[Federal Register Volume 72, Number 232 (Tuesday, December 4, 2007)]
[Rules and Regulations]
[Pages 68060-68062]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: E7-23502]



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FARM CREDIT ADMINISTRATION

12 CFR Part 620

RIN 3052-AC37


Disclosure to Shareholders; Annual Report to Shareholders

AGENCY: Farm Credit Administration.

ACTION: Final rule.

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SUMMARY: The Farm Credit Administration (FCA, Agency, we) issues this 
final rule amending our regulations to allow Farm Credit System 
(System) institutions 90 calendar days to prepare and distribute annual 
reports to shareholders, while retaining the 75 calendar day 
requirement for electronic reporting and distribution to the FCA.

DATES: Effective Date: This regulation will be effective 30 days after 
publication in the Federal Register during which either or both Houses 
of Congress are in session. We will publish a notice of the effective 
date in the Federal Register.

FOR FURTHER INFORMATION CONTACT:
Christopher D. Wilson, Policy Analyst, Office of Regulatory Policy, 
Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4414, TTY 
(703) 883-4434, or
Bob Taylor, Attorney Advisor, Office of General Counsel, Farm Credit 
Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-
4020.

SUPPLEMENTARY INFORMATION:

I. Objectives

    Our objectives in this final rule are to:
     Extend the time for System institutions to prepare and 
distribute their annual reports to shareholders from 75 calendar days 
to 90 calendar days; and
     Promote high quality and timely reporting and disclosure 
by System institutions to shareholders and the FCA.

II. Background

A. Annual Report Distribution Under FCA Regulations

    Part 620, Disclosure to Shareholders, establishes the requirements 
for financial reports for Farm Credit banks and associations. In 
pertinent part, Sec.  620.4 establishes the time requirement for System 
institutions to prepare and provide to their shareholders an annual 
report. System institutions have historically distributed or made 
annual reports available to shareholders in hard copy.
    In December 2006, the FCA published a final rule amending Sec.  
620.4 to require that System institutions provide annual reports to 
shareholders within 75 calendar days from the close of the fiscal year. 
Prior to that time, System institutions had a 90-day deadline. The FCA 
noted that significant technological developments had occurred over the 
past decade that had increased the market's appetite for timelier 
disclosures of financial information. Consistent with changing industry 
practices, the FCA believed that accelerated reporting would improve 
information flow and facilitate shareholder and investor 
decisionmaking. The rule became effective on February 16, 2007. 
Compliance with the final rule would take effect by the start of the 
fiscal year immediately following the effective date of the rule. Thus, 
the 2007 annual report was to be the first annual report distributed 
under the accelerated filing requirements.

B. System's Concerns

    After the rule became final, System institutions raised several 
concerns regarding the new 75-day filing requirement. Specifically, 
System institutions stated that they believed the 75-day requirement 
only applied to the electronic filing of the report with the FCA and 
not to the report provided to shareholders. They also collectively 
stated that it would be burdensome for them to comply with the 75 
calendar day accelerated distribution requirement for the annual report 
to shareholders because of the prohibitive costs and time needed for: 
(1) The external audit and review process; (2) the audit committee 
review; and (3) the printing and distribution of the annual report. 
Furthermore, System institutions indicated that the accelerated filing 
requirement could adversely affect the timeliness, accuracy, and high 
quality that have been standard with such disclosures.

III. Proposed Rule on Annual Report to Shareholders

    After reviewing the System's concerns, we published a proposed rule 
in the Federal Register on August 14, 2007, with a 30-day comment 
period that ended on September 13, 2007. See 72 FR 45390, Aug. 14, 
2007. The proposed rule would allow a System institution up to 90 
calendar days from the close of its fiscal year to prepare and provide 
a copy of the annual report to shareholders, while retaining the 75 
calendar day accelerated filing requirement to send an electronic copy 
of the report to us. To ensure accelerated disclosure, the proposed 
rule would require that each System institution: (1) Send the report 
electronically to the FCA within 75 calendar days from the close of the 
institution's fiscal year and, at the same time, publish a copy of its 
annual report on its Web site; and (2) provide prior written 
notification to its shareholders that the institution will publish its 
annual report on the institution's Web site when the report is sent 
electronically to the FCA. Furthermore, we stated that the copy of the 
annual report provided to the shareholders must be substantively 
identical with the annual report sent to the FCA.
    We believed that the bifurcated approach resolved any ambiguities 
from the prior rulemaking and appropriately addressed the System's 
concerns of providing attractive, high quality, annual reports to 
shareholders, while meeting the goal of accelerated filing and 
disclosure.

IV. Comments on the Proposed Rule

    We received comments on the proposed rule from four System 
institutions, the Federal Farm Credit Banks Funding Corporation 
(Funding Corporation) on behalf of the System's Accounting Standards 
Workgroup, two System banks, and a System association. Overall, 
commenters generally supported the proposed rule, but expressed some 
concerns and suggested several changes to the proposed rule. We address 
the substantive comments below.

A. Publish the Annual Report on an Institution's Web Site

    The Funding Corporation stated that it believed that not all 
associations have Web sites and wanted the FCA to clarify what such an 
institution should do.
    We discovered that two small associations do not appear to have an 
online presence. We agree with the commenter that there is a question 
of how these institutions will comply with the rule. Because there are 
only two System institutions without a Web site, we do not believe that 
we need to change the rule as proposed. For these two institutions 
only, they could: (1) Develop their own Web sites; (2) publish their 
annual report on another Web site that is available to the shareholders 
without an access cost; or (3) make it available by other equivalent 
means. For example, these two institutions could determine whether they 
could publish their annual reports on the district bank's or the Farm 
Credit Council's Web site. The institutions would still be required to 
comply with all other provisions of the rule, including providing a 
notice to their shareholders where the annual report

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will be made available and sending a substantively identical copy of 
the annual report to both the FCA and the shareholders. Also, we note 
that under Sec.  620.2(b), each institution must make its annual report 
available for public inspection at the institution and at the FCA 
office where the report is filed.

B. Prior Written Notification to Shareholders

    We received identical comments from two commenters on Sec.  
620.4(a)(3), which requires each System institution to provide prior 
written notification to its shareholders that the institution will 
publish its annual report on its Web site when the report is sent 
electronically to the FCA. Commenters asserted: (1) That the 
requirement to provide prior written notification to shareholders would 
be unreasonably burdensome and not confer any potential benefits to 
shareholders; and (2) it was unclear how often written notification 
must be provided.
    As to the first comment, we have assessed the potential benefits of 
enhanced shareholder decisionmaking versus the costs of providing 
timelier financial and operating disclosures. Although associations may 
have some added burden from prior written notification, we fully expect 
that any such added burden to be minimal and far outweighed by the 
benefits to shareholders. As discussed below, System institutions have 
many options on how to comply with the requirement of prior written 
notification.
    As to the second comment on how often written notice is required, 
we again state that written notice must occur only once. In the 
proposed rule, we stated that the prior written notice must be 
prominent and conspicuous so that there is effective shareholder 
notice. This means that a System institution must provide each 
shareholder effective notice only one time. Institutions have the 
flexibility to determine the most appropriate or cost-effective way(s) 
to implement this requirement, including written notification in the 
Annual Meeting Information Statement, in the preceding fiscal year 
annual report, when a loan is made, sending a postcard to all 
shareholders, or including the notice with correspondence to 
shareholders (e.g., annual tax statements, newsletters, etc.)

C. Communicating Notice of Web Site Availability

    Commenters also questioned the need to require System institutions 
to notify shareholders of the Web site availability of annual reports. 
The commenters stated that posting annual reports on an institution's 
Web site does not fulfill the regulatory obligation to deliver the 
reports to shareholders. Finally, they further stated that the 
individuals most likely to use early Web site access to the annual 
reports are those who would consult the Web site for information 
anyway.
    We believe that the accelerated filing and posting on the Web site 
of the annual report improves information flow and facilitates 
shareholder and investor decisionmaking. The use of the Internet and 
electronic reporting have become industry standards. Although requiring 
a System institution to post annual reports on its Web site does not 
fulfill all regulatory obligations, it does facilitate achieving the 
desired objective of timelier disclosures and improved information flow 
between associations and their shareholders and investors. Accordingly, 
a System institution should also include the Web site address with the 
written notification.

D. Persons Entitled to Notice

    Two commenters said that the proposed rule requires that notice be 
provided to ``shareholders and other interested persons,'' but does not 
define the term ``other interested persons.'' The commenters suggested 
that we either define or delete this term.
    We agree with the commenters that, as currently written, the term 
``other interested persons'' may be unclear. Thus, we are eliminating 
reference to that term. The final rule will require that notice be 
provided to ``shareholders.''

V. Description of Final Rule

A. Section 620.4--Preparing and Providing the Annual Report

    Section 620.4 establishes the requirement for each System 
institution to prepare and provide a copy of its annual reports to its 
shareholders. Existing paragraph (a) of this section requires that each 
System institution prepare and provide to its shareholders an annual 
report within 75 days of the end of its fiscal year. In the proposed 
rule, we proposed to revise Sec.  620.4 to require that each 
institution of the Farm Credit System: (1) Prepare and send us an 
electronic copy of its annual report within 75 calendar days of the end 
of its fiscal year; (2) publish a copy of its annual report on its Web 
site when it sends us the electronic copy; (3) provide prior written 
notification to its shareholders and other interested persons that the 
institution will publish its annual report on the institution's Web 
site when it is sent electronically to us; and, (4) within 90 calendar 
days of the end of its fiscal year, prepare and provide to its 
shareholders an annual report that is substantively identical to the 
copy of report that it sent to us.
    After careful consideration of the substantive comments received, 
we adopt the modified provisions as final.

B. Technical Amendment

    We are not making a technical amendment because there is no need 
for it.

VI. Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), the FCA hereby certifies that the final rule will 
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 620

    Accounting, Agriculture, Banks, banking, Reporting and 
recordkeeping requirements, Rural areas.


0
For the reasons stated in the preamble, we are amending part 620 of 
chapter VI, title 12 of the Code of Federal Regulations as follows:

PART 620--DISCLOSURE TO SHAREHOLDERS

0
1. The authority citation for part 620 continues to read as follows:

    Authority: Secs. 4.19, 5.9, 5.17, 5.19, 8.11 of the Farm Credit 
Act (12 U.S.C. 2207, 2243, 2252, 2254, 2279aa-11); sec. 424 of Pub. 
L. 100-233, 100 Stat. 1568, 1656.

Subpart B--Annual Report to Shareholders

0
2. Revise Sec.  620.4(a) to read as follows:


Sec.  620.4  Preparing and providing the annual report.

* * * * *
    (a) Each institution of the Farm Credit System must:
    (1) Prepare and send to the Farm Credit Administration an 
electronic copy of its annual report within 75 calendar days of the end 
of its fiscal year;
    (2) Publish a copy of its annual report on its Web site when it 
sends the report electronically to the Farm Credit Administration;
    (3) Provide prior written notification to its shareholders that the 
institution

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will publish its annual report on the institution's Web site when the 
report is sent electronically to the Farm Credit Administration; and
    (4) Within 90 calendar days of the end of its fiscal year, prepare 
and provide to its shareholders an annual report substantively 
identical to the copy of the report sent to the Farm Credit 
Administration under paragraph (a)(1) of this section.
* * * * *

    Dated: November 28, 2007.
Roland E. Smith,
Secretary, Farm Credit Administration Board.
[FR Doc. E7-23502 Filed 12-3-07; 8:45 am]
BILLING CODE 6705-01-P