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.

Rules and Regulations Federal Register

3537 

Vol. 89, No. 13 

Friday, January 19, 2024 

1 12 U.S.C. 4513b (‘‘section 4513b’’). 

2 Id. at 4513b(b)(1)(C). 

3See 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. 

4 88 FR 28433 (May 4, 2023); correction notice at 

88 FR 35780 (June 1, 2023). 

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, Clinton.Jones@fhfa.gov; or 

Francisco Medina, Assistant General 

Counsel, (202) 649–3076, 

Francisco.Medina@fhfa.gov. 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

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. 

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 


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5 In the current rule, see 12 CFR 1236.3(c). In the 

proposed amendments to the rule, see 12 CFR 

1236.3(d). 

6 12 CFR 1236.3(b). 

7See 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.’ ’’). 

8 88 FR 28433, 28437 (May 4, 2023) (amending 12 

CFR 1236.3(b)). 

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 noticeand-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). 

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

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

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. 

The Council noted that guidance 

setting forth FHFA’s supervisory 

expectations is not subject to the noticeand-comment rulemaking requirements 

of the Administrative Procedure Act 

(APA) and expressed its appreciation for 

FHFA’s proposal to use a notice-andcomment 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-andcomment 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). 

Freddie Mac requested that FHFA 

revoke or modify Standards established 

as guidelines through a notice-andcomment 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 noticeand-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 


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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 

■ 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. 

■ 2. Revise § 1236.1 to read as follows: 

§ 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. 

■ 3. Revise § 1236.2 introductory text, 

remove the definition of ‘‘Standards’’, 

and add the definition of ‘‘Standard(s)’’ 

to read as follows: 

§ 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. 

■ 4. Revise § 1236.3 to read as follows: 

§ 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 §§ 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 §§ 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. 

■ 5. Revise § 1236.4 to read as follows: 

§ 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 


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3540 Federal Register / Vol. 89, No. 13 / Friday, January 19, 2024 / Rules and Regulations 

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. 

■ 6. Amend § 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: 

§ 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 

§ 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 

§ 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: 

* * * * * 

■ 7. Amend the appendix to part 1236 

by: 

■ a. Revising the introductory text to the 

appendix; 

■ 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’’; 

■ c. In Standard 1, revising paragraphs 

1, 4 through 14, and 16; 

■ d. In Standard 2, revising paragraphs 

1, 3, 5 through 7, and 11; 

■ e. In Standard 8, revising paragraphs 

1 through 3 and 7 through 12; and 


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■ 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 longterm 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 selfassessment 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 noncompliance; 

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 


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3542 Federal Register / Vol. 89, No. 13 / Friday, January 19, 2024 / Rules and Regulations 

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 enterprisewide 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 welltested 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 

SMALL BUSINESS ADMINISTRATION 

13 CFR Parts 107 and 121 

RIN 3245–AH90 

Small Business Investment Company 

Investment Diversification and Growth; 

Technical Amendments and 

Clarifications 

AGENCY: U. S. Small Business 

Administration. 

ACTION: Direct final rule. 

SUMMARY: This direct final rule clarifies 

and provides technical updates to the 

Small Business Investment Company 

Investment Diversification and Growth 

final rule implemented on August 17, 

2023 (SBIC IDG Final Rule), which 

reduced barriers to program 

participation for new SBIC fund 

managers and funds investing in 

underserved communities and 


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