[Federal Register Volume 81, Number 144 (Wednesday, July 27, 2016)]
[Rules and Regulations]
[Pages 49139-49156]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2016-17455]



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  Federal Register / Vol. 81, No. 144 / Wednesday, July 27, 2016 / 
Rules and Regulations  

[[Page 49139]]



FARM CREDIT ADMINISTRATION

12 CFR Parts 650, 651, 653, and 655

RIN 3052-AC89


Federal Agricultural Mortgage Corporation Governance; Standards 
of Conduct; Risk Management; and Disclosure and Reporting

AGENCY: Farm Credit Administration.

ACTION: Final rule.

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SUMMARY: The Farm Credit Administration (FCA, we, or our) is finalizing 
new regulations related to the Federal Agricultural Mortgage 
Corporation's (Farmer Mac or Corporation) risk governance and making 
enhancements to existing disclosure and reporting requirements. The 
risk governance regulations require the Corporation to establish and 
maintain a board-level risk management committee and a risk officer, as 
well as risk management policies and internal controls. The changes to 
disclosure and reporting requirements remove repetitive reporting and 
allow for electronic filing of reports. We also finalize rules on the 
examination and enforcement authorities held by the FCA Office of 
Secondary Market Oversight (OSMO) over the Corporation.

DATES: This regulation shall become effective no earlier than 30 days 
after publication in the Federal Register during which either or both 
Houses of Congress are in session. The FCA will publish a notice of the 
effective date in the Federal Register.

FOR FURTHER INFORMATION CONTACT: Joseph Connor, Associate Director for 
Policy and Analysis, Office of Secondary Market Oversight, Farm Credit 
Administration, McLean, VA 22102-5090, (703) 883-4364, TTY (703) 883-
4056, or Laura McFarland, Senior Counsel, Office of General Counsel, 
Farm Credit Administration, McLean, VA 22102-5090, (703) 883-4020, TTY 
(703) 883-4056.

SUPPLEMENTARY INFORMATION: 

I. Objective

    The purpose of this final rule is to:
     Enhance risk governance at the Corporation to further its 
long-term safety and soundness and mission achievement;
     Remove repetitious disclosure and reporting requirements, 
given the dual reporting responsibilities of the Corporation to the FCA 
and the Securities and Exchange Commission (SEC); and
     Clarify the examination and enforcement authority of FCA.

II. Background

    Farmer Mac is a stockholder-owned, federally chartered 
instrumentality that is an institution of the Farm Credit System 
(System) and a Government-sponsored enterprise (GSE). The Corporation 
was established and chartered by the Agricultural Credit Act of 1987 
(1987 Act) \1\ to create a secondary market for agricultural real 
estate mortgage loans, rural housing mortgage loans, rural utility 
cooperative loans, and the guaranteed portions of USDA-guaranteed farm 
and rural development loans. Title VIII of the Farm Credit Act of 1971, 
as amended, (Act) governs the Corporation.
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    \1\ Agricultural Credit Act of 1987 (Pub. L. 100-233, January 6, 
1988).
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    The Corporation has two classes of voting common stock: Class A and 
Class B. Class A voting common stock is owned by banks, insurance 
companies, and other financial institutions. Class B voting common 
stock is owned by System institutions. In addition, the Corporation has 
nonvoting common stock (Class C), the ownership of which is not 
restricted and is a means for the Corporation to raise capital. The 
Corporation may also issue nonvoting preferred stock.
    The Corporation is regulated by FCA through the Office of Secondary 
Market Oversight (OSMO). Congress charged us to issue regulations to 
ensure mission compliance and the safety and soundness of the 
Corporation. When issuing regulations for the Corporation, the Act 
requires FCA to consider:
     The purpose for which Farmer Mac was created;
     The practices appropriate to the conduct of secondary 
markets in agricultural loans; and
     The reduced levels of risks associated with appropriately 
structured secondary market transactions.\2\
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    \2\ Section 8.11(a)(2) of the Act (12 U.S.C. 2279aa-11(a)(2)).
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    Farmer Mac, as a publicly traded company, is also subject to many 
of the governance requirements of Sarbanes-Oxley Act of 2002 (Sarbanes-
Oxley),\3\ Dodd-Frank Wall Street Reform and Consumer Protection Act of 
2010 (Dodd-Frank Act),\4\ and Securities and Exchange Commission (SEC) 
disclosure regulations for publicly traded companies, all of which 
address reporting requirements and oversight for publicly held 
companies and financial institutions. Self-regulatory organizations 
(SROs), the New York Stock Exchange (NYSE) in the Corporation's case, 
have also issued requirements designed to enhance the accountability 
and transparency of corporate business operations.
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    \3\ Public Law 107-204, July 30, 2002.
    \4\ Public Law 111-203, 124 Stat. 1376, (H.R. 4173), July 21, 
2010.
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    As a GSE, the Corporation has a public policy purpose embedded in 
its corporate mission. One aspect of this public policy mission 
includes financial services to customer-stakeholders (institutions that 
lend to farmers, ranchers, rural homeowners, and rural utility 
cooperatives) and the resulting flow-through benefits to rural 
borrowers. Another key aspect is the protection of taxpayer-
stakeholders because the risk that the Corporation accepts in the 
course of business exposes both investors (debt and equity holders) and 
taxpayers to potential loss. The taxpayer's exposure arises in part 
from the Corporation's authority to issue debt to the Department of the 
Treasury to cover guarantee losses under certain adverse 
circumstances.\5\ Thus, an appropriately comprehensive approach to 
Board-level risk governance is essential to promote well-reasoned, 
risk-related decisions and promote public trust in the risk management 
of the Corporation.
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    \5\ According to the 1987 Act, Farmer Mac may, in certain 
circumstances, borrow up to $1.5 billion from the U.S. Treasury to 
ensure timely payment of any guarantee obligations of the 
corporation.

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[[Page 49140]]

III. Comments and Our Responses: Section-by-Section Analysis

    We issued a proposed rule to amend our standards of conduct, board 
governance, and reporting regulations for the Corporation on March 26, 
2015 (80 FR 15931). The comment period for the proposed rule closed on 
June 24, 2015, and 77 comment letters were received. The comments 
submitted were from Farmer Mac, stockholders in Farmer Mac, a 
consultant to Farmer Mac,\6\ an agent of Farmer Mac,\7\ the Farm Credit 
Council (FCC) on behalf of its membership, and a member of the general 
public. Prior to the proposed rulemaking, we issued an Advanced Notice 
of Proposed Rulemaking (ANPRM) to solicit opinions and suggestions from 
investors, stockholders, and other interested parties on ways to 
enhance our regulation of the Corporation's governance activities.\8\
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    \6\ The consultant to Farmer Mac explained it had been hired by 
Farmer Mac to comment on the proposed rule.
    \7\ The agent of Farmer Mac explained it had been working as a 
consultant for Farmer Mac for over a year on specific projects.
    \8\ 79 FR 10426, February 25, 2014. The comment period for the 
ANPRM ended April 28, 2014, and seven comment letters were received.
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    The 77 comments submitted in response to the proposed rule made 
various suggestions for changing what we had proposed. Of these 
commenters, 69 limited their remarks and suggestions to part 651, 
``Standards of Conduct.'' Comments to the Standards of Conduct 
provisions involved both existing and proposed provisions.\9\ These 
comments were significantly different from what was proposed and lacked 
uniformity in the type of changes sought.
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    \9\ We last issued regulations on Farmer Mac Board governance 
and standards of conduct on March 1, 1994 (59 FR 9622).
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    As a GSE, the Corporation has certain strategic objectives that are 
public policy or ``mission'' oriented. Standards of conduct must be 
understood and interpreted not only in the context of the fiduciary 
responsibilities to the Corporation and its shareholders, but also in 
the context of the statutory duty to further the Congressional purposes 
the Corporation was chartered to achieve. We believe standards of 
conduct to be among the most potentially complex and nuanced areas of 
corporate governance. For this reason, and because of the variety of 
comments received to this area of the proposed rule, we believe it 
prudent to address proposed changes and related comments on the more 
complex components of standards of conduct and board governance 
regulations in a separate rulemaking. Thus, we are not finalizing in 
this rulemaking many of the proposed changes to part 651, but instead 
intend to revisit changes to part 651 in a separate rulemaking.
    Proposed changes to parts 650, 653, and 655 are finalized as 
proposed unless we say otherwise in this preamble. Included in 
finalized changes is the reorganization of our rules addressing the 
Corporation's operations through the addition of a new part 653 and 
organizational revisions to existing parts 650, 651, and 655. We make 
no changes to part 652 or reserved part 654.

A. FCA Oversight and Rulemaking [Part 650]

    Existing part 650 contains general provisions, without subparts, on 
the supervision of the Corporation. We finalize adding a new subpart A, 
entitled ``Regulation, examination and enforcement,'' as well as moving 
existing provisions into a new subpart B, entitled ``Conservators, 
receivers, and liquidations.'' We finalize the redesignation of 
existing Sec. Sec.  650.1 and 650.5 on appointing and removing 
receivers or conservators as new Sec. Sec.  650.13 and 650.14, 
respectively. We make no other changes to these existing provisions.
    We discuss comments received to this part and any changes to the 
appropriate sections below.
1. Part 650 Definitions [New Sec.  650.1]
    We finalize as proposed all definitions in new Sec.  650.1. We 
received no comments objecting to the terms as proposed, but a 
stockholder-commenter requested we consolidate all proposed definitions 
for parts 650, 651, 653 and 655 into one section and asked for the term 
``agent'' to be defined for part 650. We cannot accommodate either of 
these requests. We already maintain a global definition section for all 
our rules in part 619. Maintaining separate definition sections for use 
only in certain regulations eliminates confusion that may arise from 
placing terms having specific application for a secondary market along 
with terms applicable to Farm Credit banks and associations. We 
recognize that many of the terms for the definition sections we 
proposed in parts 650, 651, 652, and 655 are duplicative, but their 
location in the applicable sections avoids confusion with usage of the 
terms in other regulations. We also cannot accommodate the request to 
define in part 650 the term ``agent.'' The term ``agent'' as used in 
part 650 has two different applications: (1) Agents of the Corporation; 
and (2) agents of FCA. A single definition would not capture the two 
separate applications of the term, particularly in regards to the 
existing rules on liquidation and receivership.
2. Regulatory Authority [New Sec.  650.2]
    We finalize the addition of new Sec.  650.2, which provides clarity 
on the situation of the Corporation having FCA as its primary 
regulator, while also being subject to certain SEC regulatory 
disclosure requirements. The new Sec.  650.2 identifies FCA as the 
``primary regulator'' of the Corporation, possessing examination, 
enforcement, conservatorship, liquidation, and receivership authority 
over the Corporation. We finalize this section with one clarifying 
change made based on comments received. In Sec.  650.2(b), we clarify 
that our supervisory authority to ensure the Corporation follows laws 
and regulations relates to compliance with applicable laws and 
regulations.
    There were four commenters to this section: Farmer Mac, the FCC, 
and two stockholders in Farmer Mac. The FCC expressed strong support 
for the section clarifying that the Corporation is a GSE with a public 
mission. The stockholder-commenters also supported the section 
addressing the public policy purpose of the Corporation. Farmer Mac 
objected to the provisions on FCA's authority over it, contending that 
FCA has no authority over compliance with all laws and regulations. 
Farmer Mac explained that instead FCA is to ensure a dependable source 
of credit through its examination of the Corporation and regulation of 
its safe and sound conduct. Farmer Mac also asked us to either remove 
Sec.  650.2(c) or specify the SEC regulations to which it is subject 
and exactly mirror language from the Act when describing our role. 
However, Farmer Mac added objections to our using the language of the 
Act to describe its relationship with the SEC. In that instance, Farmer 
Mac asked us to capture the ``nuances of Farmer Mac's regulation by the 
SEC.'' \10\
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    \10\ Farmer Mac explained it is not subject to complete 
regulation by SEC and, except for certain mortgage-backed 
securities, it is not subject to the 1933 Securities Act and must 
only file reports under the 1934 Securities Exchange Act. Farmer Mac 
comment letter, Appendix B, pages B-2 and B-27.
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    We have clarified that the laws and regulations referenced are 
those applicable to the Corporation. We do not name those laws and 
regulations as they are subject to change. We also decline the request 
to include in the rule an analysis of the Corporation's relationship 
with both FCA and SEC, which is not the intent of the rule. The rule at 
Sec.  650.2 is identifying us as the primary regulator of the 
Corporation. As explained in the proposed rule, the

[[Page 49141]]

discussions Congress had surrounding passage of the Dodd-Frank Act 
recognized the long-standing situation where financial institutions are 
required to comply with various Federal financial laws and regulations 
issued and enforced by several banking regulators, although only one 
regulator is the primary regulator. We did modify the language of Sec.  
650.2(c) to add clarity and removed reference to the NYSE based on the 
comments received.
    Farmer Mac asked that we add language in Sec.  650.2(a) for USDA-
guaranteed loans sold into the secondary market. The Corporation has 
established a secondary market for the guaranteed portions of USDA-Farm 
Service Agency guaranteed Farm Ownership and Operating Loans and USDA-
Rural Development Guaranteed Business and Industry, Community Facility 
and Water and Environmental Program loans.\11\ As noted by Farmer Mac, 
we are identifying the statutory purposes of the Corporation, we are 
not enumerating all of Farmer Mac's business programs. However, we have 
added language referencing USDA-guaranteed loans.\12\
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    \11\ Under the Farmer Mac 2 program, Farmer Mac's subsidiary, 
Farmer Mac II LLC, buys guaranteed portions directly from lenders. 
The original lenders retain the unguaranteed portions of these loans 
and continue to service the entire loan.
    \12\ Refer to section 8.0(9) of the Act, defining ``qualified 
loans''.
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3. Supervision and Enforcement [New Sec.  650.3]
    We finalize adding a new Sec.  650.3 to incorporate into our 
regulations the supervision and enforcement authorities over the 
Corporation that are given us under the Act. Our enforcement 
authorities provide reasonable assurance that, among other things, the 
Corporation is adequately capitalized and operating safely. We finalize 
this section with clarifying changes made based on comments received.
    There were six commenters to this section: Farmer Mac, the FCC, 
three stockholders in Farmer Mac, and an agent of Farmer Mac. Three 
commenters objected to agents being subject to FCA's enforcement 
authorities. Sections 5.25 and 5.26 of the Act specify that agents of a 
System institution are subject to our enforcement authorities and 
Farmer Mac is identified as a System institution in section 8.1(a)(2) 
of the Act. It is these provisions we relied upon when proposing the 
provision so we decline to make changes based on the comments. Two of 
the stockholder-commenters remarked that financial safety and soundness 
oversight should include making the Corporation subject to the Basel 
III capital standards. We decline to make changes to our rules in 
response to these comments. The existing rules addressing the 
Corporation's capital requirements already incorporate appropriate 
Basel capital standards, as well as analogous standards of other U.S. 
regulators.
    Farmer Mac asked for the entire section identifying our enforcement 
authorities to be removed or that we directly quote the Act when 
identifying those authorities, using no further interpretation of the 
statutory language. We are directed by section 5.17(a)(9) of the Act to 
issue regulations necessary or appropriate for the implementation of 
the Act's provisions, which involves more than a recitation of the Act. 
Farmer Mac also asked that we provide a specific ``exhaustive list'' of 
our enforcement authorities. We likewise decline this request as our 
enumerated enforcement authorities may be amended by Congress or court 
interpretations. Further, we do not agree with Farmer Mac's 
interpretation of our authorities and decline to make changes to the 
rule based on its analysis. Farmer Mac also stated that our safety and 
soundness authority should not be viewed to include addressing board 
committees, director elections, or recordkeeping activities of the 
Corporation. Again, our oversight of the safe and sound operations of 
the Corporation necessitates that we consider the Corporation's board 
operations and the records of its decision-making analysis and 
financial condition.\13\
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    \13\ See section 8.11(a)(1)(B) of the Act authorizing OSMO 
``general supervision of the safe and sound performance of the 
powers, functions, and duties vested in the Corporation''.
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    Farmer Mac objected to Sec.  650.3(b) referencing when the 
Corporation engages in activities having ``excessive risk,'' arguing 
the term is undefined. Farmer Mac stated that all of its activities 
involve risk and the provision would allow FCA to restrict these 
activities and substitute our judgment on how to run the Corporation. 
However, Farmer Mac acknowledged section 8.37 of the Act uses the term 
``excessive risk''. Farmer Mac also objected to separating risk from 
its impact on capital and suggested objective, measureable standards be 
set for risk levels. In Sec.  650.3(b), we clarify that risks having 
adverse impact to capital, which may lead to certain enforcement 
actions, generally refers to the adequacy of the Regulatory Capital 
level maintained by the Corporation.
4. Access to Records and Personnel [New Sec.  650.4]
    There were three comments objecting to the inclusion of agents in 
this section: Farmer Mac, a stockholder in Farmer Mac, and an agent of 
Farmer Mac. The agent who commented objected to classifying certain 
types of professional assistance received by the Corporation as an 
agency relationship, contending that FCA has no authority over certain 
types of agents (e.g. consultants, vendors), while the stockholder 
commented that the penalties were burdensome. Farmer Mac objected to 
being required to make its agents available to our examination staff. 
Farmer Mac contended that FCA does not have jurisdiction over all 
agents of the Corporation, as would be covered by the existing part 651 
definition of ``agent.''
    We finalize this section with one change based on comments 
received. In Sec.  650.4(b), we replace the word ``agents'' with a more 
detailed explanation of the personnel required to be available to us 
when requested, which includes those engaged by the Corporation to 
participate in the business conducted by the Corporation. For example, 
during an examination it may be necessary for our exam staff to speak 
with the External Auditor. The Act specifies that directors, officers, 
employees, agents, and ``other persons participating in the conduct of 
the affairs'' \14\ of a System institution are subject to our 
examination and enforcement authorities.\15\ We relied on this language 
when developing the clarification for this final rule. We believe the 
clarifying language addresses the comments regarding certain ``vendor-
type'' service providers. We also point out that the part 651 
definition of ``agent'' is restricted to the provisions in part 651 and 
does not carryover to part 650. Also, the stockholder-commenter 
objecting to the ``penalties'' listed in this section spoke in error, 
as there are no ``penalties'' identified in Sec.  651.4. 
Notwithstanding this, we believe this comment is adequately addressed 
in our earlier discussion of our enforcement authorities, which 
explains the ``penalties'' identified in Sec.  650.3 are derived from 
the Act.
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    \14\ See, for example, section 5.32(a) of the Act.
    \15\ Refer to section 8.11(b)(3) of Act (12 U.S.C. 2279aa-11).
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    Farmer Mac also asked us to limit our access to Corporation 
documents to non-confidential items. In addition, Farmer Mac asked that 
there be a materiality and document age threshold controlling which 
documents and personnel we could access during our

[[Page 49142]]

examination and enforcement activities. We decline Farmer Mac's 
suggestions regarding the scope of our access to corporate documents. 
As the safety and soundness regulator, we require full access to the 
Corporation's records.\16\ In accessing these records, our activities 
are already covered by confidentiality provisions in Federal law.\17\ 
Further, we view the act of our requesting the records or access to 
personnel as establishing the ``materiality'' to our oversight. We 
could not permit the Corporation to pre-screen records before release 
to us in order for Farmer Mac to, on its own, determine if a record is 
material or not for our purposes. Likewise, we cannot provide full 
oversight if we restrict our access to a finite period of time. It may 
be that the matter under review exceeds that period of time, or records 
within that time period make key reference to other, older records.
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    \16\ See section 8.11(b)(3) of Act (12 U.S.C. 2279aa-11(b)(3)).
    \17\ Refer to 5 U.S.C. 552(b)(8). See also 12 CFR 602.2.
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5. Reports of Examination and Criminal Referrals [New Sec. Sec.  650.5 
and 650.6]
    We finalize as proposed the addition of new Sec. Sec.  650.5 and 
650.6, containing cross-citations to existing regulatory provisions 
regarding access to FCA Reports of Examination and the Corporation's 
obligation to make criminal referrals in certain circumstances. We 
received no comments to these two sections. We believe these cross-
cites clarify the applicability of these provisions to the Corporation, 
and thereby facilitate compliance with them.

B. Farmer Mac Corporate Governance [Part 651]

    Part 651 contains the existing corporate governance provisions for 
Farmer Mac, without subparts. As explained earlier in this preamble, 
this final rule does not include many of the proposed changes to part 
651 since we intend to revisit part 651 in the future. Although we 
received many comments on the contents of part 651, no comments 
opposing the proposed organizational changes were made and, therefore, 
we finalize them as proposed. Specifically, we finalize the addition of 
a new subpart A, entitled ``General,'' a new subpart B, entitled 
``Standards of Conduct,'' and a new subpart C, entitled ``Board 
Governance.'' We also finalize as proposed the movement of the existing 
provisions of part 651 into the relevant subparts and adding new 
sections in reserve for future rulemaking. We discuss other final 
changes to part 651, and the comments received related to the changed 
provisions, in the appropriate sections below.
1. Part 651 Definitions [New Subpart A; Existing Sec.  651.1]
    We finalize the proposed revisions to our definitions in existing 
Sec.  651.1, with two changes based on comments received. We are 
changing the term ``potential conflict of interest'' to ``conflict of 
interest'', while finalizing the definition as proposed. Two 
stockholder-commenters pointed out the definition covered both material 
and potential conflicts of interest and that we had no general 
definition for the term ``conflict of interest.'' We agree with the 
commenters that the definition defined conflicts of interest in general 
so should be identified as such.
    We are also modifying the definition for ``reasonable person'' by 
removing the phrase ``based on societal requirements for the protection 
of the general interest.'' The proposed definition for the term 
``reasonable person'' was based on general use of the term in conflict-
of-interest proceedings and substantially resembled the legal meaning 
of the term. However, comments from Farmer Mac and a consultant of 
Farmer Mac objected to the phrase ``societal requirements'', arguing it 
was not part of the Model Business Code. One of these commenters also 
stated the term should be defined in a manner that directed attention 
to the Corporation's activities, not the public at large.
    We do not agree with the commenters in this regard. As one 
commenter acknowledged, corporate governance allows consideration of 
the public impact of corporate behavior. In addition, the Corporation 
is a GSE with a public policy purpose and has directors appointed by 
the President of the United States to represent the public's interests 
in the operations of the Corporation. While we disagree with the 
reasons given by the commenters, we are removing the phrase ``based on 
societal requirements for the protection of the general interest'' from 
the definition for ``reasonable person'' as we believe the remaining 
language allows for addressing public concerns; specifically, the use 
of ``average level of care.'' We recognize that these same two 
commenters also objected to using an average level of care measurement 
when defining ``reasonable person'', arguing it expanded the 
Corporation's activities to include consideration of the general public 
and not just stockholders. We agree that using an average level of care 
standard could involve consideration of the public, but unlike the 
commenters, we do not view that as a difficulty. We also do not agree 
with comments that the phrase ``average level of care'' in the 
definition for ``reasonable person'' under our conflict of interest 
rules expands the mission of the Corporation. Instead, we believe it 
emphasizes the scope of the Corporation's impact. As explained earlier, 
the Corporation has a statutory public policy purpose and public 
representatives on its board of directors. We believe retaining the 
``average level of care'' language in the definition for ``reasonable 
person'' is appropriate.
    Farmer Mac and stockholders in Farmer Mac commented on the term 
``material'', asking that we delete the definition. Farmer Mac 
commented that the definition was appropriate for most of part 651, but 
stated concerns with how the term would work with securities 
regulations, which have a different definition for the term. Farmer Mac 
specified its concern was focused on proposed Sec.  651.24. 
Stockholder-commenters remarked that the term ``material'' does not 
carry the same meaning or standard applied to other System 
institutions. These commenters made particular note of a separate 
proposed rulemaking affecting Farm Credit banks and associations, but 
not Farmer Mac.\18\ These commenters argued there is no reason for a 
different standard among System institutions. As we are not finalizing 
in this rulemaking the proposed contents of Sec.  651.24, we are not 
deleting the term ``material'' and note that the term is an existing 
term in our rules. We also do not consider it appropriate at this time 
to substitute the existing definition with one that has only been 
proposed in a separate rulemaking intended for Farm Credit banks and 
associations.
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    \18\ 79 FR 9649 (April 3, 2014).
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    Farmer Mac asked that we remove the existing definition of 
``agent'' from Sec.  651.1, while three stockholder-commenters and an 
agent of Farmer Mac objected to agents being included in the rule at 
all, arguing that the existing definition was too broad in its 
application. Farmer Mac also stated the existing definition was too 
broad and exceeds the scope of FCA authority. We also received a call 
from a member of the general public asking about the definition and 
suggesting it may be problematic for dual compliance with both FCA and 
SEC requirements. The definition is an existing term that has been in 
our rules for over 20 years and we proposed no changes to it. 
Commenters offered no examples of difficulties that had been 
encountered in that time and did not express past

[[Page 49143]]

compliance difficulties with the existing rule. As we proposed no 
changes to the existing term ``agent,'' we decline to make any in this 
final rulemaking. However, we may reconsider the issue when revisiting 
part 651 in the future.
    A stockholder-commenter remarked that the term ``officer'' seemed 
to exclude risk officers and asked if that was intentional on our part. 
We reviewed the existing term ``officer'', to which we had proposed no 
changes, and agree that it could result in the risk officer not being 
included in the definition. However, that would depend on whether the 
Corporation makes the risk officer a vice president. If not, then the 
risk officer would be covered by the definition of ``employee'' instead 
of ``officer.''

2. Standards of Conduct [New Subpart B]

    We finalize moving existing Sec.  651.4 to new subpart B and 
redesignating it as new Sec.  651.24. This section addresses director, 
officer, employee, and agent responsibilities. We finalize adding new 
Sec. Sec.  651.21 and 651.25 under subpart B, but with no content, in 
reserve for future rulemaking.
a. Conflicts-of-Interest Policy [New Sec.  651.22, Existing Sec. Sec.  
651.1(i) and 651.2]
    We finalize the proposed movement of the existing Sec.  651.2 
contents, regarding conflict-of-interest policies, to new subpart B and 
redesignating it as new Sec.  651.22. We are reserving Sec.  651.2, 
with no content, for future rulemaking. Also, we finalize some 
amendments to the existing contents of redesignated Sec.  651.22 and 
make two clarifying changes. Other proposed changes to the contents of 
this section are not being finalized in this rulemaking.
    We finalize moving the list of imputed interests currently 
contained in the existing Sec.  651.1(i) definition of a ``potential 
conflict-of-interest'' to this section (thereby removing it from the 
definition) as we received no comments on this proposed action. We also 
finalize the proposed revisions to the list of imputed interest, as 
they also received no comments: removing highly specific relationships 
such as ``spouse'' and ``child'' and replacing them with language to 
address all persons residing in the household or who are otherwise 
legal dependents. These changes are premised on the ever-evolving 
understanding of what is considered a family, as well as intended to 
address non-residential dependents whose activities and interests may 
create a conflict-of-interest for a director, officer, or employee. We 
make two clarifying changes to the list of imputed interest: A person's 
general partner refers to a business partner and employment 
arrangements include both current and prospective employment.
b. Conflicts-of-Interest Reporting and Disclosure [New Sec.  651.23, 
Existing Sec.  651.3]
    We finalize moving existing Sec.  651.3 to new subpart B and 
redesignating it as new Sec.  651.23. This section addresses 
implementation of the conflict-of-interest policy. Farmer Mac offered 
comments on the existing language of this section, asking that the 
separate disclosure categories be removed. The rule currently requires 
Farmer Mac to provide its conflict of interest policy to its 
shareholders, investors, and potential investors when requested. Farmer 
Mac posed that these parties can obtain the policy from the 
Corporation's Web site or SEC filings so the provision should be 
removed. Farmer Mac did not state that this service could not continue 
to be provided, nor assert that the volume of requests was so high as 
to create a burden. We decline to remove this existing requirement as 
we continue to believe the Corporation should strive to accommodate 
requests from its shareholders, investors and, most especially, 
potential investors for copies of the policy.
c. Agents and Conflicts-of-Interest [Existing Sec.  651.1 Through 
651.4]
    Farmer Mac, a stockholder in Farmer Mac, and an agent of Farmer Mac 
asked that we remove references to ``agents'' from the existing rule. 
Some of these commenters remarked that agents should not be treated the 
same as directors, officers, and employees. Others argued that 
monitoring agent conduct is burdensome, may deter agents from working 
for the Corporation, and was contrary to standard contractual 
agreements with agents. The agent stated that consultants and advisors 
were not intended by Congress to be subject to our regulatory or 
examination authority. The stockholder-commenter added that we should 
instead rely on the Corporation's existing practices regarding 
monitoring agent behavior.
    Congress gave us certain enforcement authorities for agents of Farm 
Credit institutions.\19\ We also note that agents have been a part of 
the existing conflict-of-interest rule for over 20 years. No commenter 
provided support to demonstrate that the Corporation has had difficulty 
in all those years obtaining the services of agents because of the 
existing standards of conduct regulations. We decline to remove agents 
from part 651 as part of this final rulemaking. However, we may 
reconsider the issue in the future when revisiting part 651.
---------------------------------------------------------------------------

    \19\ See sections 5.25, 5.26, and 5.32 of the Act. See also 
sections 5.17(a)(9) and (10), 5.19 and 8.11 of the Act.
---------------------------------------------------------------------------

3. Board Governance--Committees [New Subpart C]
    We finalize adding new Sec. Sec.  651.30, 651.35, and 651.40 under 
subpart C, but with no content, in reserve for future rulemaking. We 
also finalize adding a new Sec.  651.50 on board committees. The new 
Sec.  651.50 addresses the relationship between the entire board and 
its committees, requires certain committees, and establish minimum 
operational requirements for board committees (e.g., charters, meeting 
minutes). We received comments from Farmer Mac and its consultant on 
this section and make four changes based on those comments: (1) We 
specify charter requirements apply to required committees; (2) we 
clarify that charters are approved by the full board; (3) we are not 
finalizing the requirement that each type of director serve on each 
committee; and (4) we clarify that an agenda may be informal, such as a 
list of issues under discussion.
a. Committee Charters [New Sec.  651.50]
    In general, Farmer Mac objected to any regulation of board 
committees. Farmer Mac asked that we change the requirement for all 
committees to be chartered, explaining often ad hoc committees are used 
in the Corporation's business and allowing committees to develop their 
own charters may be a transfer of board authority. The proposed 
provision stated that the Corporation's board is the body approving the 
charter, not the committee. However, we clarify in Sec.  651.50(c) that 
the committees develop the charters, but those charters are not 
effective unless approved by action of the full board. In addition, we 
intended the provision to apply to standing committees of the 
Corporation, so have modified the rule to clearly limit the charter 
requirements to those committees required to exist by regulation (i.e. 
audit, risk, compensation and corporate governance committees). We also 
made conforming changes elsewhere in this section to clarify that the 
committee provisions apply to these same ``required'' committees.
    Both commenters objected to the provision in Sec.  651.50(a) that 
use of a board committee does not relieve board members of their legal 
responsibilities. The commenters stated that delegations to committees 
are permitted and the

[[Page 49144]]

provision was unnecessary. In paragraph (a) of new Sec.  651.50, we 
proposed regulatory language clarifying that the entire board remains 
accountable for committee actions. In directing the Corporation, the 
board of directors may rely on reports from board committees, but doing 
so does not relieve the board of final responsibility. While activities 
and tasks may be delegated to a committee, the fact that a committee 
handles some board responsibilities does not relieve the board of its 
legal liabilities for such, nor does it relieve the board of the 
ultimate responsibility for those activities or tasks. Therefore, we 
decline to make changes to Sec.  651.50(a).
b. Committee Composition
    We received comments from Farmer Mac and its consultant on Sec.  
651.50, both objecting to the proposed requirement that each committee 
have representation from the three types of directors serving on the 
Corporation board (Class A elected, Class B elected, and appointed). 
The commenters stated the provision may result in conflicts of 
interest, unqualified directors serving on committees, and create 
division on the board. Commenters offered no support for the named 
concerns, but we consider this issue to be among those we plan to 
review when we revisit part 651 in the future. As a result, we are not 
finalizing in Sec.  651.50(c) the requirement that each committee have 
representation from the three types of directors serving on the 
Corporation board. In conformance with this, we also remove the 
proposed paragraph designations in paragraph (c).
    Farmer Mac and its consultant also objected to limiting the number 
of committees a director may chair. We proposed in Sec.  651.50(c) that 
no director may serve as chair of more than one committee. The 
commenters stated that this was an unnecessary restriction. We decline 
to change this limitation based on comments received. We believe this 
limitation is necessary, as it reasonably distributes responsibilities 
among individual members of the board. We also believe that too great a 
concentration of responsibilities among too few directors would detract 
from the board's overall effectiveness and may create potential, and 
unnecessary, safety and soundness concerns.
c. Committee Agendas
    Farmer Mac objected to the Sec.  651.50(d) requirement that board 
committees have agendas for their meetings. Farmer Mac explained that 
some ad hoc meetings occur with no prior planning, making development 
of an agenda impossible. We appreciate that a situation like the one 
described may occur and have modified the rule to allow for an 
equivalent list of issues under discussion to be part of the meeting 
minutes in lieu of an agenda.

C. Risk Management [Part 653, No Subparts]

    We finalize adding a part 653, with no subparts, to address risk 
management within the Corporation. In doing so, we remove proposed 
references to ``risk tolerance'' throughout part 653, while retaining 
references to risk-appetite, as we determined the term ``risk-
appetite'' encompassed risk tolerance consideration. We received 
comments from Farmer Mac, stockholders of Farmer Mac, and the FCC to 
this part and discuss them, and any changes, in the appropriate 
sections below.
1. General [New Sec.  653.2]
    We received comments from Farmer Mac, the FCC, and stockholders in 
Farmer Mac on new Sec.  650.2, which addresses general board-level risk 
management matters. Farmer Mac expressed agreement with requiring its 
board to be actively involved in the Corporation's risk framework, but 
considered it unreasonable to expect it to ``ensure'' all risk-taking 
is safe and sound. Farmer Mac asked that it be allowed to address its 
``risk appetite'' by areas, such as liquidity risk or operational risk, 
instead of one unified assessment, explaining that the risk committee's 
role represents the intersection of oversight of all risk areas. We 
generally expect functional area specialists (e.g., finance committee, 
credit committee, marketing committee) to evaluate risk in terms of the 
specialized responsibilities of those operational areas. While we view 
that as generally appropriate for day-to-day risk management, it is 
nevertheless important that the entire board consider risks from all 
areas when conducting its enterprise-wide monitoring and oversight. For 
that reason, the risk committee is expected to evaluate risks from the 
level of the Corporation, rather than the functional area. To borrow a 
description from the Treadway Commission,\20\ we believe the risk 
committee aims to strike an optimal balance between growth and return 
goals while attempting to optimize deployment of resources toward the 
entity's objectives.
---------------------------------------------------------------------------

    \20\ ``Enterprise Risk Management--Integrated Framework'', 
Executive Summary, Committee of Sponsoring Organizations of the 
Treadway Commission, September 2004.
---------------------------------------------------------------------------

    In the same way, we view the risk officer as playing a role that 
represents the intersection of risks across functional area managers. 
We view the risk officer's role to involve monitoring the balance of 
risk across all functional areas and, as needed, recommending 
adjustments to re-balance the enterprise-wide risk profile in a manner 
consistent with the board-approved risk appetite. This role does not 
eliminate risk management responsibility from other members of the 
Corporation's management team. If a functional area manager knows that 
his or her performance will be evaluated on the basis of the 
productivity of that area, the manager's focus on that area's 
performance could become out of proportion to the impact of that effort 
on the Corporation's enterprise-wide risk position. The risk officer 
would then serve as a means of alerting senior management and the board 
of the potential impact that functional area managers' activities and 
positions may have on the Corporation at the enterprise-wide level. 
This should enable appropriate actions and strategies to be evaluated 
and taken when functional area risk taking exceeds the overall risk 
appetite of the board.
    The FCC and two stockholder-commenters agreed with requiring the 
Corporation's board to be actively involved in the Corporation's risk 
framework, but wanted it expanded to include capital considerations. 
These stockholder-commenters added that the requirement was not 
preventative enough as the Corporation's board should be required to 
approve risk-bearing capacity and consider the Corporation's public 
policy mission as well as capital adequacy. A third stockholder-
commenter remarked that the part 653 requirements were not 
unreasonable, but better suited to non-regulatory guidance. This 
stockholder-commenter explained that the science of risk management is 
an emerging area, subject to rapid changes, so placing risk management 
requirements within a rule may hinder the Corporation's ability to keep 
pace with best practices in risk management.
    We are replacing the term ``ensure'' with the phrase ``provide 
reasonable assurance'' when discussing risk-taking activities in 
response to comments. We also add as a clarifying change that the 
requirement to monitor risk activities is expected to be on a regular 
basis. We make no other changes to new Sec.  653.2. While we appreciate 
the comment regarding the evolving nature of risk management, we 
believe it appropriate to establish an essential risk management 
structure within regulation and then supplement the rules with the 
suggested informal guidance if

[[Page 49145]]

necessary. We also make no changes in response to comments asking that 
part 653 address risks associated with capital. We already address 
risks to capital in Sec.  652.61, where we require the Corporation's 
board to approve the annual capital plan, which must comply with the 
board's risk appetite.
2. Risk Management [New Sec.  653.3]
    We finalize, with changes, new Sec.  650.3, which contains the 
minimum required risk management program activities of the Corporation. 
We received comments to this section from Farmer Mac, the FCC, and 
three Farmer Mac stockholders. We discuss the comments, and any 
changes, in the appropriate sections below.
a. Risk Management Program [New Sec.  653.3(a)]
    We are making the following changes to new Sec.  653.3(a), which 
requires the Corporation's board of directors to have a risk management 
program:
     Replacing the phrase ``in effect at all times'' in the 
introductory language of paragraph (a) with the more measurable 
standard ``establish, maintain, and periodically update'' the risk 
management program;
     Removing the language ``addresses the Corporation's 
exposure to credit, market, liquidity, business, and operational 
risks'' in paragraph (a)(3) as it is redundant of language contained 
Sec.  653.3(b)(2);
     Adding language in paragraph (a) to recognize that 
implementation of the risk management program may be handled by senior 
management; and
     Adding language to clarify that the list of requirements 
in new Sec.  653.3(a) are the minimum.

In furtherance of these clarifications, we remove the proposed 
paragraph (a)(4) requirement that the risk management policy specify 
the independence of those carrying-out the program.
    We received comments to new Sec.  650.3(a) from the FCC agreeing 
with the provision, but expressing concern that there was insufficient 
distinction between risks in the System and risks faced by the 
Corporation. The FCC asked that ``casual'' references linking the 
Corporation to the System be eliminated and that we specify the 
Corporation is a separate GSE from the System. In response, we clarify 
in this preamble that the Corporation is an institution of the Farm 
Credit System, but is not liable for any debt or obligation of any 
other System institution, and the other System institutions have no 
liability for Farmer Mac's debt. Also, Farmer Mac is organized as an 
investor-owned corporation, not a member-owned cooperative as are other 
System institutions, and the Farm Credit System Insurance Corporation 
does not insure Farmer Mac's securities.
    Farmer Mac remarked that the board does not often involve itself in 
day-to-day risk decisions: That is more properly handled by senior 
management. As mentioned above, we have made clarifying changes to 
recognize that daily implementation of the risk management program may 
reside with senior management. Two stockholder-commenters stated 
agreement with the risk management provisions, but asked that we expand 
them to include risk-bearing capacity and require management of the 
Corporation's capital to be consistent with Basel III. We have 
previously responded to their comment. These commenters also asked that 
OSMO provide further guidance to the Corporation on specific risk 
tolerance measures and for OSMO to closely monitor the program to 
ensure it is implemented in an effective manner. As noted, FCA may 
provide for the guidance on risk management as part of its oversight of 
this area. These stockholder-commenters objected to the Sec.  653.3(a) 
provision requiring risk management to include consideration of 
compensation practices and asked for the provision to be removed. We 
believe the incentive structures related to functional area managers' 
performance and risk-taking activities, referred to in our earlier 
response to comments on Sec.  653.2, includes incentive compensation 
policies and practices and that the Corporation's enterprise-wide risk 
management oversight would be incomplete without such consideration.
b. Risk Committee [New Sec.  653.3(b)]
    We received comments from Farmer Mac and two Farmer Mac 
stockholders on new Sec.  653.3(b), which addresses the 
responsibilities of the risk committee. The stockholder-commenters 
agreed in general with the provisions, but asked that they more closely 
resemble the requirements for other GSEs, including System 
institutions. We note that we do not currently require other System 
institutions to have risk committees and so cannot accommodate the 
request of those commenters asking for consistency among System 
institutions. Also, we note that the Corporation is of a different 
structure than other System institutions, necessitating some different 
risk management aspects. However, we did consider the provisions of the 
recent risk management rulemaking by the Federal Housing Finance Agency 
(FHFA).\21\
---------------------------------------------------------------------------

    \21\ 80 FR 72327, December 21, 2015.
---------------------------------------------------------------------------

    Farmer Mac asked that we use the same experience requirement for 
the risk committee as is used for the risk officer since it could be 
difficult to ensure a risk expert is always elected to the board. For 
the same reason, Farmer Mac asked that we change the committee 
responsibilities to a level of understanding of risk rather than 
possession of expertise. We agree and substitute in new Sec.  
653.3(b)(1) the phrase ``an understanding of'' and remove the proposed 
``expertise'' requirement when talking about the requirement that the 
risk committee have at least one member who is familiar with risk 
management. We also make changes in new Sec.  653.3(b) to replace the 
requirement that the risk committee be responsible for the oversight of 
the risk management program, as that responsibility rightfully belongs 
to the entire Corporation board. In its place, we require the risk 
committee to assist the Corporation board in overseeing the risk 
management program. We believe it is essential that the tone of the 
Corporation's risk culture and its procedures for risk decision-making 
be set by the Board, even when based on management's recommendations. 
Further, the board of directors play a critical role in the ongoing 
oversight of, and cohesive implementation of, operational strategies 
and plans that conform to established risk appetites.
    We also replaced the proposed requirement in paragraph (b)(2)(i) 
that the risk committee oversee and document risk management activities 
with a requirement to periodically assess management's implementation 
of the risk management program. Similarly, we remove the proposed 
review requirement of paragraph (b)(2)(ii) and clarify that risk 
committee recommendations relate to changes to the risk management 
program. We also clarify in paragraph (b)(2)(iii) that the risk 
committee's receipt of reports from Corporation staff is not limited to 
the risk officer. We recognize that any personnel responsible for 
implementing the risk management program may be tasked by Farmer Mac 
with offering reports to the risk committee.
    We are making technical changes in new Sec.  653.3(b) to align 
language with that contained in other sections (e.g., replacing ``risk 
management practices'' with ``risk management program'', replacing 
``risk profile'' with ``risk appetite''). We also remove language 
redundant of that contained in new

[[Page 49146]]

Sec.  651.50 regarding formation of the risk committee. As referenced 
in the discussion of Sec.  651.50 (preamble section III.B.3.), we are 
finalizing the requirement that the Corporation have a risk management 
committee so do not need to state in Sec.  653.3(b) that the risk 
committee must be formed.
c. Management of Risk [New Sec.  653.3(c)]
    We received comments from Farmer Mac and two Farmer Mac 
stockholders on new Sec.  653.3(c), which requires the Corporation to 
have a risk officer. The stockholder-commenters agreed in general with 
the need for a risk officer, but stated that FCA should not require it 
as FCA should not make staffing decisions within a System institution. 
These commenters also contended that requiring a risk officer offers no 
assurance, from a safety and soundness perspective, of compliance with 
risk management policies. The stockholder-commenters asked that the 
entire paragraph be removed. Farmer Mac commented on the use of the 
term ``experience'' versus ``expertise'', asking for similar use for 
both the risk committee and the risk officer. Farmer Mac explained that 
using different terms implied different expectations regarding the 
background of the risk officer versus the risk committee expert. Farmer 
Mac also asked that the standard be an understanding of risk issues and 
not direct experience in risk issues to facilitate recruitment. 
Finally, Farmer Mac asked for a 1-year phase in to fill the position.
    We earlier addressed most of Farmer Mac's comment regarding the 
level of expertise required in Sec.  653.3(b). In response to remaining 
comments, we are changing the name of paragraph (c) from ``Risk 
Officer'' to ``Management of risk'' and making conforming changes to 
reference a ``risk officer, however styled'' so as to encompass other 
personnel responsible for implementing the risk management program. We 
also remove specific reporting requirements to ``the chief executive 
officer and board risk committee'' in new Sec.  653.3(c)(4) and (5) to 
recognize that Farmer Mac will exercise its own discretion in designing 
a risk management position(s). We decline to reduce the level of 
experience for risk officers to a mere understanding of risk and have 
retained the requirement for experience in risk management. We are not 
delaying the effective date of this rule as requested by Farmer Mac to 
facilitate the Corporation having a risk officer in place before the 
rule is effective. Should the Corporation encounter difficulties in 
having a risk officer in place after this rule is effective, Farmer Mac 
should contact the Director of OSMO.
3. Internal Controls [New Sec.  653.4]
    We received comments on new Sec.  653.4 from Farmer Mac and two 
Farmer Mac stockholders. Farmer Mac asked that we remove the entire 
section on internal controls, stating the Corporation's internal 
control activities under SEC regulations are sufficient. Farmer Mac 
then asked us to mirror SEC regulation if we retained the provision or 
make the following changes to it: remove the term ``ensure'', 
incorporate more flexibility, and avoid expanding the role of the 
directors. Farmer Mac also asked for clarification on paragraph (b)(6) 
regarding information reported to the board of directors, as it 
considered the provision to be vague.
    We decline the request to remove the entire section requiring 
internal controls. We continue to believe that the Corporation's board 
oversight of internal controls is a critical component of its 
responsibility for monitoring corporate activities and providing 
reasonable assurances that the controls will prevent excessive risk 
taking, mitigate operational risks, and minimize the potential for 
unsafe and unsound activities. The corporate environment is influenced 
by management's philosophy, operating style, integrity, ethical values, 
and commitment to competence. If this foundation is strong, if the 
corporate environment is positive, the overall system of internal 
controls will be more effective. Further, a sound system of 
comprehensive and integrated internal controls is vital to the 
operations of any organization and especially those whose business is 
taking financial risk. In the more than two decades since the 
Corporation was chartered, business and operational environments have 
become significantly more complex and technology-driven. A system of 
internal controls should dynamically respond to such changes in 
complexity--not just in business unit operations but also in compliance 
with increasingly complex laws, regulations, and industry standards. We 
also decline to rely solely on the internal control assessment the 
Corporation prepares for the SEC since that assessment is targeted at 
financial reporting issues, pursuant to provisions in the Sarbanes-
Oxley Act.\22\ As a safety and soundness regulator, our interest in 
internal controls extends beyond preparation of financial report. While 
we believe effective financial controls reduce the risk of asset loss 
and help ensure that financial information is complete and accurate, 
and agree that financial statements need to be reliable and comply with 
laws and regulations, we also believe safety and soundness internal 
controls extend to the operations, programs, and resources of the 
Corporation. We are, however, making some changes based on the 
comments. We change paragraph (a) to clarify the expected internal 
controls are safety and soundness controls over the Corporation's 
operations, programs, and resources. We also remove the ``ensure'' 
language from paragraph (a), to which a commenter objected. Also, we 
are substituting the requirement in paragraph (b)(6) for 
``transparency'' with the Corporation's board in response to a comment. 
We instead require that internal controls address ``the completeness 
and quality'' of information shared with the Corporation's board.
---------------------------------------------------------------------------

    \22\ The Sarbanes-Oxley Act stressed the importance of public 
companies maintaining internal controls when it comes to their 
financial reporting by requiring public companies to include details 
on the company's financial internal controls inside of their annual 
reports. Also, the SEC requires filers to include an attestation of 
``internal controls over financial reporting'' in annual reports.
---------------------------------------------------------------------------

    Farmer Mac also asserted that requiring it to have internal 
controls would deviate from what FHFA requires of the only other 
secondary market GSEs (Fannie Mae and Freddie Mac).\23\ We believe that 
the current differences between the operating structures of the housing 
GSEs and Farmer Mac, in particular the conservatorships of the housing 
GSEs, makes comparison of their regulatory structures less useful. We 
believe internal controls are important for Farmer Mac regardless of 
whether another regulator adopted them for the housing GSEs. The 
overall purpose of an internal controls system is to help an entity 
achieve its mission and accomplish certain goals and objectives. An 
effective internal control system should promote orderly, economical, 
efficient and effective operations; safeguard resources against loss 
due to waste, abuse, mismanagement, errors and fraud; promote adherence 
to statutes, regulations, and operating procedures; as well as develop 
and maintain reliable financial and management data (and accurately 
report that data in a timely manner), all of which can help protect the 
Corporation's safe and sound operation and its reputation.
---------------------------------------------------------------------------

    \23\ See footnote 15, Appendix B, of the Farmer Mac comment 
letter to the proposed rulemaking. See also, 12 CFR 1236, Appendix 
A, ``Prudential Management and Operations Standard,'' containing 
some FHFA internal controls requirements for the secondary market 
housing GSEs (e.g., ``Standard 1--Internal Controls and Information 
Systems'').

---------------------------------------------------------------------------

[[Page 49147]]

    We had proposed in paragraphs (c) and (d) that the Corporation 
establish a monitoring system for its internal controls and to report 
to us on the effectiveness of those controls. Stockholder-commenters 
objected to the requirement for annual reports on internal controls, 
explaining such reports would be burdensome and could reduce the 
attention given the issue during FCA examinations. The commenters 
instead stated that FCA should rely primarily on its examination 
authority for review of internal controls. We make changes to 
paragraphs (c) and (d) to address the comments objecting to annual 
reports on internal controls, but do so in a manner that also satisfies 
the underlying purpose of proposing an annual report on the 
effectiveness of internal controls. We are removing paragraph (d), 
which required the annual report to OSMO, in its entirety. In 
connection with this, we enhance the provision in paragraph (c) to 
require the monitoring of internal controls to include an 
identification and documentation of weaknesses in internal controls. We 
continue to believe the Corporation's internal control system needs to 
be monitored to assess whether controls are effective and operating as 
intended. On-going monitoring occurs through routine managerial 
activities such as supervision, reconciliations, checklists, 
comparisons, performance evaluations, and status reports. Monitoring 
may also occur through separate internal evaluations (e.g., internal 
audits/reviews) or from use of external sources (e.g., comparison to 
peer groups or industry standards, surveys, etc.). Deficiencies found 
during monitoring should then be documented and reported to those 
responsible for the function, with serious deficiencies being reported 
to top management or the board. To ensure this monitoring occurs, the 
rule requires the Corporation to document the process used to identify 
and resolve weaknesses in its internal controls, as well as document 
what weaknesses were found. This change, along with the internal 
controls over financial reporting made to SEC, should provide the 
necessary source documents for our examination of the Corporation's 
internal controls, similar to what would have resulted from the 
proposed annual report to OSMO.

D. Disclosure and Reporting [Part 655]

    Part 655 contains the existing financial disclosure and reporting 
provisions for the Corporation. We received comments to part 655 from 
Farmer Mac, an agent of Farmer Mac, and a Farmer Mac stockholder. There 
were no comments opposing the proposed organizational changes and, 
therefore, we finalize them as proposed. We also finalize as proposed 
the movement of existing provisions into the relevant subparts.
    We discuss final changes to part 655, and the related comments 
received, in the appropriate sections below.
1. Definitions [New Subpart A: New Sec.  655.1]
    We received a comment from Farmer Mac on the definition for 
``material'' in part 655, asking us to remove the definition or restate 
that used by the SEC. We proposed defining ``material'' as information 
required when ``there is a substantial likelihood that a reasonable 
person would attach importance in making investor decisions or 
determining the financial condition of the Corporation.'' We decline 
Farmer Mac's request as it did not argue that the term ``material,'' as 
used in part 655, presented any conflict with SEC reporting rules.\24\ 
Rather, we note that, like the SEC, our rule interprets the term in a 
manner similar to the Financial Accounting Standards Board (FASB) 
Concepts Statement No. 2 explanation of ``materiality.'' \25\ FASB, in 
turn, relied on the U.S. Supreme Court explanation that a fact is 
material under Federal securities laws if there is a ``substantial 
likelihood'' the fact would be ``viewed by the reasonable investor as 
having significantly altered the `total mix' of information made 
available.'' \26\ We also note that our rule substantially resembles 
the SEC Rule 405 definition,\27\ with adjustments made for financial 
safety and soundness considerations. We finalize the term ``material'' 
and its definition as proposed. However, we are not finalizing adding 
the term ``report'' and its accompanying definition to new Sec.  651.1 
as the term is sufficiently explained in the relevant provisions of the 
rule.
---------------------------------------------------------------------------

    \24\ See SEC Staff Accounting Bulletin: No. 99--Materiality, 17 
CFR part 211 (August 12, 1999), explaining the meaning of 
``material'' as ``A matter is `material' if there is a substantial 
likelihood that a reasonable person would consider it important.''
    \25\ FASB, Statement of Financial Accounting Concepts No. 2, 
Qualitative Characteristics of Accounting Information, 132 (1980). 
In this bulletin, FASB explained the concept of ``materiality'' as 
``The omission or misstatement of an item in a financial report is 
material if, in the light of surrounding circumstances, the 
magnitude of the item is such that it is probable that the judgment 
of a reasonable person relying upon the report would have been 
changed or influenced by the inclusion or correction of the item.''
    \26\ See TSC Industries v. Northway, Inc., 426 U.S. 438, 449-450 
(1976), where the court noted that determining materiality required 
``delicate assessments of the inferences a `reasonable shareholder' 
would draw from a given set of facts and the significance of those 
inferences to him . . .''. See also Basic, Inc. v. Levinson, 485 
U.S. 224 (1988).
    \27\ 17 CFR 230.405.
---------------------------------------------------------------------------

2. Prohibitions [Proposed New Sec.  655.2]
    We received comments on new Sec.  655.2 from Farmer Mac and an 
agent of Farmer Mac. Farmer Mac asked that all references to ``agents'' 
be removed and that the provision include a materiality standard so as 
to limit FCA actions. Farmer Mac asserted that FCA has no authority to 
regulate non-System persons or entities, suggesting FCA limit itself to 
imposing an obligation on the Corporation to monitor its agents. Farmer 
Mac again stated that FCA should not intrude into areas under SEC 
jurisdiction. Farmer Mac also asked that we defer to the SEC for 
determining compliance, specifically mentioning the SEC rules on 
omissions and misstatements in reports filed with the SEC. The agent to 
Farmer Mac stated the regulation of agents was intrusive and 
burdensome, adding that Congress did not intend consultants and 
advisors to be subject to FCA authority.
    We proposed new Sec.  655.2 to prohibit directors, officers, 
employees, or agents of the Corporation from making misleading, 
inaccurate, or incomplete part 655 disclosures. The provision would 
have covered reports and disclosures made to FCA, stockholders of 
Farmer Mac, and the general public. Contrary to the remarks of some 
commenters, the provision did not assert direct regulatory authority 
over the general actions of an agent of Farmer Mac. Instead, the 
provision would have required Farmer Mac to control its agents, or 
issue corrections to disclosures made by the same if those disclosures 
were determined to be misleading, inaccurate, or incomplete. As 
explained in section 8.3(c)(4) of the Act, Farmer Mac has a statutory 
duty to take necessary precautions, including obtaining surety bonds, 
against any losses caused by the acts of its agents. Further, FCA has 
statutory authority to issue cease-and-desist orders to agents of the 
Corporation in appropriate circumstances. In addition, we reject the 
argument of Farmer Mac that misleading, inaccurate, or incomplete 
disclosures are the exclusive jurisdiction of the SEC. Not every report 
or disclosure made by Farmer Mac is in response to a requirement of the 
SEC, particularly those we require under our rules in part 655. Rather, 
activities of the Corporation extend beyond registered securities 
issued or guaranteed by Farmer Mac, and we have long had regulations 
addressing Farmer Mac disclosures related to securities not

[[Page 49148]]

registered under the Securities Act of 1933. All this notwithstanding, 
in response to the concerns expressed by commenters regarding dual 
compliance with SEC regulations, we are not finalizing the contents of 
Sec.  655.2 at this time.
3. Reports of Condition [New Subpart B: Existing Sec.  655.1; New 
Sec. Sec.  655.10 and 655.15]
    Our existing rule requires the Corporation to make annual reports 
to its shareholders, and we had proposed enhancements to this existing 
requirement. The enhancement included adding quarterly reports, 
increasing the information in the reports, reducing distribution 
timeframes, and requiring the reports to be signed and certified as 
accurate. We received comments on these proposed changes from Farmer 
Mac and a Farmer Mac stockholder. The stockholder-commenter only 
remarked that we should remove references to ``EDGAR'', the SEC Web 
site portal, as the name of the portal may change. We agree and have 
removed all references to ``EDGAR'' in part 655.
    Farmer Mac objected to our rules containing any different reporting 
or disclosure requirements than those required by the SEC. Farmer Mac 
stated reporting and disclosures are the jurisdiction of the SEC and 
FCA should reconsider any regulation of the matter. We reject the 
argument of Farmer Mac that financial reports and disclosures are the 
exclusive jurisdiction of the SEC and remind the Corporation that we 
have long had regulations addressing financial reports and disclosures 
made by the Corporation. Further, FCA may require disclosure necessary 
to the safety and soundness of the Corporation.\28\ In particular, we 
may require disclosures suitable to the purpose for which Farmer Mac 
was created, to follow disclosure practices appropriate to secondary 
market activities, and to aid in reducing risks in secondary market 
transactions.\29\ We also point out that SEC rules do not prohibit its 
filers from making financial reports to other Federal agencies.\30\
---------------------------------------------------------------------------

    \28\ Sections 5.17(a)(8) and 8.11 of the Act (12 U.S.C. 
2252(a)(8) and 2279aa-11).
    \29\ Section 8.11(a)(1) and (2) of the Act (12 U.S.C. 2279aa-
11).
    \30\ Refer to 17 CFR 240.12b-33.
---------------------------------------------------------------------------

    While we understand Farmer Mac's desire to only concern itself with 
one unified set of reporting and disclosure requirements, we cannot 
uniformly adopt SEC reporting and disclosure requirements. As explained 
in the proposed rulemaking, SEC requires certain reporting and 
disclosures to satisfy its role in ensuring listed companies provide 
sufficient information to the investing public. We, on the other hand, 
concern ourselves with ensuring disclosures and report made by the 
Corporation address safety and soundness concerns, which include all 
the activities of the Corporation. Where we can in this rule, we have 
allowed Farmer Mac to use SEC filings in satisfaction of our 
requirements. However, the SEC is a separate agency and can change its 
reporting and disclosure requirements without consulting FCA. For this 
reason, we limit the extent that SEC filing requirements may also 
satisfy our requirements and do so in a manner to avoid conflict with 
SEC requirements and unnecessary duplication of effort by Farmer Mac.
a. Annual Reports
    Our existing rule requires the Corporation to make annual reports 
to its shareholders consistent with shareholder reports required by the 
SEC, and to submit copies of such to us. We note that the Corporation 
must also file annual and quarterly reports with the SEC (10Q and 10K, 
respectively), which may include additional information not part of the 
annual report to shareholders.\31\ Farmer Mac asked us to mirror SEC 
annual reporting requirements. Doing so would include removing the 
proposed quarterly reporting to shareholders.\32\ We finalize the 
proposed language that the annual reports to shareholders must be 
either equivalent in content to that required under the Securities Act 
or as we so instruct. However, we are not finalizing the proposed 
requirement in Sec.  655.10(a) that the Corporation make quarterly 
shareholder reports. Farmer Mac also asked that we remove the 
requirement to file any paper copies of reports with OSMO. We decline 
this request for reasons discussed in the proposed rulemaking preamble.
---------------------------------------------------------------------------

    \31\ The SEC requires registered entities to file an annual 
report on Form 10-K, which may contain more detailed information 
about the company's financial condition than the annual report to 
shareholders. The annual report on Form 10-K provides a 
comprehensive overview of the company's business and financial 
condition and includes audited financial statements. Although 
similarly named, the annual report on Form 10-K is distinct from the 
``annual report to shareholders,'' which a company must send to its 
shareholders when it holds an annual meeting to elect directors. 
www.sec.gov/answers/form10k.htm.
    \32\ Currently, the SEC does not require registrants to issue a 
quarterly report to shareholders. However, the issuance of such a 
report might be required by the listing standards of a national 
securities exchange or association. In addition, communications 
about quarterly results are subject to Regulation FD, Fair 
Disclosure, as well as Form 8-K disclosure requirements.
---------------------------------------------------------------------------

b. Certification of Reports
    Farmer Mac said that there was no need for requiring signatures and 
certifications on reports as the SEC already addresses how reports are 
to be signed and certified. Farmer Mac also asked that we define 
``financially accurate'' as used in new Sec.  655.10(b), explaining it 
is not a term used in the SEC-required certification of reports. We 
finalize with changes the signature and certification requirements of 
new Sec.  655.10(b). Our proposed certification did not conflict with 
SEC laws or regulations, but may have caused compliance issues with SEC 
instructions. SEC rules Sec. Sec.  240.13a-14 and 240.15d-14 require 
certification of quarterly and annual reports filed with them, but SEC 
instructions for completing these certifications prohibit filers from 
making changes to the certification language provided in the SEC rules. 
Our proposed certification requirements captured most of the same 
information as the SEC certifications, without giving specific language 
that had to be used. To address the commenter's concern regarding 
compliance with both the SEC and FCA, we are changing our certification 
requirements to require the use of SEC certifications.\33\ We also 
clarify that the requirements of Sec.  655.10(b) apply to reports 
issued under new subpart B of part 655.
---------------------------------------------------------------------------

    \33\ SEC certifications are designed to be consistent with the 
certification requirements of section 302 of the Sarbanes-Oxley Act, 
which is intended to improve the quality of public financial 
disclosures that a company provides in its periodic reports to 
investors.
---------------------------------------------------------------------------

c. Distribution Deadlines
    Farmer Mac objected to reducing distribution deadlines to 90 days, 
asking that we keep the current 120-day deadline so as to provide it 
greater flexibility. Farmer Mac added that the proposed 90-day 
timeframe ``deviates from SEC rules,'' but does not name the SEC rules 
being referenced. Farmer Mac also asserted the shorter timeframe could 
increase compliance burden.
    Absent a citation to the SEC rules, we do not see where the number 
of days FCA proposed created any compliance problems with SEC 
requirements. The SEC has a three-tiered deadline for annual reports 
filed with them that is based on the size of the filer: 60 days after 
fiscal year end for large accelerated filers, 75 days after fiscal year 
end for regular accelerated filers, and 90 days after fiscal year end 
for nonaccelerated

[[Page 49149]]

filers.\34\ Our proposed 90-day deadline did not conflict with any of 
these timeframes. The separate ``annual report to shareholders'' \35\ 
required by the SEC provides that a registered company must distribute 
the company's annual report to shareholders at least 40 days before the 
company holds its annual meeting or elections.\36\ Again, our proposed 
90-day deadline did not conflict with this timeframe as the Corporation 
is not legally required to hold its annual meeting on any specific 
date.
---------------------------------------------------------------------------

    \34\ SEC Web site, www.sec.gov/answers/form10k.htm. See also 
Instructions to Form 10-K at section A.2, www.sec.gov.
    \35\ The SEC-required annual report to shareholders is usually 
includes an opening letter from the Chief Executive Officer, 
financial data, results of operations, market segment information, 
new product plans, subsidiary activities, and research and 
development activities on future programs. Companies sometimes elect 
to send their annual report on Form 10-K to their shareholders in 
lieu of, or in addition to, providing shareholders with a separate 
annual report to shareholders. SEC Web site, www.sec.gov/answers/annrep.htm.
    \36\ 17 CFR 240.14a-16.
---------------------------------------------------------------------------

    Our existing rule requires distribution of annual reports to 
shareholders within 120 days of the fiscal year end (i.e. April of each 
year). The SEC ties distribution of shareholder reports to the annual 
meeting date (or election date) and reports to the SEC are tied to 
fiscal year end. We use fiscal year end for both actions. This means to 
comply with both the SEC and FCA deadlines the Corporation currently 
must distribute its report to shareholders within 120 days of fiscal 
year end and may not hold its annual meeting (or elections) until 40 
days after the report is distributed (approximately 160 days or June 
9th of each year). We proposed reducing our deadline to 90 days, which 
would result in the Corporation being required to hold its annual 
meeting (and elections) no earlier than May 10th of each year 
(approximately 120 days from fiscal year end). As there is no 
compliance issue with SEC rules, we reject the request of Farmer Mac to 
follow the SEC in this regard. We prefer a date certain under which the 
Corporation must distribute its annual report to shareholders. However, 
we have restored the existing 120-day deadline for distribution of the 
annual report to shareholders. We continue to believe the Corporation 
is more than capable of issuing the report sooner, but agree that the 
additional time is beneficial to the director nomination process (due 
to the report's connection to holding annual meetings/elections under 
SEC rules).
d. Interim Reports, Proxy Statements, and Notices
    We proposed in Sec.  655.15 that the Corporation provide us copies 
of interim reports (e.g., 8-K), proxy statements, and notices sent to 
SEC. We also proposed that this same information be posted on the 
Corporation's Web site for public viewing, but that links to the SEC 
electronic filings may be used to satisfy this requirement. Farmer Mac 
commented that these requirements were an unjustified regulatory 
burden. Farmer Mac then asked that we clarify the scope of notices, 
interim reports, and proxy statements required to be sent to OSMO under 
Sec.  655.15(a). Farmer Mac also asked that we remove the requirement 
to post on its Web site these same notices, interim reports, and proxy 
statements. Farmer Mac stated concern with the public posting 
requirement since these filings include all papers and documents made 
part of the filing, contending confidential communication with the SEC 
may be made public.
    We decline to remove the Sec.  655.15(a) requirement to provide 
these complete filings to OSMO as we continue to believe it is 
essential that communications between the Corporation and OSMO, its 
primary regulator, include the substantive communications the 
Corporation has with the SEC. We also fail to see how providing us 
copies of reports and filings already being prepared is a burden on the 
Corporation. We have clarified in Sec.  655.15(b) that the public Web 
site postings may be limited to the public aspects of the notices, 
interim reports, and proxy statements.
4. Reports Related to Securities Activities [New Subpart C: Existing 
Sec.  655.50; New Sec.  655.20]
    Farmer Mac objected to being required in Sec.  655.20 to send paper 
copies to us of reports on unregistered securities activities. We have 
removed the requirement for both electronic and paper copies, replacing 
it with a requirement for either a paper or electronic copy, whichever 
is most conducive to transmitting the information. We also added 
language to clarify the reports are to be sent to the Director of OSMO.
    Farmer Mac requested we clarify the types of documents covered by 
Sec.  655.20 and whether daily transactions (e.g., issuance of 
unregistered debt securities) needed to be filed with us. Farmer Mac 
explained that many documents and daily activities could be covered by 
the rule under some interpretations. If so, the burden of providing 
that information to us would be significantly increased. As we made 
little change to existing requirements in this area, we question the 
assertion that the rule could be misinterpreted or is a burden on 
Farmer Mac. Farmer Mac has made reports to us on its activities 
regarding securities not registered under the Securities Act under this 
regulatory requirement since 1993. As such, Farmer Mac should continue 
its current practices addressing daily activities for filings made 
under this requirement, unless we later advise them otherwise. The 
Corporation at a minimum must make special filings with us regarding 
those items specifically listed in the rule. We encourage the 
Corporation to contact us when questions arise as to whether a specific 
securities action requires a filing under Sec.  655.20.
    Farmer Mac requested we update existing terminology in Sec.  
655.20(b)(2) regarding securities purchased by the Corporation under 
section 8.6(e) of the Act. We agree that the specific citation to the 
Act needed to be updated to reference the correct paragraph of section 
8.6.\37\ The current reference predates Congress moving the relevant 
provision from section 8.6(g) to section 8.6(e) of the Act.\38\ We also 
revise the ``pooling and servicing agreements'' terminology as 
requested by Farmer Mac. The existing rule used this phrase to 
reference those documents employed in the exercise of the Corporation's 
authority to purchase and hold securities that are backed by pools of 
qualified loans (which loans are secured by a first lien on 
agricultural real estate, per section 8.0(9)(A) of the Act).\39\ The 
phrase ``pooling and servicing agreements'' is outdated as such 
documents are no longer a fundamental prerequisite to doing business 
with Farmer Mac. We replace this phrase with one that refers to those 
documents supporting issuances of these types of guaranteed securities 
and which are material to the transaction(s).
---------------------------------------------------------------------------

    \37\ 12 U.S.C. 2279aa-6(e).
    \38\ Public Law 104-105, 110 Stat. 164 (February 10, 1996).
    \39\ See former Sec.  621.20(b)(2)(ii) (58 FR 48786, September 
20, 1993) referring to Farmer Mac I securities, relocated to 
existing Sec.  655.50(b)(2)(ii)(70 FR 40635, July 14, 2005). Farmer 
Mac I securities are those backed by pools of qualified loans as 
defined in section 8.0(9)(A) of the Act.
---------------------------------------------------------------------------

5. Correspondence Related to Securities Activities [New Subpart C: 
Existing Sec.  655.50; New Sec.  655.21]
    We proposed expanding the existing requirement to send us copies of 
substantive correspondence between Farmer Mac and the SEC or U.S. 
Treasury to cover all subject matters, instead of just those 
substantive communications related to securities activities and SEC 
compliance matters. We also proposed adding similar

[[Page 49150]]

communications with the NYSE and setting timeframes for providing the 
information to us. Farmer Mac asked for clarification on the types of 
correspondence between the Corporation and the SEC or NYSE that needed 
to be sent to us, adding that sending all substantive communique could 
be unworkably burdensome. Farmer Mac did acknowledge that the provision 
was within our oversight authority, but stated the scope of 
communication was too broad. Farmer Mac went on to equate 
``substantive'' correspondence with ``routine'' communications received 
by many employees of the Corporation through subscriptions to NYSE 
market data.
    Material such as mass-produced market updates are not ``substantive 
correspondence between the Corporation and the SEC, U.S. Treasury, or 
NYSE'' nor would we expect to be sent SEC and NYSE communique provided 
to a subscriber list. However, to alleviate any confusion, we clarify 
that correspondence directly addressing the activities of the 
Corporation is what is covered by the provision. Further, we refer to 
past clarifications on this issue, explaining that non-substantive 
transmittal letters accompanying SEC filings, for example, would not be 
considered ``substantial'' and therefore not required to be filed with 
the FCA.\40\ On the other hand, we have particular interest in 
interpretive rulings of the NYSE, the SEC, or the Treasury Department 
bearing on Farmer Mac's ongoing business activities and expect such 
correspondence to be filed with us under this provision.
---------------------------------------------------------------------------

    \40\ See 58 FR 48786 (September 20, 1993), where FCA responded 
in 1993 to a similar comment of Farmer Mac regarding the meaning of 
``substantive''.
---------------------------------------------------------------------------

    Farmer Mac asked that we exclude communications to NYSE that would 
be duplicative of official filings with the SEC. We agree and have 
changed the language of Sec.  655.21(a) accordingly. Farmer Mac also 
requested guidance on how to transmit to us communique issued via 
secure electronic portals. We encourage Farmer Mac to contact us when 
they have such communique, at which time we will provide instructions 
on how to provide us copies of such.
    In addition, Farmer Mac objected to being required in Sec.  
655.21(c) to notify us of any exemption it obtained from the SEC. 
Farmer Mac asked that we limit the requirement to those SEC exemptions 
obtained under the Securities Act of 1934. In making this request, 
Farmer Mac explained it is not subject to complete regulation by SEC 
and, except for certain mortgage-backed securities, it is not subject 
to the 1933 Securities Act and must only file reports under the 1934 
Securities Act. We decline the request to limit the rule by naming a 
specific securities law. The definition for ``securities'' contained in 
Sec.  655.1 explains that it means the securities law(s) appropriate to 
the context of the employing provision. However, we have changed the 
requirement to only require notice to us of those exemptions that are 
not generally available under SEC rules to similarly situated filers.

E. Other Comments

    We received comments on portions of the proposed rule preamble 
language that do not address regulatory provisions and result in no 
change to the rule. These comments are discussed below.
1. Regulatory Flexibility Act Certification
    We received a comment from an agent of Farmer Mac regarding the 
Regulatory Flexibility Act (RFA).\41\ The commenter argued this 
rulemaking would impact a substantial number of small businesses, with 
whom Farmer Mac conducts business, and therefore would alter our 
assessment of the economic impact of the rulemaking. In the proposed 
rule, we certified that the rule would not have a significant economic 
impact on a large number of small entities, and that Farmer Mac did not 
qualify as a ``small entity'' as defined under the RFA. The RFA does 
not: (1) Seek preferential treatment for small entities; (2) require 
agencies to adopt regulations that impose the least burden on small 
entities; or (3) mandate exemptions for small entities. Rather, it 
requires agencies to examine public policy issues using an analytical 
process that identifies, among other things, barriers to small business 
competitiveness. Meaning, it requires agencies to analyze the economic 
impact of proposed regulations when there is likely to be a significant 
economic impact on a substantial number of small entities covered by 
the rulemaking, and to consider regulatory alternatives that will 
achieve the agency's goal while minimizing the burden on those same 
small entities. The rule is directed at Farmer Mac, which is not a 
small business. Further, we see nothing in this final rulemaking that 
creates significant economic barriers to small businesses. Those areas 
of the rule referencing agents of Farmer Mac expound upon existing 
regulations or statutory provisions and make no reference to the size 
of entity serving as an agent to Farmer Mac.
---------------------------------------------------------------------------

    \41\ Regulatory Flexibility Act, Pub. L. 96-354, 94 Stat. 1164 
(codified at 5 U.S.C. 601).
---------------------------------------------------------------------------

2. Need for Rulemaking
    One stockholder-commenter expressed general concern with FCA 
regulating the corporate governance and disclosures for Farmer Mac 
given existing SEC rules in these areas. This commenter asked FCA to 
use caution as SEC rules are constantly changing. The commenter also 
stated FCA did not need to regulate governance behavior at Farmer Mac 
as the Corporation has a strong history of sophisticated corporate 
governance practices.
    Voluntary governance is valuable, but it does not replace the 
stability that rules provide in assuring stakeholders of the safety and 
soundness of the Corporation. Our governance rules set a minimum level 
of performance that is mandatory for the Corporation. While we believe 
it is important to preserve individual operating flexibility wherever 
and whenever possible, our responsibility as regulator requires us to 
issue regulations we determine appropriate for safety and soundness 
reasons. We believe the assurances derived from a regulatory minimum 
standard, combined with the Corporation's voluntary governance efforts, 
will increase stockholder, investor, and public confidence in Farmer 
Mac.
    Farmer Mac questioned the need for any regulatory changes, stating 
that insufficient recognition was given to its status as a public 
company. Farmer Mac also stated that it is unnecessary for FCA to 
regulate many corporate governance areas due to SEC requirements and 
thus we should remove those provisions. Farmer Mac explained that it is 
the mission of the SEC to protect investors, and the SEC provides 
sufficient regulation of board activities and corporate disclosures. 
Farmer Mac added that portions of the rule presented compliance 
concerns with other regulatory elements unrelated to FCA, but provided 
no specific citation to these other rules. Farmer Mac also asserted 
that the rulemaking would potentially harm the Corporation and those it 
serves in a material way instead of enhance safe and sound operations, 
but again offered no specifics.
    The FCA, acting through OSMO, examines and provides general 
supervision over the activities of Farmer Mac pursuant to section 8.11 
of the Act. As discussed elsewhere in this preamble, the role the SEC 
plays in the disclosure and reporting aspects of the Corporation does 
not remove our

[[Page 49151]]

responsibility to regulate Farmer Mac's safe and sound operations. We 
have a responsibility to address corporate governance within the 
Corporation given its importance to the safe and sound operations of 
the Corporation and the current business climate in which Farmer Mac 
operates. As a GSE, the Corporation has strategic objectives that are 
both commercially and public policy oriented. Thus, governance of the 
Corporation must be understood and interpreted not only in the context 
of the fiduciary responsibilities to the Corporation and its 
shareholders, but also in the context of the statutory duty to further 
the Congressional purposes the Corporation was chartered to achieve. In 
addition, we explained in the proposed rule preamble that Farmer Mac, 
as a publicly traded company, is subject to many of the governance 
requirements of Sarbanes-Oxley, Dodd-Frank, and SEC disclosure 
regulations for publicly traded companies. However, with the recent 
events in the financial industry, increased sophistication in financial 
markets, and on-going scrutiny of GSE financial activities and related 
reporting practices, we believed it prudent to update our current 
regulatory standards related to Farmer Mac's Board governance, 
reporting, and disclosures.
    Farmer Mac stated that FCA did not publish its current concerns 
with the risk management and governance operations of the Corporation 
in support of the rulemaking. This rulemaking is intended to ensure 
that appropriate board governance and risk management practices are in 
place at Farmer Mac. We are not limited to issuing regulations only 
when there is an existing adverse risk or problem. Our responsibilities 
as a safety and soundness regulator requires us to be proactive and 
prudent in our rulemaking, as well as reactive by providing standards 
that help avert potential problems. Thus, we have flexibility to issue 
rules either in response to a problem or proactively to ensure the 
Corporation's continued safe and sound business operations.
    Farmer Mac also asserted FCA has in the past ``deferred'' to the 
oversight of the SEC and NYSE. We reject this assertion. The FCA, as an 
independent regulator of the Corporation, is not required to follow the 
actions of other regulators and we have never deferred our regulatory 
oversight to another agency. We do not view our past efforts to 
accommodate the Corporation's requests to modify our regulations in 
light of those issued by other regulators (whose regulations also 
affect the Corporation's operations) as a relinquishment of our safety 
and soundness authority.
3. Terminology
    Farmer Mac asked that we define an assortment of terms and phrases 
used throughout the rule, asserting that many of these terms and 
phrases are not ``established'' in a body of law. Most of the terms and 
phrases identified by Farmer Mac are derived from corporate case law, 
model codes, and the Act itself. As such, we do not believe it 
necessary to further define them.
4. Regulatory Burden
    Farmer Mac commented that it viewed many aspects of the rule as 
unnecessary and burdensome, making them inconsistent with the 
``Congressional mandate'' that we eliminate unnecessary regulations. As 
we understand this comment, Farmer Mac is referring to the instructions 
of the Farm Credit System Reform Act of 1996 (1996 Act) \42\ to reduce 
regulatory burdens. Section 212(b) of the 1996 Act requires us to 
continuously review our regulations to eliminate rules that are 
unnecessary, unduly burdensome, costly, or not based on law. The 1996 
Act specifies that we are to make these eliminations only if they would 
be consistent with law, safety, and soundness. As explained throughout 
this preamble, Congress charged us to issue regulations to ensure the 
safety and soundness of the Corporation and this rule is consistent 
with the law and safety and soundness concerns.
---------------------------------------------------------------------------

    \42\ Public Law 104-105, 110 Stat. 162 (February 10, 1996).
---------------------------------------------------------------------------

IV. Regulatory Flexibility Act

    Pursuant to section 605(b) of the Regulatory Flexibility Act (5 
U.S.C. 601 et seq.), FCA hereby certifies the final rule will not have 
a significant economic impact on a substantial number of small 
entities. The Corporation has assets and annual income over the amounts 
that would qualify it as a small entity. Therefore, the Corporation is 
not considered a ``small entity'' as defined in the Regulatory 
Flexibility Act.

List of Subjects

12 CFR Part 650

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

12 CFR Part 651

    Agriculture, Banks, banking, Conduct standards, Conflict of 
interests, Elections, Ethical conduct, Rural areas.

12 CFR Part 653

    Agriculture, Banks, banking, Capital, Conduct standards, Credit, 
Finance, Rural areas.

12 CFR Part 655

    Accounting, Agriculture, Banks, banking, Accounting and reporting 
requirements, Disclosure and reporting requirements, Financial 
disclosure, Rural areas.

    For the reasons stated in the preamble, parts 650, 651, 653, and 
655 of chapter VI, title 12 of the Code of Federal Regulations are 
amended as follows:

PART 650--FEDERAL AGRICULTURAL MORTGAGE CORPORATION GENERAL 
PROVISIONS

0
1. The authority citation for part 650 is revised to read as follows:

    Authority:  Secs. 4.12, 5.9, 5.17, 5.25, 8.11, 8.12, 8.31, 8.32, 
8.33, 8.34, 8.35, 8.36, 8.37, 8.41 of Pub. L. 92-181, 85 Stat. 583 
(12 U.S.C. 2183, 2243, 2252, 2261, 2279aa-11, 2279aa-12, 2279bb, 
2279bb-1, 2279bb-2, 2279bb-3, 2279bb-4, 2279bb-5, 2279bb-6, 2279cc); 
sec. 514 of Pub. L. 102-552, 106 Stat. 4102; sec. 118 of Pub. L. 
104-105, 110 Stat. 168.


0
2. Add subpart B, under the heading ``Conservators, Receivers, and 
Liquidations'' consisting of existing Sec. Sec.  650.1 through 650.80 
as redesignated in the following table:

------------------------------------------------------------------------
                Old section                          New section
------------------------------------------------------------------------
650.1, no subpart.........................  650.13, subpart B
650.5, no subpart.........................  650.14, subpart B
650.10, no subpart........................  650.10, subpart B
650.15, no subpart........................  650.15, subpart B
650.20, no subpart........................  650.20, subpart B
650.25, no subpart........................  650.25, subpart B
650.30, no subpart........................  650.30, subpart B
650.35, no subpart........................  650.35, subpart B
650.40, no subpart........................  650.40, subpart B
650.45, no subpart........................  650.45, subpart B
650.50, no subpart........................  650.50, subpart B
650.55, no subpart........................  650.55, subpart B
650.60, no subpart........................  650.60, subpart B
650.65, no subpart........................  650.65, subpart B
650.70, no subpart........................  650.70, subpart B
650.75, no subpart........................  650.75, subpart B
650.80, no subpart........................  650.80, subpart B
------------------------------------------------------------------------


0
3. Add a new subpart A to read as follows:
Subpart A--Regulation, Examination and Enforcement
Sec.
650.1 Definitions.
650.2 Regulatory authority.
650.3 Supervision and enforcement.
650.4 Access to Corporation records and personnel.
650.5 Reports of examination.
650.6 Criminal referrals.

[[Page 49152]]

Subpart A--Regulation, Examination and Enforcement


Sec.  650.1  Definitions.

    The following definitions apply to this part:
    Act or Authorizing statute means the Farm Credit Act of 1971, as 
amended.
    Business day means a day the Corporation is open for business, 
excluding the legal public holidays identified in 5 U.S.C. 6103(a).
    Corporation or Farmer Mac means the Federal Agricultural Mortgage 
Corporation and its affiliates.
    FCA means the Farm Credit Administration, an independent Federal 
agency of the executive branch.
    NYSE means the New York Stock Exchange, a listing exchange.
    OSMO means the FCA Office of Secondary Market Oversight, which is 
responsible for the general supervision of the safe and sound exercise 
of the Corporation's powers, functions, and duties and compliance with 
laws and regulations.
    Our or we means the FCA or OSMO, as appropriate to the context of 
the provision employing the term.
    SEC means the Securities and Exchange Commission.
    Securities Act means the Securities Act of 1933 (15 U.S.C. 77a et 
seq.) or the Exchange Act of 1934 (15 U.S.C. 78a et seq.), or both, as 
appropriate to the context of the provision employing the term.
    Signed, when referring to paper form, means a manual signature, 
and, when referring to electronic form, means marked in a manner that 
authenticates each signer's identity.


Sec.  650.2  Regulatory authority.

    (a) General. The Corporation is a for-profit Government-sponsored 
enterprise developed to provide a secondary market for qualified 
agricultural, USDA-guaranteed, and rural utility loans, with public 
policy objectives included in its statutory charter. The Corporation is 
regulated by the FCA, operating through OSMO. The Corporation also 
lists securities on the NYSE, making it subject to certain SEC listing 
and disclosure requirements.
    (b) Primary regulator. The FCA, operating through OSMO, holds 
primary regulatory, examination, and enforcement authority over the 
Corporation. The FCA, operating through OSMO, is responsible for the 
general supervision of the safe and sound exercise of the Corporation's 
powers, functions, and duties and compliance with applicable laws and 
regulations.
    (c) Other regulatory authorities. The Corporation registers its 
common stock and certain offerings of Farmer Mac Guaranteed Securities 
under the Securities Act and related regulations so must comply with 
certain SEC reporting requirements.


Sec.  650.3  Supervision and enforcement.

    The Act provides FCA, acting through OSMO, with enforcement 
authority to protect the financial safety and soundness of the 
Corporation and to ensure that the Corporation's powers, functions, and 
duties are exercised in a safe and sound manner.
    (a) General supervision. When we determine the Corporation has 
violated a law, rule, or regulation or is engaging in an unsafe or 
unsound condition or practice, we have enforcement authority that 
includes, but is not limited to, the following:
    (1) Issue an order to cease and desist;
    (2) Issue a temporary order to cease and desist;
    (3) Assess civil monetary penalties against the Corporation and its 
directors, officers, employees, and agents; and
    (4) Issue an order to suspend, remove, or prohibit directors and 
officers.
    (b) Financial safety and soundness of the Corporation. When we 
determine the Corporation is taking excessive risks that adversely 
impact the adequacy of Regulatory Capital, we have authority to address 
that risk. This includes, but is not limited to, requiring capital 
restoration plans, restricting dividend distributions, requiring 
changes in the Corporation's obligations and assets, requiring the 
acquisition of new capital and restricting those Corporation activities 
determined to create excessive risk to the Corporation's Regulatory 
Capital.


Sec.  650.4  Access to Corporation records and personnel.

    (a) The Corporation must make its records available promptly upon 
request by OSMO, at a location and in a form and manner acceptable to 
OSMO.
    (b) The Corporation must make directors, officers, employees and 
other individuals or entities engaged by the Corporation to participate 
in the conduct of the Corporation's business available to OSMO during 
the course of an examination or supervisory action when OSMO determines 
it necessary to facilitate an examination or supervisory action.


Sec.  650.5  Reports of examination.

    The Corporation is subject to the provisions in 12 CFR part 602 
regarding FCA Reports of Examination.


Sec.  650.6  Criminal referrals.

    The rules at 12 CFR part 612, subpart B, regarding ``Referral of 
Known or Suspected Criminal Violations'' are applicable to the 
Corporation.
0
4. Revise part 651 to read as follows:

PART 651--FEDERAL AGRICULTURAL MORTGAGE CORPORATION GOVERNANCE

Subpart A--General
Sec.
651.1 Definitions.
651.2 [Reserved]
Subpart B--Standards of Conduct
651.21 [Reserved]
651.22 Conflict-of-interest policy.
651.23 Implementation of policy.
651.24 Director, officer, employee, and agent responsibilities.
Subpart C--Board Governance
651.30 [Reserved]
651.35 [Reserved]
651.40 [Reserved]
651.50 Committees of the Corporation's board of directors.

    Authority:  Secs. 4.12, 5.9, 5.17, 8.3, 8.11, 8.14, 8.31, 8.32, 
8.33, 8.34, 8.35, 8.36, 8.37, 8.41 of Pub. L. 92-181, 85 Stat. 583 
(12 U.S.C. 2183, 2243, 2252, 2279aa-3, 2279aa-11, 2279aa-14, 2279bb, 
2279bb-1, 2279bb-2, 2279bb-3, 2279bb-4, 2279bb-5, 2279bb-6, 2279cc); 
sec. 514 of Pub. L. 102-552, 106 Stat. 4102; sec. 118 of Pub. L. 
104-105, 110 Stat. 168.

Subpart A--General


Sec.  651.1  Definitions.

    The following definitions apply to this part:
    Act or Authorizing statute means the Farm Credit Act of 1971, as 
amended.
    Agent means any person (other than a director, officer, or employee 
of the Corporation) who represents the Corporation in contacts with 
third parties or who provides professional services such as legal, 
accounting, or appraisal services to the Corporation.
    Affiliate means any entity established under authority granted to 
the Corporation under section 8.3(c)(14) of the Act.
    Appointed director means a member of the Corporation's board of 
directors who was appointed to the Corporation board by the President 
of the United States of America.
    Business day means a day the Corporation is open for business, 
excluding the legal public holidays identified in 5 U.S.C. 6103(a).
    Class A stockholders means holders of common stock in the 
Corporation that are insurance companies, banks, or other financial 
institutions or entities.

[[Page 49153]]

    Class B stockholders means holders of common stock in the 
Corporation that are Farm Credit System institutions.
    Conflict-of-interest means a director, officer, or employee of the 
Corporation has an interest in a transaction, relationship, or activity 
that might adversely affect, or appear to adversely affect, the ability 
of the director, officer, or employee to perform his or her official 
duties on behalf of the Corporation in an objective and impartial 
manner in furtherance of the interest of the Corporation and its 
statutory purposes.
    Corporation means the Federal Agricultural Mortgage Corporation and 
its affiliates.
    Director elections mean the process of searching for director 
candidates, conducting director nominations, and voting for directors.
    Elected director means a member of the Corporation's board of 
directors who was elected by either Class A or Class B stockholders.
    Employee means any salaried individual working part-time, full-
time, or temporarily for the Corporation.
    Entity means a corporation, company, association, firm, joint 
venture, partnership (general or limited), society, joint stock 
company, trust (business or otherwise), fund, or other organization or 
institution.
    FCA means the Farm Credit Administration, an independent Federal 
agency of the executive branch.
    Material means conflicting interests of sufficient magnitude or 
significance that a reasonable person with knowledge of the relevant 
facts would question the ability of the person having such interest to 
discharge official duties in an objective and impartial manner in 
furtherance of the interests and statutory purposes of the Corporation.
    Officer means the salaried president, vice presidents, secretary, 
treasurer, and general counsel, or other person, however designated, 
who holds a position of similar authority in the Corporation.
    OSMO means the FCA Office of Secondary Market Oversight, which is 
responsible for the general supervision of the safe and sound exercise 
of the Corporation's powers, functions, and duties and compliance with 
laws and regulations.
    Our or we means the FCA or OSMO, as appropriate to the context of 
the provision employing the term.
    Person means individual or entity.
    Reasonable person means a person under similar circumstances 
exercising the average level of care, skill, and judgment in his or her 
conduct.
    Resolved means an actual or potential material conflict-of-interest 
that has been altered so that a reasonable person with knowledge of the 
relevant facts would conclude that the conflicting interest would not 
adversely affect the person's performance of official duties in an 
objective and impartial manner and in furtherance of the interests and 
statutory purposes of the Corporation.
    Signed, when referring to paper form, means a manual signature, 
and, when referring to electronic form, means marked in a manner that 
authenticates each signer's identity.


Sec.  651.2  [Reserved]

Subpart B--Standards of Conduct


Sec.  651.21  [Reserved]


Sec.  651.22  Conflict-of-interest policy.

    The Corporation shall establish and administer a conflict-of-
interest policy that will provide reasonable assurance that the 
directors, officers, employees, and agents of the Corporation discharge 
their official responsibilities in an objective and impartial manner in 
furtherance of the interests and statutory purposes of the Corporation. 
The policy shall, at a minimum:
    (a) Define the types of transactions, relationships, or activities 
that could reasonably be expected to give rise to potential conflicts 
of interest. For the purpose of determining whether a potential 
conflict of interest exists, the following interests shall be imputed 
to a person subject to this regulation as if they were that person's 
own interests:
    (1) Interests of any individual residing in that person's 
household;
    (2) Interests of any individual identified as a legal dependent of 
that person;
    (3) Interests of that person's general business partner;
    (4) Interests of an organization or entity that the person serves 
as officer, director, trustee, general partner or employee; and
    (5) Interests of a person, organization, or entity with which that 
person is negotiating for or has an arrangement concerning current or 
prospective employment.
    (b) Require each director, officer, and employee to report in 
writing, annually, and at such other times as conflicts may arise, 
sufficient information about financial interests, transactions, 
relationships, and activities to inform the Corporation of potential 
conflicts of interest;
    (c) Require each director, officer, and employee who had no 
transaction, relationship, or activity required to be reported under 
paragraph (b) of this section at any time during the year to file a 
signed statement to that effect;
    (d) Establish guidelines for determining when a potential conflict 
is material in accordance with this subpart;
    (e) Establish procedures for resolving or disclosing material 
conflicts of interest.
    (f) Provide internal controls to ensure that reports are filed as 
required and that conflicts are resolved or disclosed in accordance 
with this subpart.
    (g) Notify directors, officers, and employees of the conflict-of-
interest policy and any subsequent changes thereto and allow them a 
reasonable period of time to conform to the policy.


Sec.  651.23  Implementation of policy.

    (a) The Corporation shall disclose any unresolved material 
conflicts of interest involving its directors, officers, and employees 
to:
    (1) Shareholders through annual reports and proxy statements; and
    (2) Investors and potential investors through disclosure documents 
supplied to them.
    (b) The Corporation shall make available to any shareholder, 
investor, or potential investor, upon request, a copy of its policy on 
conflicts of interest. The Corporation may charge a nominal fee to 
cover the costs of reproduction and handling.
    (c) The Corporation shall maintain all reports of all potential 
conflicts of interest and documentation of materiality determinations 
and resolutions of conflicts of interest for a period of 6 years.


Sec.  651.24  Director, officer, employee, and agent responsibilities.

    (a) Each director, officer, employee, and agent of the Corporation 
shall:
    (1) Conduct the business of the Corporation following high 
standards of honesty, integrity, impartiality, loyalty, and care, 
consistent with applicable law and regulation in furtherance of the 
Corporation's public purpose;
    (2) Adhere to the requirements of the conflict-of-interest policy 
established by the Corporation and provide any information the 
Corporation deems necessary to discharge its responsibilities under 
this subpart.
    (b) Directors, officers, employees, and agents of the Corporation 
shall be subject to the penalties of part C of title V of the Farm 
Credit Act of 1971, as amended, for violations of this regulation, 
including failure to adhere to the conflict-of-interest policy 
established by the Corporation.

[[Page 49154]]

Subpart C--Board Governance


Sec.  651.30  [Reserved]


Sec.  651.35  [Reserved]


Sec.  651.40  [Reserved]


Sec.  651.50  Committees of the Corporation's board of directors.

    (a) General. No committee of the board of directors may be 
delegated the authority of the board of directors to amend Corporation 
bylaws. No committee of the board of directors shall relieve the board 
of directors or any board member of a responsibility imposed by law or 
regulation.
    (b) Required committees. The board of directors of the Corporation 
must have committees, however styled, that address risk management, 
audit, compensation, and corporate governance. Neither the risk 
management committee nor the audit committee may be combined with any 
other committees. This provision does not prevent the board of 
directors from establishing any other committees that it deems 
necessary or useful to carrying out its responsibilities.
    (c) Charter. Each committee required by this section must develop a 
formal written charter that specifies the scope of the committee's 
powers and responsibilities, as well as the committee's structure, 
processes, and membership requirements. To be effective, the charter 
must be approved by action of the full board of directors. No director 
may serve as chairman of more than one of the board committees required 
by this section.
    (d) Frequency of meetings and records. Each committee of the board 
of directors required by this section must meet with sufficient 
frequency to carry out its obligations and duties under applicable 
laws, regulations, and its operating charter. Each of these committees 
must maintain minutes of its meetings. The minutes must record 
attendance, the agenda (or equivalent list of issues under discussion), 
a summary of the relevant discussions held by the committee during the 
meeting, and any resulting recommendations to the board. Such minutes 
must be retained for a minimum of 3 years and must be available to the 
entire board of directors and to OSMO.

0
5. Add part 653 to read as follows:

PART 653--FEDERAL AGRICULTURAL MORTGAGE CORPORATION RISK MANAGEMENT

Sec.
653.1 Definitions.
653.2 General.
653.3 Risk management.
653.4 Internal controls.

    Authority: Secs. 8.3, 8.4, 8.6, 8.8, and 8.10 of Pub. L. 92-181, 
85 Stat. 583 (12 U.S.C. 2279aa-3, 2279aa-4, 2279aa-6, 2279aa-8, and 
2279aa-10).


Sec.  653.1  Definitions.

    The following definitions apply to this part:
    Corporation means the Federal Agricultural Mortgage Corporation and 
its affiliates.
    FCA means the Farm Credit Administration, an independent Federal 
agency of the executive branch.
    OSMO means the FCA Office of Secondary Market Oversight, which is 
responsible for the general supervision of the safe and sound exercise 
of the Corporation's powers, functions, and duties and compliance with 
laws and regulations.


Sec.  653.2  General.

    The Corporation's board of directors must approve the overall risk-
appetite of the Corporation and regularly monitor internal controls to 
provide reasonable assurance that risk-taking activities are conducted 
in a safe and sound manner.


Sec.  653.3  Risk management.

    (a) Risk management program. The Corporation's board of directors 
must establish, maintain, and periodically update an enterprise-wide 
risk management program addressing how the Corporation's activities are 
exercised in a safe and sound manner. The implementation of the risk 
management program may reside with senior management. The risk 
management program at a minimum must:
    (1) Periodically assess and document the Corporation's risk 
profile.
    (2) Align the Corporation's risk profile with the board-approved 
risk appetite and the Corporation's operational planning strategies and 
objectives.
    (3) Specify management's authority to carry out risk management 
responsibilities.
    (4) Integrate risk management and control objectives into 
management goals and compensation structures.
    (5) Comply with all applicable FCA regulations and policies.
    (b) Risk committee. The Corporation's board-level risk committee 
assists the full board of directors in the oversight of the enterprise-
wide risk management program of the Corporation.
    (1) The risk committee must have at least one member with an 
understanding of risk management commensurate with the Corporation's 
capital structure, risk profile, complexity, activities, size, and 
other appropriate risk-related factors.
    (2) The responsibilities of the risk committee include, but are not 
limited to:
    (i) Periodically assessing management's implementation of the 
enterprise-wide risk management program;
    (ii) Recommending changes to the risk management program to keep 
the program commensurate with the Corporation's capital structure, risk 
appetite, complexity, activities, size, and other appropriate risk-
related factors; and
    (iii) Receiving and reviewing regular reports directly from 
personnel responsible for implementing the Corporation's risk 
management program.
    (c) Management of risk. The Corporation must have a risk officer, 
however styled, who is responsible for implementing and maintaining the 
enterprise-wide risk management practices of the Corporation. The risk 
officer must have risk management experience commensurate with the 
Corporation's capital structure, risk appetite, complexity, activities, 
and size. The responsibilities of the risk officer include, but are not 
limited to:
    (1) Identifying and monitoring compliance with risk limits, 
exposures, and controls;
    (2) Implementing risk management policies, procedures, and risk 
controls;
    (3) Developing appropriate processes and systems for identifying 
and reporting risks, including emerging risks;
    (4) Reporting on risk management issues, emerging risks, and 
compliance concerns; and
    (5) Making recommendations on adjustments to the risk management 
policies, procedures, and risk controls of the Corporation.


Sec.  653.4  Internal controls.

    (a) The Corporation's board of directors must adopt an internal 
controls policy that provides adequate directions for, and identifies 
expectations in, establishing effective safety and soundness control 
over, and accountability for, the Corporation's operations, programs, 
and resources.
    (b) The internal controls system must address:
    (1) The efficiency and effectiveness of the Corporation's 
activities;
    (2) Safeguarding the assets of the Corporation;
    (3) Evaluating the reliability, completeness, and timely reporting 
of financial and management information;
    (4) Compliance with applicable laws, regulations, regulatory 
directives, and the policies of the Corporation's board of directors 
and senior management;

[[Page 49155]]

    (5) The appropriate segregation of duties among the Corporation 
personnel so that personnel are not assigned conflicting 
responsibilities; and
    (6) The completeness and quality of information provided to the 
Corporation's board of directors.
    (c) The Corporation is responsible for establishing and 
implementing an effective system to identify internal controls 
weaknesses and taking action to correct detected weaknesses. The 
Corporation must document:
    (1) The process used to identify weaknesses,
    (2) Any found weaknesses, and
    (3) How identified weaknesses were addressed.

0
6. Revise part 655 to read as follows:

PART 655--FEDERAL AGRICULTURAL MORTGAGE CORPORATION DISCLOSURE AND 
REPORTING REQUIREMENTS

Subpart A--General
Sec.
655.1 Definitions.
Subpart B--Report of Condition of the Federal Agricultural Mortgage 
Corporation
655.10 Reports of condition.
655.15 Interim reports, notices, and proxy statements.
Subpart C--Reports Relating to Securities Activities of the Federal 
Agricultural Mortgage Corporation
655.20 Securities not registered under the Securities Act.
655.21 Filings and communications with the U.S. Treasury, the SEC 
and NYSE.

    Authority: Secs. 5.9, 8.3, 8.11, and 8.12 of Pub. L. 92-181, 85 
Stat. 583 (12 U.S.C. 2243, 2279aa-3, 2279aa-11, 2279aa-12).

Subpart A--General


Sec.  655.1  Definitions.

    The following definitions apply to this part:
    Act or authorizing statute means the Farm Credit Act of 1971, as 
amended.
    Business day means a day the Corporation is open for business, 
excluding the legal public holidays identified in 5 U.S.C. 6103(a).
    Corporation means the Federal Agricultural Mortgage Corporation and 
its affiliates.
    FCA means the Farm Credit Administration, an independent Federal 
agency of the executive branch.
    Material, when used to qualify a requirement to furnish information 
as to any subject, means the information required for those matters to 
which there is a substantial likelihood that a reasonable person would 
attach importance in making investor decisions or determining the 
financial condition of the Corporation.
    NYSE means the New York Stock Exchange, a listing exchange.
    OSMO means the FCA Office of Secondary Market Oversight, which is 
responsible for the general supervision of the safe and sound exercise 
of the Corporation's powers, functions, and duties and compliance with 
laws and regulations.
    Our or us means the FCA or OSMO, as appropriate to the context of 
the provision employing the term.
    Person means individual or entity.
    SEC means the Securities and Exchange Commission.
    Securities Act means the Securities Act of 1933 (15 U.S.C. 77a et 
seq.) or the Exchange Act of 1934 (15 U.S.C. 78a et seq.), or both, as 
appropriate to the context of the provision employing the term.
    Signed, when referring to paper form, means a manual signature, 
and, when referring to electronic form, means marked in a manner that 
authenticates each signer's identity.

Subpart B---Reports of Condition of the Federal Agricultural 
Mortgage Corporation


Sec.  655.10  Reports of condition.

    (a) General. The Corporation must prepare and publish annual 
reports to its shareholders of its condition, including financial 
statements and related schedules, exhibits, and other documents that 
are part of the reports. The contents of each report must be equivalent 
in content to the annual report to shareholders required by the 
Securities Act unless we issue instructions otherwise.
    (b) Signatures and certification. Each report issued under this 
subpart must be signed. The Corporation must designate the 
representatives who will sign each report. The name and position title 
of each person signing the report must be printed beneath his or her 
signature. The signatories must certify the report by using the SEC 
rules on certifications for disclosures in annual reports to 
shareholders.
    (c) Distribution. The Corporation must distribute the signed annual 
report of condition to its shareholders within 120 days of its fiscal 
year-end. Within 5 days of signing, the Corporation must provide us one 
paper and one electronic copy of every signed report that is 
distributed to its shareholders. If the report is the same as that 
filed with the SEC, the Corporation may instead provide the signed 
reports to us only in electronic form and simultaneous with filing the 
report with the SEC.
    (1) The Corporation must publish on its Web site a copy of each 
annual report to shareholders within 3 business days of filing the 
report with us. The report must remain on the Web site until the next 
report is posted. When the reports are the same as those filed with the 
SEC, electronic links to the SEC filings Web site may be used in 
satisfaction of this requirement.
    (2) Upon receiving a request for an annual report of condition from 
a stockholder, investor, or the public, the Corporation must promptly 
provide the requester the most recent annual report issued in 
compliance with this section.


Sec.  655.15  Interim reports, notices, and proxy statements.

    (a) The Corporation must provide to us one paper and one electronic 
copy of every interim report, notice, and proxy statement filed with 
the SEC within 1 business day of filing the item with the SEC, 
including all papers and documents that are a part of the report, 
notice, or statement.
    (b) The Corporation must publish a copy of each interim report, 
notice, and proxy statement on its Web site within 5 business days of 
filing the document(s) with the SEC. The Corporation may omit from 
these postings confidential, non-public information contained in the 
interim report, notice, or proxy statement. The interim report, notice, 
or proxy statement must remain on the Web site for 6 months or until 
the next annual report of condition is posted, whichever is later. 
Electronic links to the SEC filings Web site may be used in 
satisfaction of this requirement.

Subpart C---Reports Relating to Securities Activities of the 
Federal Agricultural Mortgage Corporation


Sec.  655.20  Securities not registered under the Securities Act.

    The Corporation must make special filings with the Director of OSMO 
for securities either issued or guaranteed by the Corporation that are 
not registered under the Securities Act. These filings include, but are 
not limited to:
    (a) Either one paper or one electronic copy of any offering 
circular, private placement memorandum, or information statement 
prepared in connection with the securities offering at or before the 
time of the securities offering.
    (b) For securities backed by qualified loans as defined in section 
8.0(9)(A) of the Act, either one paper or one electronic copy of the 
following within 1 business day of the finalization of the transaction:
    (1) The private placement memoranda for securities sold to 
investors; and

[[Page 49156]]

    (2) The final agreement and all supporting documents material to 
the Corporation's purchase of a security under section 8.6(e) of the 
Act.
    (c) For securities backed by qualified loans as defined in section 
8.0(9)(B) of the Act, the Corporation must provide summary information 
on such securities issued during each calendar quarter in the form 
prescribed by us. Such summary information must be provided with each 
report of condition and performance (Call report) filed pursuant to 
Sec.  621.12, and at such other times as we may require.


Sec.  655.21  Filings and communications with the U.S. Treasury, the 
SEC, and NYSE.

    (a) The Corporation must send us one paper and one electronic copy 
of every filing made with U.S. Treasury, the SEC, or NYSE, including 
financial statements and related schedules, exhibits, and other 
documents that are a part of the filing. Such items must be filed with 
us no later than 1 business day after the U.S. Treasury, SEC, or NYSE 
filing. For those filings with the NYSE that duplicate ones made to the 
SEC, the Corporation may send only the SEC filing to us. If the filing 
is one addressed in subpart B of this part, no action under this 
paragraph is required.
    (b) The Corporation must send us, within 3 business days and 
according to instructions provided by us, copies of all substantive 
correspondence between the Corporation and the U.S. Treasury, the SEC, 
or NYSE that are directed at the activities of the Corporation.
    (c) The Corporation must notify us within 1 business day if it 
becomes exempt or claims exemption from the filing requirements of the 
Securities Act. Notice is not required when the Corporation claims an 
exemption that is generally available under SEC rules and regulations 
to similarly situated filers.

    Date: July 20, 2016.
Dale L. Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2016-17455 Filed 7-26-16; 8:45 am]
 BILLING CODE 6705-01-P