchase of System supervised institution as a result of agents, borrowers, or loan applicants in
obligations’’ requirements in this foreclosure, deed in lieu, or similar the ordinary course of business.
section. Most of our revisions to the action. Like the current rule, the Financing in the ordinary course of
prohibited conduct rules are proposed rule would allow a director to business, as discussed earlier, is not a
straightforward and provide purchase such property only through prohibited lending transaction. Each
clarification of an intended prohibition. public auction or similar open, System institution should develop
For example, we would clarify that competitive bidding. By open policies and procedures governing
lending transactions with a party related competitive bidding, we mean bidding ordinary course of business transactions
to the System institution such as a that is both competitive, allowing that include rules for reporting.
director, employee or a borrower is involvement of all interested parties, The proposed rule requires every
permitted, but only if on terms that are and open and unsealed. Open System institution to develop policies
not favorable or preferential. We would competitive bidding affords all and procedures for directors and
also add a new provision that would interested parties an opportunity to employees to identify, vet, and resolve
prohibit directors and employees from counter-bid. The advantage to open any lending transactions with
acting inconsistently with the core bidding is that it discourages unethical prohibited sources that are on
principles. behavior or favoritism. A public auction preferential terms. Evidence of a
Proposed § 612.2139(a) would set can be accomplished on-line only if director or employee engaging in a
forth the general prohibitions and their there is an opportunity for all who may preferential business arrangement with
related exceptions for directors and be interested in the auction to a borrower or other party related to the
employees, and proposed § 612.2139(b) participate in the bidding process. A System institution would be a safety
would set forth additional prohibitions director may purchase acquired and soundness concern and might be
specifically for employees with their property through open competitive evidence of non-compliance.
related exceptions. bidding only if the director did not Proposed § 612.2139(a)(7) restates the
Proposed § 612.2139(a)(1) would participate in the decision to foreclose prohibitions in current § 612.2270 on
prohibit acting inconsistently with the or dispose of the property, including purchasing System obligations; and
core principles in proposed § 612.2136. setting the sale terms, and did not § 612.2165(b)(14) on purchasing or
Proposed § 612.2139(a)(2) restates the receive information that could provide retiring preferred stock in advance of
director and employee prohibitions on an advantage over other potential the release of material non-public
participation in matters affecting bidders or purchasers of the property. information.
financial interests in current The proposed acquired property Proposed § 612.2139(b)(1) restates the
§§ 612.2140(a) and 612.4150(a), prohibitions do not reflect a substantive prohibition in current § 612.2150(d) on
respectively. change from the current rule. We made serving as an officer or director of an
Proposed § 612.2139(a)(3) restates the revisions because the scope of entity other than a System institution,
director and employee prohibitions on misunderstanding and misapplication of except that the proposed revisions
use of information in current the original provision warranted further would not include the exception in
§§ 612.2140(b) and 612.4150(b), clarification of the current rule’s intent. current § 612.2150(d) that allows an
respectively. The prohibition would apply to employee of a Farm Credit Bank or
Proposed § 612.2139(a)(4) would collateral acquired by a System association to serve as a director of a
prohibit directors and employees from institution, including collateral acquired cooperative that borrows from a bank for
soliciting, obtaining or accepting, directly or through use of an acquired cooperatives. This exception has been
directly or indirectly, any gift, fee or property UBE. This provision of the rule dropped because of the conflicts that
other compensation that could be does not change or alter any rights a would arise as a result of merger
viewed as offered to influence decision- borrower may have under title IV, part activity. Proposed § 612.2139(b)(2) and
making, or official action or to obtain C of the Farm Credit Act of 1971, as (b)(3) restate the prohibitions in current
information. The System institution amended, 12 U.S.C. 2199–2202, or FCA § 612.2150(j) on acting as a real estate
may determine that a gift that has an regulations promulgated thereunder. agent or broker; and current
insignificant value would not trigger Proposed § 612.2139(a)(6) would § 612.2150(k) on acting as an agent or
this prohibition, and may develop rules provide that a director or employee broker; respectively. Proposed
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under which directors and employees must not directly or indirectly borrow § 612.2139(b)(4) restates the prohibition
may accept de minimis gifts. However, from, lend to, or become financially in current § 612.2157 on joint
these System institution rules must be obligated with or on behalf of a director, employees, but allows an employee of a
consistent with Federal rules and employee, or agent of the System bank to serve as an officer of a
regulations including FCA rules and the institution, supervising institution, or supervised association in its district in
Federal Bank Bribery Act. De minimis supervised institution or a borrower or an extraordinary situation if: Both
gifts may be accepted only as set forth loan applicant of the System institution. boards authorize the service, the duties
under the institution’s properly This section prohibits a director or and compensation at each institution
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![Federal Register / Vol. 83, No. 116 / Friday, June 15, 2018 / Proposed Rules 27929
are set forth in writing, and reasonable document all resolved and unresolved 612.2170 Standards of Conduct Official.
notice prior to the assumption of duties material or significant conflicts of 612.2260–612.2270 [Reserved]
is provided to FCA. interest. The Standards of Conduct
Official would be required to maintain Subpart A—Standards of Conduct
G. Standards of Conduct Official
documentation that explains how § 612.2130 Definitions.
[Proposed § 612.2170]
conflicts are handled. For purposes of this section, the
The proposed rule would enhance the Proposed § 612.2170(g) would require
role of the Standards of Conduct following terms are defined:
the Standards of Conduct Official to Agent means any person, other than a
Official. The System institution board of report to the institution’s board of
directors is responsible for creating and director or employee, who currently
directors or designated board committee represents a System institution as a
fostering the institution culture, and for any instance of non-compliance with
development of the Standards of fiduciary in contacts with third parties
the System institution’s standards of or who currently provides professional
Conduct Program. The institution board conduct rules or Code of Ethics. It
is also responsible for compliance with services to a System institution, such as
would also require periodic reporting on legal, accounting, appraisal, cyber-
the Standards of Conduct Program. the administration of the Standards of
Proposed § 612.2170(a) would require security, internet technology and other
Conduct Program. These reports would similar services.
that the Standards of Conduct Official include a review of the Standards of
must implement the Standards of Code of Ethics means a written
Conduct Program required under statement of the principles and values
Conduct Program. The Standards of proposed § 612.2137.
Conduct Official is the authority to the System institution follows to
whom directors, employees, agents and V. Regulatory Flexibility Act establish a culture of ethical conduct for
consultants turn for advice on conflict Pursuant to section 605(b) of the directors and employees.
of interest situations. Proposed Regulatory Flexibility Act (5 U.S.C. 601 Conflicts of interest means a set of
§ 612.2170(b) would require the et seq.), FCA hereby certifies that the circumstances that creates a risk that
Standards Conduct Official to provide proposed rule would not have a actions or judgments regarding a
guidance and information to directors significant economic impact on a primary interest will be unduly
and employees on conflicts of interest. substantial number of small entities. influenced by a secondary interest. A
Proposed § 612.2170(c) should be read Each of the banks in the System, conflict of interest (or the appearance of
in tandem with proposed § 612.2137(f) considered together with its affiliated a conflict of interest) may exist when a
and would require the Standards of associations, has assets and annual person has a financial interest in a
Conduct Official to provide annual and income in excess of the amounts that transaction, relationship, or activity that
new director and employee training. would qualify them as small entities. could materially impact that person’s
The training would review the Therefore, System institutions are not ability to perform official duties and
institution’s standards of conduct rules ‘‘small entities’’ as defined in the responsibilities in a totally impartial
and the Code of Ethics and discuss any Regulatory Flexibility Act. manner and in the best interest of the
updates; review and discuss the institution, when viewed from the
anonymous reporting hotline or other List of Subjects in 12 CFR Part 612 perspective of a reasonable person with
reporting procedure; prohibited Agriculture, Banks, banking, Conflict knowledge of the relevant facts.
conduct; directors’ and employees’ of interests, Crime, Investigations, Rural Employee means any individual,
fiduciary duties (this training could be areas. including an officer, working part-time,
separate from the training of employees For the reasons stated in the full-time, or on a temporary basis for the
who do not have fiduciary duties); the preamble, part 612 of chapter VI, title 12 System institution.
importance of identifying conflicts of of the Code of Federal Regulations is Entity means a corporation, company,
interests and reporting of financial proposed to be amended as follows: association, firm, joint venture,
interests; and annual and ongoing partnership, sole proprietorship, trust or
reporting requirements. PART 612—STANDARDS OF other organization whether or not
The proposed rule would require the CONDUCT AND REFERRAL OF incorporated.
Standards of Conduct Official to report KNOWN OR SUSPECTED CRIMINAL Family means spouse or significant
periodically to the board of directors or VIOLATIONS other and anyone having the following
designated board committee on the relationship to either: Parent, spouse,
Standards of Conduct Program and Code ■ 1. The authority citation for part 612 son, daughter, sibling, stepparent,
of Ethics matters. Proposed continues to read as follows: stepson, stepdaughter, stepbrother,
§ 612.2170(d) would require the Authority: Secs. 5.9, 5.17, 5.19 of the Farm stepsister, half-brother, half-sister,
Standards of Conduct Official to help Credit Act (12 U.S.C. 2243, 2252, 2254). uncle, aunt, nephew, niece,
directors and employees identify grandparent, grandson, granddaughter,
■ 2. Subpart A, consisting of
conflicts of interest and report financial and the spouses of the foregoing.
§§ 661.2130 through 612.2270, is
interests, in accordance with proposed Financial interest means an interest in
revised to read as follows:
§ 612.2138. The Official would make an activity, transaction, property, or
written determinations on conflicts of Subpart A—Standards of Conduct relationship with a person that involves
interest and determine how to resolve Sec. receiving or providing something of
them including by recusal, divestiture, 612.2130 Definitions. monetary value or other present or
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approval or exception, job reassignment, 612.2135 [Reserved] deferred compensation.
employee supervision, employment 612.2136 Standards of conduct—core Financially obligated with means
separation, or other action consistent principles. having a legally enforceable joint
612.2137 Elements of a Standards of
with the institution’s Standards of Conduct Program.
obligation with, being financially
Conduct Program as provided in 612.2138 Conflicts of interest, reporting of obligated on behalf of (contingently or
proposed § 612.2170(e). Proposed financial interests. otherwise), having an enforceable legal
§ 612.2170(f) would require the 612.2139 Prohibited conduct. obligation secured by property owned
Standards of Conduct Official to 612.2140–612.2165 [Reserved] by another person, or owning property
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![27930 Federal Register / Vol. 83, No. 116 / Friday, June 15, 2018 / Proposed Rules
that secures an enforceable legal to the board of directors or designated (4) Timely report to the Standards of
obligation of another. board committee on Standards of Conduct Official or through the
Material, when applied to a financial Conduct and Code of Ethics matters. institution’s reporting procedures under
interest or transaction (including a Standards of Conduct Program means § 612.2137(e)(3) known or suspected:
series of transactions viewed in the the policies and procedures, internal (i) Illegal or unethical activities; and
aggregate), means that the interest or controls and other actions a System (ii) Violations of the institution’s
transaction is of sufficient magnitude institution must implement to put into standards of conduct and Code of
that a reasonable person with practice the requirements of this rule Ethics.
knowledge of the relevant facts would and the System institution’s Code of
§ 612.2137 Elements of a Standards of
question the ability of the person who Ethics. Conduct Program.
has the interest or is party to such Supervised institution is a term that
only applies within the context of a The System institution board is
transaction(s) to perform the person’s
System bank or employee of a System ultimately responsible for the
official duties objectively and
bank and refers to each association implementation and oversight of, and
impartially and in the best interest of
supervised by that System bank. compliance with, the Standards of
the institution and its statutory purpose.
Mineral interest means any interest in Supervising institution is a term that Conduct Program. Each System
minerals, oil or gas, including but not only applies within the context of an institution board of directors must:
association or employee of an (a) Establish a Standards of Conduct
limited to, any right derived directly or
association and refers to the System Program that sets forth the core
indirectly from a mineral, oil, or gas
bank that supervises that association. principles in § 612.2136 and provide
lease, deed or royalty conveyance.
Ordinary course of business, when System institution and institution adequate resources for its
applied to a transaction, means: means any Farm Credit System bank, implementation.
(1) A transaction that is usual and association, or service corporation (b) Appoint a Standards of Conduct
customary in the business in question chartered under section 4.25 of the Act, Official. Provide the Standards of
on terms that are not preferential; or and the Federal Farm Credit Banks Conduct Official:
(1) Authority to carry out
(2) A transaction with a person who Funding Corporation. It does not
responsibilities set forth in this subpart
is in the business of offering the goods include the Federal Agricultural
A; and
or services that are the subject of the Mortgage Corporation. (2) Direct access to the System
transaction on terms that are not
§ 612.2135 [Reserved] institution board of directors or
preferential.
designated board committee on
Person means individual or entity. § 612.2136 Standards of conduct—core
Preferential means that the standards of conduct matters.
principles. (c) Adopt a written Code of Ethics that
transaction is not on the same terms as (a) If you are a System institution establishes the System institution’s
those prevailing at the same time for director or employee, you must: values and expectations for the ethical
comparable transactions for other (1) Maintain the highest ethical conduct of directors and employees.
persons who are not directors, standards of the financial banking Include standards for appropriate
employees or agents of a System industry, including standards of care, professional conduct at the workplace
institution. honesty, integrity, and fairness.
Reportable business entity means an and in matters related to employment.
(2) Act in the best interest of the Post the Code of Ethics on the
entity in which the reporting individual, institution.
directly or indirectly, or acting through institution’s external website with
(3) Preserve the reputation of the access for the public.
or in concert with one or more persons: institution and the public’s confidence (d) Establish policies and procedures
(1) Owns a material percentage of the in the Farm Credit System. to:
equity; (4) Exercise diligence and good (1) Institute requirements for directors
(2) Owns, controls, or has the power business judgment in carrying out and employees to comply with the
to vote a material percentage of any official duties and responsibilities. Standards of Conduct Program,
class of voting securities; or (5) Report, vet, and work with the
(3) Has the power to exercise a including at a minimum, annual and
Standards of Conduct Official to resolve interim reporting of:
material influence over the management conflicts of interest and the appearance (i) Actual or apparent conflicts of
of policies of such entity. of conflicts of interest in System
Resolved means an actual or apparent interest;
business relationships and activities. (ii) Transactions not in the ordinary
conflict of interest that has been (6) Avoid self-dealing and acceptance course of business;
addressed with an action such as of gifts or favors that may be deemed as (iii) Names of family members;
recusal, divestiture, approval or offered, or have the appearance of being (iv) Reportable business entities; and
exception, job reassignment, employee offered, to influence official actions or (v) Gifts under paragraph (d)(6) of this
supervision, employment separation or decisions. section.
other action, with the result that a (7) Fulfill your fiduciary duties, as (2) Address how conflicts will be
reasonable person with knowledge of applicable. resolved, and provide action(s) to be
the relevant facts would conclude that (b) To comply with core principles, taken when a conflict cannot be
the conflicting interest is unlikely to all System institution directors and resolved to the satisfaction of the
adversely affect the person’s
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employees must: System institution;
performance of official duties in an (1) Comply with the institution’s (3) Address third-party relationships.
objective and impartial manner and in standards of conduct and Code of Include policies and procedures to:
furtherance of the interests and statutory Ethics. (i) Require agents to disclose conflicts
purposes of the Farm Credit System. (2) Comply with all applicable laws of interest and act in a manner
Standards of Conduct Official means and regulations. consistent with the ethical standards of
a System institution employee who is (3) Certify, in writing, participation in the System institution; and
appointed as an officer under the institution’s annual standards of (ii) Notify agents, consultants and
§ 612.2137(b), and who reports directly conduct training. other third parties who represent the
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![27932 Federal Register / Vol. 83, No. 116 / Friday, June 15, 2018 / Proposed Rules
institution, supervised institution, or a (3) Act as an insurance agent or (f) Document resolved and unresolved
borrower or loan applicant of the broker. Do not act as an insurance agent conflicts of interest that are material or
employing institution. Exceptions: You or broker for the sale and placement of significant. Maintain documentation
may enter into transactions with family insurance, unless authorized by section that explains how conflicts are being
members and transactions in the 4.29 of the Act. handled.
ordinary course of business as (4) Serve as a joint employee. (g) Report to your institution’s board
determined and documented by the (i) If you are currently employed as an of directors or designated board
written policies and procedures of your officer with a System bank, you cannot committee:
institution. serve as an employee of a supervised (1) Instances of standards of conduct
(7) Purchase System obligations. association. or Code of Ethics non-compliance,
(i) Do not purchase any obligation of (ii) If you are currently employed with promptly upon completion of any
a System institution, including any a bank, but not as an officer, you may investigation or determination; and
joint, consolidated or System-wide be an officer of a supervised association (2) Administration of the Standards of
obligation, unless such obligation is part only if: Conduct Program, periodically as
of an offering available to the public; (A) Both boards authorize such determined by the written policies and
and purchased through a dealer or service in an extraordinary situation; procedures of your institution.
dealer bank affiliated with a member of (B) The duties and compensation at
the selling group designated by the each institution is delineated in the §§ 612.2260–612.2270 [Reserved]
Federal Farm Credit Banks Funding board’s approval; and
Dated: June 12, 2018.
Corporation or purchased in the (C) Reasonable prior notice is
provided to the Farm Credit Dale L. Aultman,
secondary market. Secretary, Farm Credit Administration Board.
Administration.
(ii) Do not purchase or retire any stock
(iii) You may be both a non-officer [FR Doc. 2018–12874 Filed 6–14–18; 8:45 am]
in advance of the release of material
employee at a System bank and a BILLING CODE 6705–01–P
non-public information concerning the
supervised association, if employee
institution to other stockholders;
expenses are appropriately reflected in
(iii) If you are a director or employee each institution’s financial statements.
of the Federal Farm Credit Banks DEPARTMENT OF HOMELAND
Funding Corporation, do not purchase §§ 612.2140–612.2165 [Reserved] SECURITY
or otherwise acquire, directly or
indirectly, except by inheritance, any § 612.2170 Standards of Conduct Official. Coast Guard
obligation or equity of a System The Standards of Conduct Official
institution, including any joint, must: 33 CFR Part 110
consolidated or System-wide (a) Implement and enforce the
institution’s Standards of Conduct [Docket Number USCG–2018–0388]
obligations, unless it is a common
cooperative equity as defined in § 628.2 Program. Anchorage Ground; Sabine Pass, TX
of this chapter. (b) Provide guidance and information
(b) In addition to the prohibitions to directors and employees on conflicts Coast Guard, DHS.
AGENCY:
under paragraph (a) of this section, if of interest. Notice of inquiry; request for
ACTION:
you are a System institution employee (c) Administer periodic, but at a comments.
you must not: minimum, annual standards of conduct
(1) Serve as a director or employee of training to directors and employees that SUMMARY: We are requesting your
certain entities. Do not serve as a includes: comments on a request we received
(1) Procedures for the review of and from Sabine Pass LNG, L.P. for the
director or employee of an entity that
recommendation for any revisions to the disestablishment of the Sabine Pass
transacts business with your institution,
institution’s standards of conduct rules Channel Anchorage Ground in Sabine,
another System institution in the
and Code of Ethics; TX. The request indicates that deep
district, or of any commercial bank, (2) Procedures for reporting
savings and loan or other non-System draft ships do not use the anchorage and
anonymously known or suspected that disestablishment of the anchorage
financial institution. For the purpose of violations of standards of conduct, Code
this paragraph, ‘‘transacts business’’ would not pose a concern for ship
of Ethics and unethical conduct; traffic. We seek your comments on
does not include System institution (3) Rules for prohibited conduct;
loans to a reportable business entity; whether we should consider a proposed
(4) Fiduciary duties; rulemaking disestablishing the Sabine
service on the board of directors of the (5) Conflicts of interest and apparent
Federal Agricultural Mortgage Pass Anchorage Ground based on this
conflicts of interest; request or if other actions, such as
Corporation; or transactions with non- (6) Reporting requirements; and
profit entities; or entities in which the reducing the size of the anchorage,
(7) New director training within 60
System institution has an ownership should be considered.
calendar days before the beginning of
interest. Exceptions: You may serve as a the director’s election or term; and new DATES: Your comments and related
director or employee of an employee employee training within 5 business material must reach the Coast Guard on
credit union, and you may serve as an days of the beginning of employment. or before July 16, 2018.
employee of another System institution (d) Help all directors and employees ADDRESSES: You may submit comments
sradovich on DSK3GMQ082PROD with PROPOSALS
as permitted under paragraph (b)(4) of identify conflicts of interest and report identified by docket number USCG–
this section. financial interests in accordance with 2018–0388 using the Federal portal at
(2) Act as a real estate agent or broker. § 612.2138. http://www.regulations.gov. See the
Do not act as a real estate agent or (e) Make written determinations on ‘‘Public Participation and Request for
broker, unless you are buying or selling how conflicts of interest will be Comments’’ portion of the
real estate for your own use or for a resolved consistent with your SUPPLEMENTARY INFORMATION section for
family member or a person living in institution’s Standards of Conduct further instructions on submitting
your home. Program. comments.
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Document Created: 2018-11-02 12:00:46
Document Modified: 2018-11-02 12:00:46
| 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 | Proposed Rules | |
| Action | Proposed rule. | |
| Dates | You may send comments on or before September 13, 2018. | |
| Contact | Jacqueline R. Melvin, Senior Policy Analyst, Office of Regulatory Policy, (703) 883-4498, TDD (703) 883- 4056, [email protected], or Mary Alice Donner, Senior Counsel, Office of General Counsel, (703) 883-4020, TDD (703) 883-4056, [email protected] | |
| FR Citation | 83 FR 27922 | |
| RIN Number | 3052-AC44 | |
| CFR Associated | Agriculture; Banks; Banking; Conflict of Interests; Crime; Investigations and Rural Areas |
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