[Federal Register Volume 89, Number 13 (Friday, January 19, 2024)]
[Rules and Regulations]
[Pages 3537-3542]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2024-00731]
========================================================================
Rules and Regulations
Federal Register
________________________________________________________________________
This section of the FEDERAL REGISTER contains regulatory documents
having general applicability and legal effect, most of which are keyed
to and codified in the Code of Federal Regulations, which is published
under 50 titles pursuant to 44 U.S.C. 1510.
The Code of Federal Regulations is sold by the Superintendent of Documents.
========================================================================
Federal Register / Vol. 89, No. 13 / Friday, January 19, 2024 / Rules
and Regulations
[[Page 3537]]
FEDERAL HOUSING FINANCE AGENCY
12 CFR Part 1236
RIN 2590-AB10
Prudential Management and Operations Standards
AGENCY: Federal Housing Finance Agency.
ACTION: Final rule.
-----------------------------------------------------------------------
SUMMARY: The Federal Housing Finance Agency (FHFA) is amending its
prudential management and operations standards rule (rule) to clarify
that procedural requirements for corrective plans apply to prudential
management and operations standards (Standards) established as
regulations as well as guidelines, and to make the Office of Finance of
the Federal Home Loan Bank System (OF) subject to the rule and some of
the existing Standards in the appendix to the rule.
DATES: This rule is effective February 20, 2024.
FOR FURTHER INFORMATION CONTACT: Clinton Jones, General Counsel, (202)
649-3006, [email protected]; or Francisco Medina, Assistant
General Counsel, (202) 649-3076, [email protected]. These are
not toll-free numbers. The mailing address is: Federal Housing Finance
Agency, 400 Seventh Street SW, Washington, DC 20219. For TTY/TRS users
with hearing and speech disabilities, dial 711 and ask to be connected
to any of the contact numbers above.
SUPPLEMENTARY INFORMATION:
I. Introduction
A. Background
The Federal Housing Enterprises Financial Safety and Soundness Act
(the Safety and Soundness Act) requires the Director of FHFA to
establish Standards that address ten subjects relating to the
management and operation of the regulated entities, authorizes the
Director to establish other Standards in addition to those on the ten
listed subjects, and authorizes the Director to establish Standards by
regulation or guideline.\1\ The Safety and Soundness Act also addresses
FHFA corrective actions if a regulated entity fails to comply with a
Standard and requires FHFA to establish some procedures for corrective
actions by regulation.\2\ FHFA currently implements these requirements
through a procedural rule, 12 CFR part 1236, and Standards that FHFA
has established as guidelines set forth in an appendix to the rule, as
well as Standards established as regulations or as parts of
regulations.\3\
---------------------------------------------------------------------------
\1\ 12 U.S.C. 4513b (``section 4513b'').
\2\ Id. at 4513b(b)(1)(C).
\3\ See 12 CFR 1242.1(b), identifying the Enterprise Resolution
Planning Regulation as a Standard, and 1240.1(e)(3), identifying
provisions of the Enterprise Capital Adequacy Regulation as
Standards.
---------------------------------------------------------------------------
The current rule and initial Standards, all of which were
established as guidelines, were promulgated in 2012. Because FHFA did
not then identify any regulations as Standards, the current rule
addresses only Standards established as guidelines, which could imply
that Standards FHFA has since established as regulations are not
covered by the rule's procedures. Neither the current rule nor any
Standards apply to OF.
B. Overview of Proposed Amendments to the Rule
On May 4, 2023, FHFA proposed to amend part 1236 to reflect the
scope of FHFA's statutory authority to establish Standards as
regulations as well as guidelines, and to clarify that the rule's
procedural aspects related to corrective actions that may result from
failure to comply with a Standard apply equally to Standards
established as guidelines or as regulations.\4\ FHFA also proposed to
follow a notice-and-comment process to establish Standards as
guidelines or to make material modifications of such Standards, and
reaffirmed its intention to locate Standards established as guidelines
in the appendix to the rule.
---------------------------------------------------------------------------
\4\ 88 FR 28433 (May 4, 2023); correction notice at 88 FR 35780
(June 1, 2023).
---------------------------------------------------------------------------
FHFA further proposed to amend the rule and the appendix to part
1236 so that OF would be subject to the rule and certain Standards. The
Standards FHFA proposed to apply to OF are the General Responsibilities
of the Board of Directors and Senior Management, and Standards 1, 2, 8,
and 10. Standard 1 addresses ``Internal Controls and Information
Systems.'' Standard 2 addresses ``Independence and Adequacy of Internal
Audit Systems.'' Standard 8 addresses ``Overall Risk Management
Processes.'' Standard 10 addresses ``Maintenance of Adequate Records.''
Consistent with the foregoing changes, FHFA also proposed to revise
and clarify definitions and make conforming changes to part 1236 and
its appendix.
II. Discussion of Comments and Agency Response
A. Overview of Comments Received
FHFA received two comments on its proposed amendments to the rule:
one from the Council of Federal Home Loan Banks (Council) and one from
the Federal Home Loan Mortgage Corporation (Freddie Mac). The Council
commented on the proposed amendments to apply the rule and identified
Standards to OF and on the applicability of notice-and-comment
rulemaking to the establishment of Standards by guideline. Freddie Mac
also commented on the applicability of notice-and-comment rulemaking to
the revision or revocation of Standards that had been established by
guideline. After carefully reviewing and considering the comments, FHFA
has determined to issue the final rule as it was proposed.
B. Applying the Rule and Identified Standards to OF
The Council observed that OF is not a ``regulated entity'' as
defined in the Safety and Soundness Act and is therefore not explicitly
subject to section 4513b, which applies to regulated entities. The
Council nonetheless noted that FHFA has express general regulatory
authority over OF under 12 U.S.C. 4511(b)(2), as FHFA also noted in its
proposal, which provides a statutory basis for FHFA to apply the rule
and identified Standards to OF. The Council suggested FHFA clarify its
authority regarding OF in the rule. FHFA observes that the rule's
authority provision already references 12 U.S.C. 4511; on that basis,
further clarification of FHFA's authority is not necessary.
The Council asked that FHFA identify the specific purposes of
section 4513b
[[Page 3538]]
that would be served by subjecting OF to the rule and Standards. As the
Council noted in its letter, however, OF ``is an integral component of
the FHLBank System.'' OF is the fiscal agent for the Federal Home Loan
Bank System, through which the Banks issue consolidated obligations of
the System in the public capital markets. OF's role and the activities
OF performs for the Banks require OF to have appropriate governance,
adequate internal controls and information systems, appropriate risk
management, and adequate records maintenance. For those reasons,
applying the rule and identified Standards to OF would further the
purposes of section 4513b in the same manner that subjecting the Banks
to the rule and Standards does.
The Council also requested that FHFA specify ``the matters that are
not relevant'' to OF for purposes of compliance with the identified
Standards and raised concerns about potential conflicts between
existing regulations and the Standards in the appendix. FHFA notes that
its proposal particularly specified the Standards and portions of
Standards that would apply to OF; in other words, the proposed
amendments specified the matters that are relevant to OF. Moreover, the
current version of the rule and the proposed amendments to the rule
both specify that in the case of a conflict between a Standard and a
regulation, ``the regulation shall control.'' \5\
---------------------------------------------------------------------------
\5\ In the current rule, see 12 CFR 1236.3(c). In the proposed
amendments to the rule, see 12 CFR 1236.3(d).
---------------------------------------------------------------------------
Finally, the Council requested that FHFA establish an
implementation timeframe for OF to comply with the rule and identified
Standards. FHFA expects that the interim between publication of the
final rule and its effective date will provide OF sufficient time
either to come into compliance with the identified Standards or to
engage with appropriate FHFA supervision staff on a reasonable
timeframe to come into compliance with an identified Standard.
C. Notice-and-Comment Procedures and Standards Established by
Guidelines
The Council and Freddie Mac both offered comments on the
applicability of notice-and-comment rulemaking to Standards established
by guidelines. The current version of the rule provides that the
Director may ``modify, revoke, or add to the Standards'' established by
guidelines ``by order or notice,'' \6\ consistent with FHFA's authority
to issue guidance without going through notice-and-comment
rulemaking.\7\
---------------------------------------------------------------------------
\6\ 12 CFR 1236.3(b).
\7\ See generally Perez v. Mortgage Bankers Ass'n, 575 U.S. 92,
(2015) (``Not all `rules' must be issued through the notice-and-
comment process. Section 4(b)(A) of the [Administrative Procedure
Act] provides that . . . the notice-and-comment requirement `does
not apply' to `interpretative rules, general statements of policy,
or rules of agency organization, procedure, or practice.' '').
---------------------------------------------------------------------------
Based on FHFA's past practice of establishing Standards as
guidelines and because FHFA has determined to continue locating all
Standards established as guidelines in the appendix to the rule, which
would require a Federal Register notice, FHFA proposed amending the
rule to require FHFA to provide public notice of and seek public
comment on any Standard it planned to establish as a guideline or any
material modification to any Standard established as a guideline.\8\
FHFA proposed to retain the right to revoke any Standard established as
a guideline at any time by order or notice, as provided in the current
version of the rule.
---------------------------------------------------------------------------
\8\ 88 FR 28433, 28437 (May 4, 2023) (amending 12 CFR
1236.3(b)).
---------------------------------------------------------------------------
The Council noted that guidance setting forth FHFA's supervisory
expectations is not subject to the notice-and-comment rulemaking
requirements of the Administrative Procedure Act (APA) and expressed
its appreciation for FHFA's proposal to use a notice-and-comment
process for Standards FHFA planned to establish by guideline. The
Council asked FHFA to clarify whether it would use existing or new
advisory bulletins to establish Standards without going through notice-
and-comment.
As FHFA explained in the preamble to the proposed amendments, the
rule as amended will now require FHFA to establish Standards that are
guidelines through a Federal Register notice-and-comment process and to
locate all Standards established as guidelines in the appendix to part
1236.\9\ Those procedural requirements would preclude FHFA from using
existing or new advisory bulletins to establish Standards as guidelines
(although they would permit FHFA to re-cast an advisory bulletin as a
Standard following a notice-and-comment process).
---------------------------------------------------------------------------
\9\ Id. at 28434. After FHFA initially proposed the rule and
Standards in 2011, FHFA received and responded to comments on the
Standards as well as the rule. At the time, commenters requested
that FHFA provide an opportunity for comment on any future changes
to the Standards. FHFA responded that the final rule would not
require use of a notice-and-comment rulemaking process to amend the
Standards, but that it did ``allow [FHFA] the flexibility to seek
public comment on particular changes to the guidelines, as [FHFA]
deems appropriate. FHFA believes the decision . . . to seek public
comment . . . is best addressed on a case-by-case basis when future
changes are proposed.'' 77 FR 33950, 33954 (June 8, 2012). Since
2012, FHFA has established one additional Standard as a guideline,
and it did so through a notice-and-comment process. 80 FR 72327
(Nov. 19, 2015).
---------------------------------------------------------------------------
Freddie Mac requested that FHFA revoke or modify Standards
established as guidelines through a notice-and-comment process in the
same way that FHFA proposed to establish such Standards. Freddie Mac
suggested that Standards established through the notice-and-comment
process are ``legislative rules'' subject to the APA even if they were
established as guidelines; thus, such Standards must be modified or
revoked in accordance with procedures for ``legislative rules.''
Without opining on whether Standards established as guidelines,
using a notice-and-comment process, are ``legislative rules,'' FHFA has
already committed to using a notice-and-comment process when
establishing a Standard as a guideline and making any material
modification to such a Standard. As it did when promulgating the rule,
FHFA again observes that section 4513b authorizes and distinguishes
between Standards established as regulations and as guidelines and that
the APA does not require guidance to be promulgated through a notice-
and-comment process. As a practical matter, however, FHFA also observes
that removing a Standard from the appendix to the rule will require a
Federal Register notice, which creates the opportunity to request
public comment on revocation. FHFA anticipates requesting public
comment on revocation in appropriate circumstances, balancing the
public interest in application of the Standard and considering other
relevant, applicable, regulatory requirements or guidance, with more
immediate reduction of any burden imposed by a Standard (or a provision
of a Standard) that FHFA has determined is unnecessary.
III. Differences Between Banks and Enterprises
Section 1313(f) of the Safety and Soundness Act (12 U.S.C.
4513(f)), as amended by section 1201 of the Housing and Economic
Recovery Act of 2008, requires the Director, when promulgating
regulations relating to the Banks, to consider the differences between
the Banks and the Enterprises with respect to the Banks' cooperative
ownership structure; mission of providing liquidity to members;
affordable housing and community development mission; capital
structure; and joint and several liability. The Director may also
consider any other
[[Page 3539]]
differences that are deemed appropriate. In preparing this final rule,
the Director considered the differences between the Banks (including
OF) and the Enterprises as they relate to the above factors and
determined that the rule is appropriate.
IV. Regulatory Analyses
A. Paperwork Reduction Act
The final rule does not contain any information collection
requirement that would require the approval of the Office of Management
and Budget (OMB) under the Paperwork Reduction Act (44 U.S.C. 3501 et
seq.). Therefore, FHFA has not submitted any information to OMB for
review.
B. Regulatory Flexibility Act
The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that
a regulation that has a significant economic impact on a substantial
number of small entities, small businesses, or small organizations must
include an initial regulatory flexibility analysis describing the
regulation's impact on small entities. Such an analysis need not be
undertaken if the agency has certified that the regulation will not
have a significant economic impact on a substantial number of small
entities. 5 U.S.C. 605(b). FHFA has considered the impact of the final
rule under the Regulatory Flexibility Act and FHFA certifies that this
final rule will not have a significant economic impact on a substantial
number of small entities because the regulation applies only to the
regulated entities and OF, which are not small entities for purposes of
the Regulatory Flexibility Act.
C. Congressional Review Act
In accordance with the Congressional Review Act (5 U.S.C. 801 et
seq.), FHFA has determined that this final rule is not a major rule and
has verified this determination with the Office of Information and
Regulatory Affairs of OMB.
List of Subjects in 12 CFR Part 1236
Administrative practice and procedure, Federal home loan banks,
Government-sponsored enterprises, Office of Finance, Prudential
Management and Operations Standards, Reporting and recordkeeping
requirements.
Accordingly, for the reasons stated in the Preamble, FHFA amends
part 1236 of chapter XII of title 12 of the Code of Federal Regulations
as follows:
PART 1236--PRUDENTIAL MANAGEMENT AND OPERATIONS STANDARDS
0
1. The authority citation for part 1236 continues to read as follows:
Authority: 12 U.S.C. 4511, 4513(a) and (f), 4513b, and 4526.
0
2. Revise Sec. 1236.1 to read as follows:
Sec. 1236.1 Purpose.
This part addresses prudential management and operations standards
that are required and authorized by 12 U.S.C. 4513b, including the
establishment of Standards by Federal Housing Finance Agency (FHFA) and
the processes by which FHFA can notify a regulated entity or the Office
of Finance of its failure to operate in accordance with a Standard and
direct the regulated entity or the Office of Finance to take corrective
action. This part further specifies the possible consequences if any
regulated entity or the Office of Finance fails to operate in
accordance with an applicable Standard or otherwise fails to comply
with this part.
0
3. Revise Sec. 1236.2 introductory text, remove the definition of
``Standards'', and add the definition of ``Standard(s)'' to read as
follows:
Sec. 1236.2 Definitions.
Unless otherwise indicated, terms used in this part have the
meanings that they have in part 1201 of this chapter, in the Safety and
Soundness Act, 12 U.S.C. 4501 et seq., or in the Bank Act, 12 U.S.C.
1421 et seq.
* * * * *
Standard(s) means any one (or more) of the prudential management
and operations standards established by the Director pursuant to 12
U.S.C. 4513b(a). Standard includes the introductory statement of
general responsibilities of boards of directors and senior management
of the regulated entities set forth in the appendix to this part.
0
4. Revise Sec. 1236.3 to read as follows:
Sec. 1236.3 Prudential standards as regulations or guidelines.
(a) Form. As expressly authorized by 12 U.S.C. 4513b(a), FHFA may
establish Standards as regulations or guidelines.
(b) Standards established as guidelines. Each Standard that has
been established as a guideline is located in the appendix to this
part. FHFA will provide public notice of, and seek public comment on,
any Standard it plans to establish as a guideline, or on any material
modification to any Standard established as a guideline. FHFA may
revoke any Standard established as a guideline at any time by order or
notice. Standards established as guidelines are subject to the remedial
provisions of Sec. Sec. 1236.4 and 1236.5.
(c) Standards established as regulations. When establishing a
Standard as a regulation or amending such a Standard, FHFA shall follow
applicable rulemaking procedures of the Administrative Procedure Act,
12 U.S.C. 553. Standards established as regulations may be set forth as
subparts or provisions of this part; or as other parts or subparts, or
as provisions of such other parts or subparts, of this chapter XII of
title 12. When not set forth as a subpart of this part, the regulation
or any provision thereof that is a Standard shall be identified as a
Standard in the body of the regulation. Standards established as
regulations are subject to this part, including the remedial provisions
of Sec. Sec. 1236.4 and 1236.5, and to the enforcement provisions of
12 U.S.C. chapter 46, subchapter III.
(d) Conflicts. In the case of a direct conflict between a Standard
established as a guideline and any FHFA regulation, when it is not
possible to comply with both that Standard and the FHFA regulation, the
FHFA regulation shall control.
0
5. Revise Sec. 1236.4 to read as follows:
Sec. 1236.4 Failure to meet a Standard; corrective plans.
(a) Determination. FHFA may determine, based upon an examination,
inspection, or any other information, that a regulated entity or the
Office of Finance has failed to meet one or more of the Standards.
Failure to meet any Standard may constitute an unsafe and unsound
practice for purposes of the enforcement provisions of 12 U.S.C.
chapter 46, subchapter III.
(b) Submission of corrective plan. When a regulated entity or the
Office of Finance is required to submit a corrective plan, FHFA shall
inform the regulated entity or the Office of Finance of that
requirement by written notice, which shall also set forth FHFA's
determination that the regulated entity or the Office of Finance has
failed a particular Standard or Standards. FHFA shall require a
regulated entity or the Office of Finance to submit a corrective plan
if FHFA determines that the regulated entity or the Office of Finance
has failed to meet a Standard established as a regulation. FHFA may
require a regulated entity or the Office of Finance to submit a
corrective plan for failure to meet a Standard established as a
guideline.
(c) Corrective plans--(1) Contents of plan. A corrective plan shall
be in
[[Page 3540]]
writing and shall describe the actions the regulated entity or the
Office of Finance will take to correct its failure(s) as determined by
FHFA, and the time within which each action will be taken.
(2) Filing deadline--(i) In general. A regulated entity or the
Office of Finance must file a corrective plan with FHFA within thirty
(30) calendar days of being notified by FHFA of the requirement to file
a corrective plan, unless FHFA notifies the regulated entity or the
Office of Finance in writing that the plan must be filed within a
different time period.
(ii) Other plans or submissions. If a regulated entity must file a
capital restoration plan submitted pursuant to 12 U.S.C. 4622, it may
submit the corrective plan required under this section as part of the
capital restoration plan, subject to the deadline established in
accordance with paragraph (c)(2)(i) of this section. If a regulated
entity or the Office of Finance is operating under a cease-and-desist
order entered into pursuant to 12 U.S.C. 4631 or 4632, or a formal or
informal agreement, or must file a response to a report of examination
or report of inspection, it may, with the permission of FHFA, submit
the corrective plan required under this section as part of its
compliance with that order, agreement, or response, subject to the
deadline established in accordance with paragraph (c)(2)(i) of this
section, but the corrective plan would not become a part of the order,
agreement, or response. FHFA may also permit a regulated entity or the
Office of Finance to submit a corrective plan required under this
section as part of another type of required plan or submission by a
regulated entity or the Office of Finance, as deemed appropriate by
FHFA.
(d) Amendment of corrective plan. A regulated entity or the Office
of Finance that is operating in accordance with an approved corrective
plan may submit a written request to FHFA to amend the plan as
necessary to reflect any changes in circumstance. Until such time that
FHFA approves a proposed amendment, the regulated entity or the Office
of Finance must continue to operate in accordance with the terms of the
corrective plan as previously approved.
(e) Review of corrective plans and amendments. Within thirty (30)
calendar days of receiving a corrective plan or proposed amendment to a
plan, FHFA will notify the regulated entity or the Office of Finance in
writing of its decision on the plan, will direct the regulated entity
to submit additional information, or will notify the regulated entity
in writing of any extended deadline for review that FHFA has
established.
0
6. Amend Sec. 1236.5 by revising the introductory text to paragraph
(a), paragraph (a)(6), the introductory text to paragraph (c)(1),
paragraphs (c)(1)(i), (c)(2) through (4), paragraph (d), and the
introductory text to paragraph (e) to read as follows:
Sec. 1236.5 Failure to submit a corrective plan; noncompliance.
(a) Remedies. If a regulated entity or the Office of Finance fails
to submit an acceptable corrective plan under Sec. 1236.4(b), or fails
in any material respect to implement or otherwise comply with an
approved corrective plan, FHFA shall order the regulated entity or the
Office of Finance to correct that deficiency, and may:
* * * * *
(6) Require the regulated entity or the Office of Finance to take
any other action that the Director determines will better carry out the
purposes of the statute by bringing the regulated entity or the Office
of Finance into conformance with the Standards.
* * * * *
(c) * * *
(1) Notice. Except as provided in paragraph (c)(4) of this section,
FHFA will notify a regulated entity or the Office of Finance in writing
of FHFA's intent to issue an order requiring the regulated entity or
the Office of Finance to correct its failure to submit a corrective
plan or its failure in any material respect to implement or otherwise
comply with an approved corrective plan. Any such notice will include:
(i) A statement that the regulated entity or the Office of Finance
has failed to submit a corrective plan under Sec. 1236.4, or has not
implemented or otherwise has not complied in any material respect with
an approved plan;
* * * * *
(2) Response to notice. A regulated entity or the Office of Finance
may file a written response to a notice of intent to issue an order,
which must be delivered to FHFA within fourteen (14) calendar days of
the date of the notice, unless FHFA determines that a different time
period is appropriate in light of the safety and soundness of the
regulated entity or the Office of Finance or other relevant
circumstances. The response should include:
(i) An explanation of why the regulated entity or the Office of
Finance believes that the action proposed by FHFA is not an appropriate
exercise of discretion;
(ii) Any recommended modification of the proposed order; and
(iii) Any other relevant information, mitigating circumstances,
documentation or other evidence in support of the position of the
regulated entity or the Office of Finance regarding the proposed order.
(3) Failure to file response. The failure of a regulated entity or
the Office of Finance to file a written response within the specified
time period will constitute a waiver of the opportunity to respond and
will constitute consent to issuance of the order.
(4) Immediate issuance of final order. FHFA may issue an order
requiring a regulated entity or the Office of Finance immediately to
take actions to correct a Standards deficiency or to take or refrain
from taking other actions pursuant to paragraph (a) of this section.
Within fourteen (14) calendar days of the issuance of an order under
this paragraph, or other time period specified by FHFA, a regulated
entity or the Office of Finance may submit a written appeal of the
order to FHFA. FHFA will respond in writing to a timely filed appeal
within sixty (60) days after receiving the appeal. During this period,
the order will remain in effect unless FHFA stays the effectiveness of
the order.
(d) Request for modification or rescission of order. A regulated
entity or the Office of Finance subject to an order under this part may
submit a written request to FHFA for an amendment to the order to
reflect a change in circumstance. Unless otherwise ordered by FHFA, the
order shall continue in place while such a request is pending before
FHFA.
(e) Agency review and determination. FHFA will respond in writing
within thirty (30) days after receiving a response or amendment
request, unless FHFA notifies the regulated entity or the Office of
Finance in writing that it will respond within a different time period.
After considering the response or amendment request from a regulated
entity or the Office of Finance, FHFA may:
* * * * *
0
7. Amend the appendix to part 1236 by:
0
a. Revising the introductory text to the appendix;
0
b. Revising the introductory text and paragraphs 1 through 8 and 10
under the undesignated heading ``General Responsibilities of the Board
of Directors and Senior Management'';
0
c. In Standard 1, revising paragraphs 1, 4 through 14, and 16;
0
d. In Standard 2, revising paragraphs 1, 3, 5 through 7, and 11;
0
e. In Standard 8, revising paragraphs 1 through 3 and 7 through 12; and
[[Page 3541]]
0
f. Revising Standard 10.
The revisions read as follows:
Appendix to Part 1236--Prudential Management and Operations Standards
The following provisions constitute the prudential management
and operations standards established as guidelines pursuant to 12
U.S.C. 4513b(a). The General Responsibilities of the Board of
Directors and Standards 1, 2, 8, and 10 apply to the Office of
Finance as appropriate.
General Responsibilities of the Board of Directors and Senior
Management
The following provisions address the general responsibilities of
the boards of directors and senior management of the regulated
entities as they relate to the matters addressed by each of the
Standards, and the general responsibilities of the board of
directors and senior management of the Office of Finance to the
extent a particular Standard is applicable to the Office of Finance.
The descriptions are not a comprehensive listing of the
responsibilities of either the boards or senior management, each of
whom have additional duties and responsibilities to those described
in these Standards.
Responsibilities of the Board of Directors
1. With respect to the subject matter addressed by each
applicable Standard, the board of directors of each regulated entity
and of the Office of Finance is responsible for adopting business
strategies and policies that are appropriate for the particular
subject matter. The board should review all such strategies and
policies periodically. It should review and approve all major
strategies and policies at least annually and make any revisions
that are necessary to ensure that such strategies and policies
remain consistent with the overall business plan of the entity or
the Office of Finance.
2. The board of directors is responsible for overseeing
management of the regulated entity or the Office of Finance, which
includes ensuring that management includes personnel who are
appropriately trained and competent to oversee the operation of the
regulated entity and the Office of Finance as it relates to the
functions and requirements addressed by each applicable Standard,
and that management implements the policies set forth by the board.
3. The board of directors is responsible for remaining informed
about the operations and condition of the regulated entity or the
Office of Finance, including operating consistently with the
applicable Standards, and senior management's implementation of the
strategies and policies established by the board of directors.
4. The board of directors must remain sufficiently informed
about the nature and level of the regulated overall risk exposures
of the entity or the Office of Finance, including, as applicable,
market, credit, operational, and counterparty risk, so that it can
understand the possible short- and long-term effects of those
exposures on the financial health of the regulated entity, including
the possible short- and long-term consequences, as applicable, to
earnings, liquidity, and economic value. The board of directors
should: establish the risk tolerances of the regulated entity or the
Office of Finance and provide management with clear guidance
regarding the level of acceptable risks; review the entire risk
management framework of the regulated entity or the Office of
Finance, including policies and entity-wide risk limits at least
annually; oversee the adequacy of the actions taken by senior
management to identify, measure, manage, and control the risk
exposures of the regulated entity or the Office of Finance; and
ensure that management takes appropriate corrective measures
whenever risk limit violations or breaches occur.
Responsibilities of Senior Management
5. With respect to the subject matter addressed by each
applicable Standard, senior management is responsible for developing
the policies, procedures and practices that are necessary to
implement the business strategies and policies adopted by the board
of directors. Senior management should ensure that such items are
clearly written, sufficiently detailed, and are followed by all
personnel. Senior management also should ensure that the regulated
entity or the Office of Finance has personnel who are appropriately
trained and competent to carry out their respective functions and
that all delegated responsibilities are performed.
6. Senior management should ensure that the regulated entity or
the Office of Finance has adequate resources, systems, and controls
available to execute effectively the business strategies, policies,
and procedures of the entity or the Office of Finance, including
operating consistently with each of the applicable Standards.
7. Senior management should provide the board of directors with
periodic reports relating to the condition and performance of the
regulated entity or the Office of Finance, including the subject
matter addressed by each of the applicable Standards, that are
sufficiently detailed to allow the board of directors to remain
fully informed about the business of the regulated entity or the
Office of Finance.
8. Senior management should regularly review and discuss with
the board of directors information regarding the risk exposures of
the regulated entity or the Office of Finance that is sufficient in
detail and timeliness to permit the board of directors to understand
and assess the performance of management in identifying and managing
the various risks to which the regulated entity or the Office of
Finance is exposed.
Responsibilities of the Board of Directors and Senior Management
* * * * *
10. The board of directors and senior management should ensure
that the overall risk profile of the regulated entity or the Office
of Finance is aligned with its mission objectives.
Standard 1--Internal Controls and Information Systems
Responsibilities of the Board of Directors
1. Regarding internal controls and information systems, the
board of directors of each regulated entity and the Office of
Finance should adopt appropriate policies, ensure personnel are
appropriately trained and competent, approve and periodically review
overall business strategies, approve the organizational structure,
and assess the adequacy of senior management's oversight of this
function.
* * * * *
Framework
4. Each regulated entity and the Office of Finance should have
an adequate and effective system of internal controls, which should
include a board approved organizational structure that clearly
assigns responsibilities, authority, and reporting relationships,
and establishes an appropriate segregation of duties that ensures
that personnel are not assigned conflicting responsibilities.
5. Each regulated entity and the Office of Finance should
establish appropriate internal control policies and should monitor
the adequacy and effectiveness of its internal controls and
information systems on an ongoing basis through a formal self-
assessment process.
6. Each regulated entity and the Office of Finance should have
an organizational culture that emphasizes and demonstrates to
personnel at all levels the importance of internal controls.
7. Each regulated entity and the Office of Finance should
address promptly any violations, findings, weaknesses, deficiencies,
and other issues in need of remediation relating to the internal
control systems.
Risk Recognition and Assessment
8. Each regulated entity and the Office of Finance should have
an effective risk assessment process that ensures that management
recognizes and continually assesses all material risks, including
credit risk, market risk, interest rate risk, liquidity risk, and
operational risk.
Control Activities and Segregation of Duties
9. Each regulated entity and the Office of Finance should have
an effective internal control system that defines control activities
at every business level.
10. The control activities of each regulated entity and the
Office of Finance should include:
a. Board of directors and senior management reviews of progress
toward goals and objectives;
b. Appropriate activity controls for each business unit;
c. Physical controls to protect property and other assets and
limit access to property and systems;
d. Procedures for monitoring compliance with exposure limits and
follow-up on non-compliance;
e. A system of approvals and authorizations for transactions
over certain limits; and
f. A system for verification and reconciliation of transactions.
Information and Communication
11. Each regulated entity and the Office of Finance should have
information systems
[[Page 3542]]
that provide relevant, accurate and timely information and data.
12. Each regulated entity and the Office of Finance should have
secure information systems that are supported by adequate
contingency arrangements.
13. Each regulated entity and the Office of Finance should have
effective channels of communication to ensure that all personnel
understand and adhere to policies and procedures affecting their
duties and responsibilities.
Monitoring Activities and Correcting Deficiencies
14. Each regulated entity and the Office of Finance should
monitor the overall effectiveness of its internal controls and key
risks on an ongoing basis and ensure that business units and
internal and external audit conduct periodic evaluations.
* * * * *
Applicable Laws, Regulations, and Policies
16. Each regulated entity and the Office of Finance should
comply with all applicable laws, regulations, and supervisory
guidance (e.g., advisory bulletins) governing internal controls and
information systems.
Standard 2--Independence and Adequacy of Internal Audit Systems
Audit Committee
1. The board of directors of each regulated entity and the
Office of Finance should have an audit committee that exercises
proper oversight and adopts appropriate policies and procedures
designed to ensure the independence of the internal audit function.
The audit committee should ensure that the internal audit department
includes personnel who are appropriately trained and competent to
oversee the internal audit function.
* * * * *
3. The audit committee of the board of directors is responsible
for monitoring and evaluating the effectiveness of the internal
audit function of each regulated entity and the Office of Finance.
* * * * *
Internal Audit Function
5. Each regulated entity and the Office of Finance should have
an internal audit function that provides for adequate testing of the
system of internal controls.
6. Each regulated entity and the Office of Finance should have
an independent and objective internal audit department that reports
directly to the audit committee of the board of directors.
7. The internal audit department of each regulated entity and
the Office of Finance should be adequately staffed with properly
trained and competent personnel.
* * * * *
Applicable Laws, Regulations, and Policies
11. Each regulated entity and the Office of Finance should
comply with applicable laws, regulations, and supervisory guidance
(e.g., advisory bulletins) governing the independence and adequacy
of internal audit systems.
* * * * *
Standard 8--Overall Risk Management Processes
Responsibilities of the Board of Directors
1. Regarding overall risk management processes, the board of
directors is responsible for overseeing the process, ensuring senior
management are appropriately trained and competent, ensuring
processes are in place to identify, manage, monitor and control risk
exposures (this function may be delegated to a board appointed
committee), approving all major risk limits, and ensuring incentive
compensation measures for senior management capture a full range of
risks to the regulated entity or the Office of Finance.
Responsibilities of the Board and Senior Management
2. Regarding overall risk management processes, the board of
directors and senior management should establish and sustain a
culture that promotes effective risk management. This culture
includes timely, accurate and informative risk reports, alignment of
the overall risk profile of the regulated entity or the Office of
Finance with its mission objectives, and the annual review of
comprehensive self-assessments of material risks.
Independent Risk Management Function
3. A regulated entity or the Office of Finance should have an
independent risk management function, or unit, with responsibility
for risk measurement and risk monitoring, including monitoring and
enforcement of risk limits.
* * * * *
Risk Measurement, Monitoring, and Control
7. Each regulated entity and the Office of Finance should
measure, monitor, and control its overall risk exposures, reviewing,
as applicable, market, credit, liquidity, and operational risk
exposures on both a business unit (or business segment) and
enterprise-wide basis.
8. Each regulated entity and the Office of Finance should have
the risk management systems to generate, at an appropriate
frequency, the information needed to manage risk. As applicable,
such systems should include systems for market, credit, operational,
and liquidity risk analysis, asset and liability management,
regulatory reporting, and performance measurement.
9. Each regulated entity and the Office of Finance should have a
comprehensive set of risk limits and monitoring procedures to ensure
that risk exposures remain within established risk limits, and a
mechanism for reporting violations and breaches of risk limits to
senior management and the board of directors.
10. Each regulated entity and the Office of Finance should
ensure that it has sufficient controls around risk measurement
models to ensure the completeness, accuracy, and timeliness of risk
information.
11. Each regulated entity and the Office of Finance should have
adequate and well-tested disaster recovery and business resumption
plans for all major systems and have remote facilitates to limit the
impact of disruptive events.
Applicable Laws, Regulations, and Policies
12. As applicable, each regulated entity and the Office of
Finance should comply with all applicable laws, regulations, and
supervisory guidance (e.g., advisory bulletins) governing the
management of risk.
* * * * *
Standard 10--Maintenance of Adequate Records
1. Each regulated entity and the Office of Finance should
maintain financial records in compliance with Generally Accepted
Accounting Principles (GAAP), FHFA guidelines, and applicable laws
and regulations.
2. Each regulated entity and the Office of Finance should ensure
that assets are safeguarded and financial and operational
information is timely and reliable.
3. Each regulated entity and the Office of Finance should have a
records retention program consistent with laws and corporate
policies, including accounting policies, as well as personnel that
are appropriately trained and competent to oversee and implement the
records management plan.
4. Each regulated entity and the Office of Finance, with
oversight from its board of directors, should conduct a review and
approval of the records retention program and records retention
schedule for all types of records at least once every two years.
5. Each regulated entity and the Office of Finance should ensure
that reporting errors are detected and corrected in a timely manner.
6. Each regulated entity and the Office of Finance should comply
with all applicable laws, regulations, and supervisory guidance
(e.g., advisory bulletins) governing the maintenance of adequate
records.
Sandra L. Thompson,
Director, Federal Housing Finance Agency.
[FR Doc. 2024-00731 Filed 1-18-24; 8:45 am]
BILLING CODE 8070-01-P