[Federal Register Volume 80, Number 58 (Thursday, March 26, 2015)]
[Proposed Rules]
[Pages 15931-15947]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2015-06755]


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FARM CREDIT ADMINISTRATION

12 CFR Parts 650, 651, 653, and 655

RIN 3052-AC89


Federal Agricultural Mortgage Corporation General Provisions; 
Federal Agricultural Mortgage Corporation Governance; Federal 
Agricultural Mortgage Corporation Risk Management; Federal Agricultural 
Mortgage Corporation Disclosure and Reporting; Farmer Mac Corporate 
Governance and Standards of Conduct

AGENCY: Farm Credit Administration.

ACTION: Proposed rule.

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SUMMARY: The Farm Credit Administration (FCA, we, or our) is proposing 
new regulations, and clarifying and enhancing existing regulations, 
related to the Federal Agricultural Mortgage Corporation (Farmer Mac or 
Corporation) Board governance and standards of conduct, including 
director election procedures, conflict-of-interest, and risk 
governance. We also propose enhancements to existing disclosure and 
reporting requirements to remove repetitive reporting and allow for 
electronic filing of reports. In keeping with today's financial and 
economic environment, we believe it prudent and timely to undertake a 
review of our regulatory guidance on the identified areas. We also 
propose rules on the examination and enforcement authorities held by 
the

[[Page 15932]]

FCA Office of Secondary Market Oversight (OSMO) over Farmer Mac.

DATES: You may send comments on or before June 24, 2015.

ADDRESSES: We offer a variety of methods for you to submit your 
comments. For accuracy and efficiency reasons, commenters are 
encouraged to submit comments by email or through the FCA's Web site. 
As facsimiles (fax) are difficult for us to process and achieve 
compliance with section 508 of the Rehabilitation Act, we are no longer 
accepting comments submitted by fax. Regardless of the method you use, 
please do not submit your comments multiple times via different 
methods. You may submit comments by any of the following methods:
    <bullet> Email: Send us an email at <a href="/cdn-cgi/l/email-protection#3e4c5b59135d5153537e585d5f10595148"><span class="__cf_email__" data-cfemail="037166642e606c6e6e436560622d646c75">[email protected]</span></a>.
    <bullet> FCA Web site: http://www.fca.gov. Select ``Public 
Commenters,'' then ``Public Comments,'' and follow the directions for 
``Submitting a Comment.''
    <bullet> Federal eRulemaking Portal: http://www.regulations.gov. 
Follow the instructions for submitting comments.
    <bullet> Mail: Laurie A. Rea, Director, Office of Secondary Market 
Oversight, Farm Credit Administration, 1501 Farm Credit Drive, McLean, 
VA 22102-5090.
    You may review copies of all comments we receive at our office in 
McLean, Virginia, or on our Web site at http://www.fca.gov. Once you 
are in the Web site, select ``Public Commenters,'' then ``Public 
Comments,'' and follow the directions for ``Reading Submitted Public 
Comments.'' We will show your comments as submitted, including any 
supporting data provided, but for technical reasons we may omit items 
such as logos and special characters. Identifying information that you 
provide, such as phone numbers and addresses, will be publicly 
available. However, we will attempt to remove email addresses to help 
reduce Internet spam.

FOR FURTHER INFORMATION CONTACT: Joe 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 proposed rule is to:
    <bullet> Enhance risk governance at Farmer Mac to further its long-
term safety and soundness and mission achievement;
    <bullet> Clarify the roles of the board and voting stockholders in 
the Farmer Mac director nomination and election process;
    <bullet> Enhance the usefulness, transparency, and consistency of 
conflict-of-interest reporting;
    <bullet> Clarify conflict-of-interest prohibitions;
    <bullet> Clarify the appropriate balance between a director's 
representational requirements and duties as director of Farmer Mac; and
    <bullet> Remove repetitious disclosure and reporting requirements, 
given the dual reporting responsibilities of Farmer Mac to the FCA and 
the Securities and Exchange Commission (SEC).

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). Farmer Mac 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 Farmer Mac.
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    \1\ Agricultural Credit Act of 1987 (Pub. L. 100-233, January 6, 
1988).
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    As a GSE, Farmer Mac 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 
Farmer Mac 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 Farmer Mac's authority to issue 
debt to the Department of the Treasury to cover guarantee losses under 
certain adverse circumstances.\2\ Thus, an appropriately comprehensive 
approach to Board-level risk governance would acknowledge and consider 
all stakeholder groups.
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    \2\ According to the 1987 Act, Farmer Mac, in certain 
circumstances, may borrow up to $1.5 billion from the U.S. Treasury 
to ensure timely payment of any guarantee obligations of the 
corporation. Pub. L. 100-233.
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    Farmer Mac 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, Farmer Mac has 
nonvoting common stock (Class C), the ownership of which is not 
restricted and is a means for Farmer Mac to raise capital. Farmer Mac 
may also issue nonvoting preferred stock.
    The Farmer Mac Board of Directors is, by statute, composed of 15 
directors from three defined representative groups: Class A 
stockholders, Class B stockholders, and the general public.\3\ Each of 
the three groups has five directors on the Board. Congress further 
specified that the Farmer Mac elected directors ``shall be elected by 
holders of common stock'' from Class A and Class B.\4\ The directors 
representing the general public are appointed by the President of the 
United States (appointed directors). The Act limits the terms of 
elected directors to 1 year, while appointed directors serve for an 
unlimited duration ``at the pleasure of the President'' of the United 
States of America.\5\
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    \3\ Section 8.2(b) of the Act (12 U.S.C. 2279aa-2(b)).
    \4\ Section 8.2(b)(2)(A) and (B) of the Act (12 U.S.C. 2279aa-
2(b)(2)(A) and (B)).
    \5\ Section 8.2(b)(6) of the Act (12 U.S.C. 2279aa-2(b)(6)).
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    Although the Farmer Mac Board is representative in nature, Congress 
chose a corporate structure to govern the operations of Farmer Mac. 
Common law corporate principles affirm the fiduciary duty of directors 
to act in the best interests of Farmer Mac and all of its stockholders. 
However, this fiduciary duty to stockholders must be understood in the 
context of the duty of the directors to further the statutory purpose 
and public mission of Farmer Mac.\6\
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    \6\ Section 701 of the 1987 Act.
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A. Board Governance and Risk Management

    The essence of corporate governance is to facilitate an entity's 
proper accountability to all stakeholders and mitigate conflicts-of-
interest. As part of this, it is essential that corporations practice 
sound risk management. Risk management includes the identification, 
assessment measurement, and controlling of risks that may arise from 
all aspects of business activities, pursuit of opportunities and the 
operating environment. In financial institutions, risk can be 
attributed to three broad

[[Page 15933]]

categories: Credit risk, market risk, and operational risk. Usually, it 
is the board of directors who approve the overall risk-appetite of a 
company and monitor internal controls. A strong board integrates risk 
management and corporate governance processes to steer the corporation 
towards policies supporting long-term sustainable growth and mission 
achievement, in a manner that promotes controlled risk-taking in 
achievement of long-term strategic objectives rather than, for example, 
for short-term increases in stock price performance.
    The Sarbanes-Oxley Act of 2002 (Sarbanes-Oxley) \7\ established 
stronger reporting requirements and enhanced oversight for publicly 
held companies by increasing the responsibility and independence of 
corporate boards. The SEC issued, and continues to issue, regulations 
implementing the provisions of Sarbanes-Oxley. Self-regulatory 
organizations (SROs), the New York Stock Exchange (NYSE) in Farmer 
Mac's case, have also issued requirements designed to enhance the 
accountability and transparency of corporate business operations. Also, 
in response to the financial crisis of 2007-2008, Congress passed the 
Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 
(Dodd-Frank Act).\8\ Six of the Dodd-Frank Act provisions imposed new 
corporate governance requirements on public corporations.\9\ Most of 
these relate to executive compensation and shareholder proxy access.
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    \7\ Pub. L. 107-204, July 30, 2002.
    \8\ Pub. L. 111-203, 124 Stat. 1376, (H.R. 4173), July 21, 2010.
    \9\ See Dodd-Frank Act, sections 951-955 of Subtitle E of Title 
IX, ``Investor Protections and Improvements to the Regulation of 
Securities,'' and sections 971-972.
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    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 believe it is prudent to update our 
current regulatory standards related to Farmer Mac's Board governance 
and reporting and disclosures in the interest of continuing the safety 
and soundness and public mission achievement of Farmer Mac. Portions of 
this proposed rule are related to some of the key governance provisions 
of Sarbanes-Oxley and Dodd-Frank, such as director independence and 
conflict-of-interest reporting, but we are not addressing executive 
compensation disclosures at this time as we believe those are being 
adequately addressed by SEC regulations implementing Dodd-Frank, to 
which Farmer Mac is subject under section 8.12 of the Act.

B. Rulemaking

    Farmer Mac is regulated by FCA through the FCA Office of Secondary 
Market Oversight (OSMO). Congress charged us to issue regulations to 
ensure mission compliance and the safety and soundness of Farmer Mac. 
When issuing regulations for Farmer Mac, the Act requires FCA to 
consider:
    <bullet> The purpose for which Farmer Mac was created;
    <bullet> The practices are appropriate to the conduct of secondary 
markets in agricultural loans; and
    <bullet> The reduced levels of risks associated with appropriately 
structured secondary market transactions.\10\
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    \10\ Section 8.11(a)(1) and (2) of the Act (12 U.S.C. 2279aa-
11).
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    We issued an Advance Notice of Proposed Rulemaking (ANPRM) on 
February 25, 2014, to solicit opinions and suggestions from investors, 
stockholders, and other interested parties on ways to enhance our 
regulation of Farmer Mac's governance activities.\11\ The comment 
period for the ANPRM ended April 28, 2014. We received seven comment 
letters in response to the ANPRM, including letters from Farmer Mac, 
the Farm Credit Council (Council), System banks and associations, Zions 
National Bank (Zions), the National Rural Utilities Cooperative 
Financing Corporation (CFC), and the Weinberg Center for Corporate 
Governance at the University of Delaware (Weinberg Center). Commenters 
were divided on the need for additional regulatory guidance in the 
areas of corporate governance and standards of conduct. Farmer Mac, 
Zions, and CFC were generally opposed to modification to this section 
of the regulations. The Council and System banks and associations 
supported the overall initiative of improving regulatory provisions on 
Farmer Mac's Board governance. The Weinberg Center was generally 
supportive but voiced a cautionary note and strong opposition to an 
overly prescriptive approach toward the regulation of conflicts-of-
interest and the recusal process, stating that good directors result 
from a sound elections process and thus are more than capable of 
managing those processes with an appropriate level of independent 
judgment and personal integrity.
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    \11\ 79 FR 10426.
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    Those opposing a rulemaking argued that FCA does not possess 
general rulemaking authority over Farmer Mac, with Farmer Mac 
specifically remarking that corporate governance is not a component of 
FCA's safety and soundness oversight. Zions commented that the current 
practices at Farmer Mac, combined with current regulations, already 
result in best practices being in place at Farmer Mac. Those favoring a 
rulemaking commented that it is appropriate and necessary for FCA to 
establish regulations making clear that Class A and Class B directors 
are duty bound to represent the interest of their respective Class and 
clarify that this duty is not a conflict-of-interest. Commenters 
affiliated with the System asked that any rulemaking safeguard against 
reducing the rights of Class A and Class B shareholders. The Weinberg 
Center comment letter emphasized the importance of crisis management 
plans to guide a corporation's response to adverse events, but 
discouraged overly prescriptive regulations. The Weinberg Center also 
noted that any required risk committee should be viewed as a 
supplemental oversight body and not a reassignment of risk management 
duties and authorities from other board committees.
    We last issued regulations on Farmer Mac Board governance and 
standards of conduct on March 1, 1994 (59 FR 9622). In that rulemaking, 
we implemented the requirements of section 514 of the Farm Credit Banks 
and Associations Safety and Soundness Act of 1992 (1992 Act) \12\ by 
requiring Farmer Mac to adopt a conflict-of-interest policy defining 
the types of relationships, transactions, or activities that might 
reasonably be expected to give rise to potential conflicts. Congress 
explained in the 1992 Act that disclosure of financial information and 
potential conflict-of-interest reporting by institution directors, 
officers, and employees--including Farmer Mac--helps ensure the 
financial viability of the System. This concept is also reflected in 
many of the provisions of Sarbanes-Oxley.
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    \12\ Pub. L. 102-552, 106 Stat. 4131.
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    We believe this proposed rulemaking clarifies existing board 
responsibilities and authorities while providing the Corporation Board 
with more tools to carry out its fiduciary and oversight 
responsibilities. This rule would set forth a minimum level of good 
governance practices that would assure stakeholders of the continuing 
safe and sound operation of the Corporation. Regulations necessarily 
place limits on

[[Page 15934]]

the Corporation's flexibility, but in exchange ensure appropriate 
business practices are consistently followed in all operating 
environments. Our intent in this rulemaking is to provide performance 
criteria in some areas while also setting safe and sound operational 
directions in others to provide for an effective safety and soundness 
framework. Finally, the proposed rule gives full consideration to our 
examination of the Corporation and the role examinations play in 
ensuring its safe and sound operations. Taken together, we believe the 
following proposed regulatory changes on Farmer Mac corporate 
governance would improve the effectiveness and transparency of its 
governance practices, as well as promote its continued safe and sound 
operations.
    In addition to substantive changes, we propose reorganizing our 
rules addressing Farmer Mac's operations by adding a new part 653 which 
is currently reserved, revising existing parts 650, 651, and 655, 
adding subparts to parts 650 and 651, and revising existing subparts in 
part 655. We also propose adding definition sections to all these 
parts. We propose no changes to part 652 or reserved part 654.

III. Section-by-Section Analysis

A. FCA Oversight and Rulemaking [Part 650]

    Existing part 650 contains general provisions, without subparts, on 
the supervision of Farmer Mac. We propose adding a new subpart A, 
entitled ``Regulation, examination and enforcement,'' to address the 
authorities of OSMO. We also propose moving existing Sec. Sec.  650.1 
through 650.80 into a new subpart B, entitled ``Conservators, 
receivers, and liquidations.'' We then propose redesignating existing 
Sec. Sec.  650.1 and 650.5 on appointing and removing receivers or 
conservators as new Sec. Sec.  650.13 and 650.14 to make room for the 
provisions of new subpart A. We are proposing no other changes to these 
existing provisions.
    We propose adding a new Sec.  650.1 in subpart A for definitions of 
certain terms used in part 650. We propose adding definitions for the 
following terms:
    <bullet> The Act;
    <bullet> Business day;
    <bullet> Corporation or Farmer Mac;
    <bullet> FCA, OSMO, our, and we;
    <bullet> NYSE and SEC;
    <bullet> Securities Act; and
    <bullet> Signed.
    We also propose a new Sec.  650.2 to provide clarity on the 
situation of Farmer Mac having FCA as its primary regulator, while also 
being subject to certain SEC regulatory requirements. The proposed 
Sec.  650.2 would identify FCA the ``primary regulator'' of Farmer Mac, 
possessing examination, enforcement, conservatorship, liquidation, and 
receivership authority over Farmer Mac. Section 8.11 of the Act 
specifies that FCA holds oversight, regulation, examination, and 
enforcement authority over Farmer Mac to ensure it operates in a safe 
and sound manner. Further, FCA has the authority to regulate how Farmer 
Mac performs its powers, functions, and duties in furtherance of its 
public policy purposes. The new Sec.  650.2 would also recognize that 
Farmer Mac, as a publicly traded company, follows the SEC disclosure 
regulations for publicly traded companies. We selected the term 
``primary regulator'' to explain FCA's role as the safety and soundness 
regulator of Farmer Mac based on the recent adoption of the term in the 
financial industry after passage of the Dodd-Frank Act, where it is 
used to distinguish the different roles of federal regulators in the 
financial industry.\13\
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    \13\ Discussions surrounding passage of the Dodd-Frank Act 
recognized the long-standing situation where, although only one 
regulator is the primary regulator, financial institutions are 
required to comply with various federal financial laws and 
regulations issued and enforced by several banking regulators.
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    We next propose a new Sec.  650.3 to incorporate into our 
regulations the supervision and enforcement authorities given us under 
the Act to provide reasonable assurance that, among other things, 
Farmer Mac is adequately capitalized and operating safely. Financial 
safety and soundness supervision involves monitoring, inspecting, and 
examining Farmer Mac to assess its condition and compliance with law 
and regulation. We believe identifying in our regulations the minimum 
authorities of OSMO to require corrective or remedial actions by Farmer 
Mac, as well as to take such enforcement action as deemed to be 
appropriate, will add clarity and facilitate the general supervision of 
Farmer Mac.\14\
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    \14\ These minimum supervisory authorities are designed to 
ensure that action is taken to avoid the emergence of problems that 
might entail serious risks to Farmer Mac.
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    We are proposing new Sec.  650.4 to address our authority to access 
Farmer Mac records and personnel in the exercise of our examination and 
oversight authority. The FCA, acting through OSMO, examines and 
provides general supervision over the activities of Farmer Mac pursuant 
to section 8.11 of the Act. Section 5.17(a)(11) of the Act provides 
that FCA may ``Exercise such incidental powers as may be necessary or 
appropriate to fulfill its duties and carry out the purposes of this 
Act.'' Access to Farmer Mac's documents and personnel is incidental to 
the supervision and examination of Farmer Mac. We believe new Sec.  
650.4 will clarify our expectations of the Corporation in providing us 
this access.
    Finally, we are proposing new Sec. Sec.  650.5 and 650.6, 
containing cross-citations to existing regulatory provisions regarding 
access to FCA Reports of Examination and Farmer Mac's obligation to 
make criminal referrals in certain circumstances. We believe these 
cross-cites will clarify the applicability of these provisions to 
Farmer Mac, and thereby facilitate compliance with them.

B. Farmer Mac Corporate Governance [Part 651]

    Existing part 651 contains the corporate governance provisions for 
Farmer Mac, without subparts. We propose adding the following subparts:
    <bullet> Subpart A, entitled ``General,'' to address general 
corporate governance matters;
    <bullet> Subpart B, entitled ``Standards of Conduct,'' to contain 
the existing provisions of part 651; and
    <bullet> Subpart C, entitled ``Board Governance,'' to address 
Board-level activities, including director elections, fiduciary duties, 
and Board committees.
    We then propose placing existing Sec.  651.1 into new subpart A and 
placing existing Sec. Sec.  651.2 through 651.4 into new subpart B, 
while also revising them.
1. General Corporate Governance [New Subpart A]
a. Definitions [Existing Sec.  651.1]
    We propose placing the existing definitions of Sec.  651.1 in new 
subpart A, modifying certain existing terms and adding new terms to the 
section. We propose modifying the existing meaning of ``material'' and 
``resolved'' to cover all conflicts, not just potential ones, and 
modifying the existing meaning of a ``potential conflict-of-interest'' 
to remove the list of imputed interests. We also propose adding to this 
part the definitions proposed for part 650 (listed in section III.A. of 
this preamble), except the terms in proposed Sec.  650.1(e), (h), and 
(i).
    We propose the following additional terms for part 651:
    <bullet> Appointed director;
    <bullet> Class A stockholders;
    <bullet> Class B stockholders;
    <bullet> Director elections;
    <bullet> Elected director; and
    <bullet> Reasonable person.

[[Page 15935]]

    The above terms and their meanings, except ``reasonable person'', 
are based on sections 8.2 and 8.4 of the Act and the manner in which 
FCA has consistently applied them over the years. The proposed 
definition for the term ``reasonable person'' is based on use of the 
term in conflict-of-interest proceedings and substantially resembles 
the legal meaning of term.
b. Indemnifications [New Sec.  651.2]
    We propose new Sec.  651.2 on indemnifications of directors, 
officers, and employees to address indemnifications that Farmer Mac may 
offer. The provision would recognize that the decision of whether to 
offer indemnification is a business decision of Farmer Mac and not 
required by law or regulation. However, new Sec.  651.2 would require 
Farmer Mac, in the interest of safety and soundness, to establish 
policies and procedures for offering indemnification insurance before 
any such indemnification occurs. As proposed, the required procedures 
would have to address: When and how indemnification is offered, 
safeguards to avoid over-indemnification, and reviews of any 
indemnification made. The policies and procedures may also address when 
indemnification payments will be made and how those payments will be 
calculated. For example, the policy might provide that Farmer Mac will 
give consideration to any other source of indemnification when 
calculating indemnification or prohibit indemnification when a 
director, officer, or employee is already covered by an indemnification 
policy separate from that offered by Farmer Mac. We proposed these 
provisions to set adequate controls over indemnification practices in 
order to prevent unintended consequences such as over-indemnification. 
Finally, the proposed Sec.  651.2 would require notice to OSMO before 
an indemnification payment is made. The notice would provide the 
opportunity for OSMO to evaluate, prior to payment, the impact of an 
indemnification payment to the safety and soundness of Farmer Mac.
2. Standards of Conduct [New Subpart B]
a. Code of Conduct [New Sec.  651.21]
    We propose adding a new Sec.  651.21 in new subpart B to require a 
written code of conduct that establishes ethical benchmarks for the 
professional behavior of Farmer Mac directors, officers, employees, and 
agents. The proposed code of conduct would resemble existing Sec.  
651.4(a)(1) and the ``Code of Business Conduct and Ethics'' currently 
maintained by Farmer Mac pursuant to section 406 of Sarbanes-Oxley, 
with the key difference being that the Code would set benchmarks for 
professional integrity, competence, and respect. The proposed provision 
would require a review of the Code every 3 years.
b. Conflict-of-Interest Policy [Existing Sec. Sec.  651.2 and 651.3(b); 
New Sec.  651.22]
    We propose moving existing Sec.  651.2, which requires Farmer Mac 
to have a conflict-of-interest policy, to new subpart B and 
redesignating it as new Sec.  651.22. In addition, we propose changes 
and additions to the existing provision. Some of the proposed changes 
are organizational and grammatical changes, as well as intended to 
incorporate the proposed new terms from revised Sec.  651.1. 
Organizational changes mainly consist of consolidating like provisions 
with each other, such as moving existing Sec.  651.3(b), requiring 
release of the conflict-of-interest policy, to new Sec.  651.22(d).
    We propose the following substantive changes and additions for new 
Sec.  651.22:
    <bullet> Requiring that the conflict-of-interest policy consider 
the required representational affiliations of elected directors.\15\
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    \15\ Under the Act, two-thirds of the Farmer Mac's directors are 
elected by entities who own the only two classes of voting stock. 
These entities also have a business relationship with Farmer Mac. In 
addition, elected directors must possess a representational 
relationship to the class of stockholders electing them and this 
relationship must be ``close'' at the time of election. Because the 
elected directors are from entities that have financial 
relationships of varying degrees with Farmer Mac, it presents 
difficulties in adopting the common corporate governance practices 
and policies (i.e., ``best practices'').
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    <bullet> Moving to new paragraph (b)(1) the list of imputed 
interests that are currently part of the existing definition of a 
``potential conflict-of-interest'' (proposed to be removed from the 
definition).
    <bullet> Revising the list of imputed interest in new paragraph 
(b)(1) by 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. This 
change is 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.
    <bullet> Adding as new paragraph (b)(1)(iv) an exception to the 
imputed interest list for relationships maintained solely because of 
the representational nature of elected directorships. Since this 
relationship is required by the Act, it should not be treated as a 
conflict-of-interest.\16\ Instead, we are proposing other provisions in 
new Sec. Sec.  651.21, 651.24 and 651.40 to address how directors are 
to handle this affiliation while also maintaining their duty of loyalty 
to the Corporation.
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    \16\ Section 8.2(b)(2)(A) and (B) and (b)(5)(A) and (B) of the 
Act (12 U.S.C. 2279aa-2(b)).
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    <bullet> Adding as new paragraph (b)(4) a requirement that 
conflict-of-interest procedures address recusals when conflicts are 
identified. We believe this requirement is necessary to ensure a 
standard approach to recusals is used by the Corporation and to ensure 
directors, officers, and employees have notice of the expectation to 
recuse themselves when a conflict-of-interest exists.
    <bullet> Adding as new paragraph (b)(5) a requirement that 
conflict-of-interest procedures define documentation and reporting 
requirements to ensure compliance with conflict-of-interest decisions.
    <bullet> Removing the requirement for negative conflict-of-interest 
reports from directors, officers, and employees. This negative 
reporting is unnecessary as other proposed changes would require an 
annual filing from all directors, officers and employees, in which it 
may be reported that no conflicts exist.
    As a GSE, the Corporation has strategic objectives that are both 
commercially and public policy oriented. Conflicts-of-interest 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 conflict-of-
interest to be among the most potentially complex and nuanced areas of 
corporate governance. We intend the minimum specifications set forth in 
the proposed rule to facilitate the uniform disclosure, identification, 
and treatment of directors, officers, employees and agent holding 
employment, contractual business relationships, or other relationships 
and interests that may interfere with that person's ability to serve 
the interests of the Corporation before serving personal interests.
c. Conflict-of-Interest Disclosure and Reporting [Existing Sec. Sec.  
651.2(b) and (f) and 651.3; New Sec.  651.23]
    We propose moving existing Sec.  651.2, regarding conflict-of-
interest reports, to new subpart B and redesignating it as new Sec.  
651.23. In addition, we propose

[[Page 15936]]

changes to the existing provision. Some of the proposed changes are 
organizational and grammatical changes, as well as intended to 
incorporate the proposed new terms from revised Sec.  651.1. 
Organizational changes mainly consist of consolidating reporting and 
disclosure provisions currently located in both existing Sec. Sec.  
651.2 and 651.3. Included in the organization proposal is to move 
existing Sec.  651.2(b), requiring annual conflict-of-interest reports, 
to new Sec.  651.23(a) and moving existing Sec.  651.2(f), requiring 
internal controls for conflict-of-interest disclosures, to new Sec.  
651.23(e).
    We propose the following substantive changes and additions for new 
Sec.  651.23:
    <bullet> Specifying that the sufficiency of a conflict-of-interest 
report is based on a ``reasonable person'' standard.
    <bullet> Requiring in new paragraph (a) that conflict-of-interest 
reports be signed. While the signature element may have been implied in 
the past, we believe it is best to specify it as a requirement.
    <bullet> Specifying in new paragraph (a)(1) that the transactions, 
relationships, and activities identified as creating real or potential 
conflicts are based on (1) the opinion of the person filing the report, 
(2) conflicts specifically identified in Farmer Mac's policies, and (3) 
conflicts identified in FCA regulation. We are proposing this 
specificity to ensure a common understanding of the basis used by 
persons completing conflict-of-interest reports. By specifying the 
sources used when determining if a transaction, relationship, or 
activity creates a conflict, it should be easier to identify omissions 
and remove doubts as to what needs to be reported. However, if doubt 
remains, we encourage every person completing a conflict-of-interest 
report to err on the side of inclusion, rather than omission.
    <bullet> Requiring in new paragraph (b) that Farmer Mac review 
conflict-of-interest reports within 10 business days of receipt, and if 
a conflict is identified as material, to document its findings. We 
believe time is of the essence in identifying material conflicts in 
order to take necessary actions to minimize the impact of the conflict 
on the operations of Farmer Mac. We believe it is important that 
conflicts identified as ``material'' be clearly documented, as well as 
the rationale used to make the determination. It is essential that the 
basis for any ``materiality'' determination be supported by appropriate 
documentation to avoid misunderstandings and to minimize the potential 
for abuse of the process.
    <bullet> Requiring in new paragraph (b)(2) that Farmer Mac notify a 
filer within 3 business days when a reported conflict has been 
identified as material and provide filers with an opportunity to 
respond to the materiality determination. We believe that material 
conflict determinations should be explained to those impacted by such 
determinations. We also believe it is necessary for the Corporation and 
the person with the conflict to hold discussions about the conflict. 
These discussions could add clarity to the process, help avoid mistaken 
``materiality'' determination, and provide the opportunity for the 
person with the conflict to resolve it quickly.
    <bullet> Requiring in new paragraph (c) that Farmer Mac document 
material conflicts-of-interest and the efforts made to address the 
conflicts. The requirement for documentation of conflicts is a good 
business practice, which we recognize Farmer Mac has already been 
employing. However, we believe a regulatory requirement is necessary to 
ensure the practice continues.
    <bullet> Clarifying that the existing disclosure to shareholders 
and investors of unresolved material conflicts applies to those 
conflicts that remain unresolved as of the date of the annual report or 
proxy statement. The requirement does not include conflicts resolved 
during the reporting period beyond updating those previously reported 
as ``unresolved.''
    <bullet> Requiring in new paragraph (d)(3) that Farmer Mac notify 
OSMO of unresolved material conflicts-of-interest. As the safety and 
soundness regulatory, we need to remain informed of any conflicts that 
could potentially affect the on-going operations of Farmer Mac. For 
example, if a conflict remains unresolved for months and that person 
has been recused from performing their full duties, we would want to 
know what Farmer Mac has done to address the impact of that recusal. 
This is especially true if a director or senior officer holds the 
unresolved conflict.
    <bullet> Limiting the existing requirement that reports of 
conflicts must be maintained for 6 years to only material conflicts. We 
believe this change will balance the recordkeeping burden with the 
value obtained from the longevity of the records. Material conflicts 
are the ones that will result in recusal actions and most likely to 
last or reappear. As such, they are more valuable to retain for 
historical reference. However, this provision would not prevent Farmer 
Mac from retaining all records for the 6-year period, if it so desires.
    <bullet> Requiring in new paragraph (g) that Farmer Mac establish 
procedures for obtaining conflict-of-interest disclosures from agents 
of the Corporation. Agents of any corporation have a standing that 
differs from directors, officers, and employees. As such, we believe 
Farmer Mac should have procedures in place to provide reasonable 
assurance that their agents hold no material conflicts that could 
adversely affect the work those agents perform on behalf of Farmer Mac. 
As Farmer Mac's operations grow and its products and lines of business 
diversify, identification and prevention of potential conflicts become 
more challenging and make our enhanced regulatory focus on this topic 
timely and appropriate.
d. Director, Officer, Employee, and Agent Responsibilities [Existing 
Sec.  651.4; New Sec.  651.24]
    We propose moving existing Sec.  651.4 to new subpart B and 
redesignating the section as new Sec.  651.24. This section addresses 
director, officer, employee, and agent responsibilities. We also 
propose replacing the contents of existing Sec.  651.4(a)(1) requiring 
directors, officers, employees, and agents to maintain a high standard 
of behavior with the earlier discussed code of conduct at new Sec.  
651.21. We next propose removing existing Sec.  651.4(a)(2) and (b), 
which requires directors, officers, employees, and agents to comply 
with the Corporation's conflict-of-interest policy and provide the 
Corporation with any information the Corporation deems necessary or 
face penalties. We propose removing these provisions as they are 
unnecessary in light of other proposed changes contained in this 
rulemaking. For example, we have already proposed addressing our 
enforcement authorities in new Sec.  650.3 and conflicts-of-interest in 
new Sec.  651.22.
    Instead, we propose this section address the actions of directors, 
officers, employees, and agents in regards to the Corporation, its 
property, and its reputation. We propose under new Sec.  651.24 listing 
prohibitions on the conduct of directors, officers, employees, and 
agents. The proposed prohibitions are on making misleading or untrue 
statements of material facts regarding Farmer Mac, improper use of the 
official property and information of Farmer Mac, and disclosing 
confidential information related to Farmer Mac when not in the 
performance of official duties. We believe these prohibitions are 
necessary because, as a GSE and a publicly traded corporation, 
misinformation deliberately provided to outside parties could have a 
materially adverse impact on the safety and soundness of the 
Corporation.

[[Page 15937]]

3. Board Governance [New Subpart C]
a. Director Elections [New Sec.  651.30]
    It is common corporate practice to use a board committee, often the 
corporate governance committee, to name director-nominees and Farmer 
Mac follows this practice.\17\ In consideration of this, we are 
proposing regulations to ensure the director election process at Farmer 
Mac complies with the provisions of the Act and Congressional intent. 
In new Sec.  651.30, we propose a requirement that Farmer Mac have 
election policies and procedures in place and that Farmer Mac implement 
those policies and procedures in a fair and impartial manner. New Sec.  
651.30 would set forth the minimum requirements for the director 
election policies and procedures, including allowing all equity holders 
to submit director-candidates for nomination consideration. The 
proposed provision would facilitate the establishment of nomination 
procedures that provide reasonable assurance of an inclusive and fair 
process as potential directors are considered for nomination. The 
provision should not be read as requiring the nomination of every 
candidate submitted by an equity holder.\18\ Any such candidate would 
go through the Corporation's nomination process the same as all other 
director-candidates. For example, if a director-candidate submitted by 
an equity holder is not eligible for election as a director of the 
Corporation, there would be no requirement for Farmer Mac to include 
the candidate as a nominee.
---------------------------------------------------------------------------

    \17\ Under this corporate practice, Farmer Mac uses its 
Governance Committee as its nominating committee, which identifies 
candidates for elected director positions. This six member committee 
is composed of two Class A elected directors, two Class B elected 
directors, and two appointed directors.
    \18\ The Dodd-Frank Act, at Sec.  971 of subtitle G, amended the 
Securities and Exchange Act of 1934 to allow shareholders of 
publicly traded companies to submit director-nominees for election 
to corporate boards. The provision was viewed as a step in 
strengthening corporate governance by providing an alternative to 
shareholder proxy fights while also avoiding director entrenchment 
through self-nomination.
---------------------------------------------------------------------------

    New Sec.  651.30 would also allow the board committee responsible 
for nominations to engage the services of third parties to evaluate the 
professional qualifications of candidates prior to nomination. We 
believe allowing the board committee used for nominations to engage 
third parties to vet candidates can aid in achieving timely and 
objective evaluation of director-candidates.
    Next, new Sec.  651.30(b)(3) would require the nomination of a 
director-candidate to include affirmative votes for nomination from a 
majority of those involved in the Corporation's nomination process who 
also represent the same class of stockholders as the candidate. Since 
the voting stockholders are only presented with one director-candidate 
per board vacancy--and Farmer Mac no longer allows floor nominations 
\19\--the nomination of director-candidates takes on higher importance, 
particularly given the statutory requirement that 10 of the 15 members 
of the Farmer Mac Board be elected by Class A and B stockholders.
---------------------------------------------------------------------------

    \19\ Farmer Mac is not required by law or existing regulation to 
have a nominating committee nor is it required to allow floor 
nominations.
---------------------------------------------------------------------------

    We are not proposing to require the use of nominating committees or 
floor nominations in this rulemaking. However, we believe requiring 
director-candidates to have majority support from those involved in the 
nomination process who share the candidate's affiliation with either 
Class A or Class B stockholders facilitates fulfillment of the 
statutory provision that both Class A and Class B stockholders 
determine who will represent them on the Corporation's Board. In 
situations where a ``majority'' would mathematically result in a 
fraction, we would expect the next whole number to be used (e.g., three 
representatives would mean a majority of two, four representatives 
would mean a majority of three). If there are only two representatives 
from a Class involved in the nomination process, then we would consider 
a majority to be one person.
    The proposed rule at new Sec.  651.30(c) would require Farmer Mac 
to document the representational affiliation of all elected directors 
at the time of nomination and election to the board and maintain this 
documentation until 3 years after the director's service on the board 
ends. Such recordkeeping would help ensure only those eligible to serve 
as directors representing Class A or Class B are nominated. We also 
believe a 3-year record of director affiliations could be of assistance 
when reviewing director-candidates up for re-election. We believe the 
statutory term ``representative'' means that elected directors must 
have an official affiliation with a Class A or Class B entity at the 
time of nomination and election in order to serve as director. We view 
this affiliation as one that is a substantial and visible connection to 
the class of stockholders.
b. Director Removal [New Sec.  651.35]
    The proposed new Sec.  651.35 would require Farmer Mac to identify 
its director removal procedures in the Corporation's bylaws, which are 
available to shareholders. We believe shareholders are entitled to know 
how Farmer Mac determines when to require a director to resign 
(director removal) and how that removal action is achieved. It is 
important that shareholders understand Farmer Mac's actions in this 
area since nothing in the proposed provision would affect the ability 
of voting shareholders to exercise their rights in the election and 
governance of Farmer Mac's Board of Directors. To further emphasize 
this, the rule would prohibit Farmer Mac from initiating a director's 
removal in a manner that would adversely affect the rights of voting 
shareholders. The rule would also recognize that appointed directors 
serve at the pleasure of the President of the United States.
    We are also proposing language to explain what is considered a 
``director removal'' action initiated by the Corporation. Publicly 
traded companies use contractual agreements with their directors to 
ensure certain behavior (e.g., confidentiality of company data, 
standards of conduct). Often, these contracts include a provision 
requiring a director to ``voluntarily'' resign if the company 
determines (and a court later affirms) that the director failed to act 
in accordance with the agreement. Corporate directors are required to 
sign these agreements in order to take office and objecting to the 
``voluntarily'' resignation provision(s) may result in being denied a 
seat on the board. These types of contractual provisions are commonly 
referred to as mandatory resignations and are intended to avoid the 
cost and time required to pursue a forced removal action.
    We propose that all director resignations required or otherwise 
initiated by Farmer Mac be called ``director removals.'' We believe 
when a director must resign (or is deemed to have resigned) in response 
to a Farmer Mac bylaw, policy, or other governing document, that the 
resignation was initiated by the Corporation since Farmer Mac drafted 
the document at issue. Further, we believe that when Farmer Mac 
requires directors, director-nominees, and/or director-candidates to 
accede to a resignation provision in order to serve on the board of 
directors that, even if characterized as ``voluntary,'' it is more 
appropriately called a removal provision.
    The proposed rule would further require Farmer Mac to notify OSMO 
at least 14 days before seeking the removal of one of its directors. 
This advance notice is considered necessary to protect the safety and 
soundness of Farmer Mac. We view this level of advance reporting to be 
appropriate given the

[[Page 15938]]

potential for sudden changes in the board's membership to result in 
instability within the management and oversight of the Corporation or 
to raise concerns about the Corporation in the capital markets, or 
both.
c. Director Fiduciary Duties and Independence [New Sec.  651.40]
    We are proposing a new Sec.  651.40 that requires Farmer Mac to 
have policies in place to provide reasonable assurance that its Board 
of directors maintains responsibility for and provides appropriate 
oversight of the risk management activities of Farmer Mac, the reports 
and disclosures issued by Farmer Mac, and shareholder communications. 
Also, new Sec.  651.40 would clarify the duty of directors to conduct 
the business of the Corporation in a manner that promotes the best 
interest of the Corporation and furthers its statutory mission. As a 
GSE, Farmer Mac should strive to ensure that its Board activities 
fulfill its public missions. Unlike corporations incorporated under 
State statutes of incorporation, statutorily chartered GSEs are not 
free to alter their purposes or powers, even when such alteration may 
be in the best interest of the investing stockholders. For GSEs, such 
changes can only be made by law. Thus, it is the responsibility of 
Farmer Mac directors to lead the Corporation in the manner that best 
effectuates the public policy it was designed to serve.
    Paragraphs (b) and (c) of the proposed provision would set forth 
key duties of the Farmer Mac Board, among which are the duty to act in 
good faith and for the best interest of Farmer Mac, as well as acting 
fairly and impartially without discriminating in favor of or against 
any investor, stockholder, or group of stockholders. The proposed 
provisions are intended to ensure that all directors, regardless of how 
they acquired their seats on the board of directors, understand that 
they are bound by their fiduciary duty to Farmer Mac and, as a result, 
act for the betterment of Farmer Mac overall and not any particular 
group of shareholders or investors. We believe these provisions are 
necessary to clarify that the required elected director affiliations 
should not be interpreted to mean an elected director serves solely to 
further the viewpoints of the electing class without regard to the 
impact on Farmer Mac and all its shareholders. Such an interpretation 
would be inconsistent with the established corporate common law 
principles of a director's fiduciary duties, as well as with 
Congressional intent. The fiduciary duties of directors are essential 
to good governance and necessary to the safe and sound operation of the 
Corporation. Thus, directors failing to fulfill this fiduciary duty 
could have a negative impact on the safety and soundness of Farmer Mac.
    The proposed provisions are another step in ensuring directors 
maintain their duty of loyalty to the Corporation, notwithstanding any 
required affiliation with a group of stockholders. However, they are 
not to be read as requiring elected directors to disregard the 
perspectives of those electing them to office. Instead, we believe 
elected directors should share these perspectives with the entire Board 
so that every director is informed of stockholder concerns and views, 
thus facilitating Board decisions and ensuring those decisions are 
being made in the best interests of the Corporation and all of its 
shareholders.
    In balance with the other requirements of new Sec.  651.40, and to 
help ensure the rule is not misapplied, proposed paragraph (d) would 
protect the ability of directors to be accountable to the shareholders 
that elected them. We recognize that fiduciary duties to shareholders 
must be understood in the context of the duty of the elected directors 
to possess a representational relationship with certain groups of 
shareholders. As such, the provision, as proposed, would specifically 
allow directors to comment on non-private and non-privileged corporate 
business, provided doing so will not violate any laws or regulations, 
particularly securities laws. The intent is to allow directors to 
converse with stockholders as a means of gathering information, gaining 
insights into stockholder wishes, and demonstrating accountability. The 
provision clarifies that this authority does not prevent Farmer Mac 
from protecting proprietary information. It is an established corporate 
governance principle that once elected to the board a director owes his 
or her fiduciary duties, including a duty of confidentiality, to the 
company and shareholders as a whole. As such, the proposed rule would 
clarify that Farmer Mac may take measures to ensure each director 
abides by policies defining and specifying the treatment of the 
Corporation's confidential information, including restricting directors 
from disclosing the Corporation's confidential information to the 
shareholders electing them to serve on the Corporation's board. We 
believe the proposed Sec.  651.40 strikes the appropriate balance 
between a director's representational duties required by the Act and 
his or her corporate fiduciary duties.
d. Committees of the Board [New Sec.  651.50]
    We propose a new Sec.  651.50 on board committees in subpart C. The 
new Sec.  651.50 would address the relationship between the entire 
board and its committees, require certain committees, place membership 
requirements on the committees, and establish minimum operational 
requirements for board committees (e.g., charters, meeting minutes). 
The proposed committees would resemble those currently maintained by 
Farmer Mac, but with the key differences in committee composition.
    In paragraph (a) of new Sec.  651.50, we propose limiting the 
authority of the board to delegate its collective authority to develop 
and amend Farmer Mac bylaws to a committee of the board. This provision 
would not prevent board committees from making recommendations on the 
bylaws to the entire board. We also propose regulatory language holding 
the entire board 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.
    In paragraph (b) of new Sec.  651.50, we propose that Farmer Mac 
have, at the minimum, committees to address risk management, audit, 
compensation, and corporate governance matters. We propose that there 
be separate committees dedicated to audit and risk management and that 
these committees not be tasked with other matters. Our reasoning in 
support of this proposal is that the oversight responsibilities of each 
of these two committees represent an aggregation of a very broad array 
of issues and detailed operational policies and procedures that cover 
essentially the entire breadth of the Corporation's operations--in 
addition to the associated ongoing monitoring of all of these. We 
believe a portfolio of responsibility any larger for either committee 
would be excessive and risk a severe dilution in a committee's 
effectiveness.
    In paragraph (c) of new Sec.  651.50, we propose that each board 
committee be established through a written charter. We further propose 
that committee charters specify the powers, responsibilities, and 
structure of each committee. We further propose that each committee 
have both elected and appointed directors and that among the elected 
directors there be ones with affiliations to both Class A and Class B 
stockholders. Similarly, we propose that no director may serve as a 
committee chair of more than one committee. Our

[[Page 15939]]

intent is to ensure that the Farmer Mac Board reasonably distributes 
responsibilities among individual members of the board. We believe that 
too great a concentration of responsibilities would detract from the 
board's overall effectiveness.
    In paragraph (d) of new Sec.  651.50, we propose requiring each 
board committee to have meeting minutes and to keep the minutes for 3 
years. We propose that the minutes include the agenda for the meeting, 
attendance, a summary of pertinent discussions held during the meeting, 
and any resulting committee recommendations. In proposing this 
requirement, we are not seeking transcripts of meetings, but a record 
of matters addressed by the committee and who participated in the 
meeting in sufficient detail to allow the reader a reasonable 
understanding of the substance of the discussion. We propose no set 
meeting schedule for committees, but do propose a requirement that each 
committee meet with sufficient frequency to fulfill its duties. We 
believe these provisions would facilitate both the historical context 
of policies and procedures for future management teams and directors as 
well as facilitate the regulatory oversight of board activity.
    In proposing new Sec.  651.50, we intend no conflict with SEC 
regulations on the structure of board committees and welcome comments 
identifying any potential conflict that might exist between the 
proposed provision and SEC requirements. Where our proposal contains 
provisions on board committees that would be requirements, but which 
are optional under existing SEC rules, it was intentional as we believe 
the requirements facilitate the safe and sound operations of Farmer 
Mac.

C. Risk Management [Part 653, No Subparts]

    We propose opening existing reserved part 653 to add risk 
management provisions for Farmer Mac, renaming the part, ``Federal 
Agricultural Mortgage Corporation Risk Management.'' We propose no 
subparts to part 653, but propose adding the following provisions:
    <bullet> A new Sec.  653.1 to contain the definitions of certain 
terms used in part 653;
    <bullet> A new Sec.  653.2 to address general board-level risk 
management matters;
    <bullet> A new Sec.  653.3 to contain required risk management 
programs and activities; and
    <bullet> A new Sec.  653.4 to contain requirements for internal 
controls.
    We discuss the proposed Sec. Sec.  653.1 through 653.4 below.
1. Definitions [New Sec.  653.1]
    We propose as new Sec.  653.1 definitions for the terms 
``Corporation'', ``FCA'', and ``OSMO.'' We are proposing the same 
meaning as are proposed elsewhere in this rulemaking. We propose these 
definitions to ensure a common understanding of the terms as used in 
part 653.
2. General [New Sec.  653.2]
    We propose in new Sec.  653.2 to require the Farmer Mac Board 
approve the overall risk-appetite and tolerance of the Corporation. We 
believe that while management may design and implement the 
Corporation's internal controls, the Board remains ultimately 
responsible for how those controls affect the risk management of the 
Corporation. The Board's oversight of internal controls is a critical 
component of its responsibility for monitoring corporate activities and 
providing reasonable assurance that the controls will prevent excessive 
risk-taking or unsafe and unsound activities.
3. Risk Management [New Sec.  653.3]
    A comprehensive and integrated risk management program 
significantly enhances the coordination of risk decision-making as well 
as capital allocation among individual business units and allows the 
units to act within the context of the broader risk-taking activities 
and risk tolerance limits of the Corporation. Although the Corporation 
has recently expanded its risk management program to include a risk 
committee, we propose in new Sec.  653.3(a) to require Farmer Mac to 
have a risk management program addressing the Corporation's exposure to 
credit, market, liquidity, operations, and reputation risks. As 
proposed, the rule would require the risk management program to 
include:
    <bullet> Periodic assessments of the Corporation's risk profile, 
with related adjustments to the Corporation's operations;
    <bullet> Coordination with board-approved risk tolerance levels;
    <bullet> Delineation of management's authority and independence in 
implementing the program; and
    <bullet> Integration with Corporation goals, business objectives, 
and compensation.
    As referenced in the discussion of proposed Sec.  651.50 (preamble 
section III.C.3.d.), we are proposing in new Sec.  653.3(b) to require 
Farmer Mac to have a risk management committee. As proposed, the 
membership of the risk committee would include a risk management 
expert. Also, we are proposing that the risk committee be responsible 
for reviewing the design of the risk management program and receiving 
management reports on risk management issues, as well as monitoring the 
Corporation's risk management policies and procedures. We believe it is 
essential that the tone of Corporation's risk culture and its 
procedures for risk decision-making be set by the Board even when they 
are based on management's recommendations. Further, the Board plays a 
critical role in the ongoing oversight of, and cohesive implementation 
of, operational strategies and plans that conform to its established 
risk appetite and tolerance.
    We also propose in new Sec.  653.3(c) to require Farmer Mac to have 
a ``Risk Officer'' to implement the risk management program. We are 
proposing that the risk officer report directly to the chief executive 
officer and risk committee. We also propose that the risk officer be 
separated from other management functions to ensure s/he devotes full 
attention to Farmer Mac's risk management activities. Under new Sec.  
653.3(c), the risk officer would have to have experience in risk 
management commensurate with Farmer Mac's operations. The risk officer 
also would be responsible for monitoring compliance with risk 
management policies; developing systems to identify and report risks; 
and making recommendations to adjust risk management behaviors. We 
believe a staff position that serves as coordinator of the consistent 
and collaborative implementation of corporate risk policies and 
objectives across business units is necessary. A risk officer could 
help coordinate, organize, prioritize and monitor risks on behalf of 
the CEO and Board risk committee.
    As financial institutions become larger and more complex, which 
Farmer Mac has since it was chartered by Congress in 1987, the need 
arises for a continuous, coordinated, and comprehensive oversight of 
the broad spectrum of current and prospective risks the entity faces. A 
key role of a risk officer is to prevent the emergence of isolated risk 
``silos'' among the entity's business units and ensure a consistent and 
integrated monitoring of key sources of risks, such as strategic risks 
(including reputation and political risk), compliance risks, and 
reporting risks. We believe requiring a risk officer position at Farmer 
Mac plays a key role in ensuring that the Board and CEO are adequately 
informed regarding the Corporation's aggregate risk position--thus 
providing reasonable assurance of the achievement of corporate and

[[Page 15940]]

mission objectives. In addition, having a risk officer position is 
considered a best practice for financial institutions over $10 billion 
and is consistent with Basel's Pillar 2 on Risk Management and Risk 
Supervision.
4. Internal Controls [New Sec.  653.4]
    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 26 years since Farmer Mac was 
chartered, business and operational environments have become 
significantly more complex and technology-driven. Systems 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. Thus, 
while FCA regulations on various aspects of Farmer Mac's operations 
(e.g., investments, liquidity, capital planning) include specific 
minimum control requirements related to those operations, we believe a 
Corporation-wide integrated system of internal controls is also 
appropriate. Accordingly, we propose in new Sec.  653.4 to require 
Farmer Mac to adopt internal controls for the proper treatment of and 
accountability for the programs, operations, and resources of Farmer 
Mac.
    The proposed provision would require an internal controls system 
that addresses: The effectiveness of corporate activities; security of 
corporate assets; accuracy and completeness of financial reports; 
separation of duties to avoid conflicts in responsibilities; 
transparent reports to the Farmer Mac board; and compliance with 
applicable laws, regulations, and corporate policies. The new Sec.  
653.4 would also require Farmer Mac to have a system to correct 
weaknesses identified by the internal controls program. Finally, we are 
proposing an annual reporting requirement, where Farmer Mac would 
report to OSMO on the effectiveness of the internal controls program.

D. Disclosure and Reporting [Part 655]

    Existing part 655 contains financial disclosure and reporting 
provisions for Farmer Mac in two subparts: Subpart A on annual reports 
and subpart B on securities reports. We propose organizational changes 
to this part as follows:
    <bullet> Adding a new subpart A, entitled ``General'' to address 
the matters common to disclosures and reports;
    <bullet> Renaming and redesignating the existing subpart A as new 
subpart B, to be called ``Reports of Condition of the Federal 
Agricultural Mortgage Corporation;''
    <bullet> Redesignating existing subpart B as new subpart C;
    <bullet> Adding a new Sec.  655.1 to identify the definitions of 
certain terms used in part 655;
    <bullet> Adding a new Sec.  655.2 to prohibit misleading, 
inaccurate, or incomplete disclosures;
    <bullet> Moving existing Sec.  655.1 on annual reports, currently 
under existing subpart A, to new subpart B and redesignating it as 
Sec.  655.10;
    <bullet> Adding a new Sec.  655.15 on the distribution of interim 
notices and proxies to new subpart B;
    <bullet> Moving, renaming, and redesignating existing Sec.  655.50 
on securities not registered under the Securities Act, currently under 
existing subpart B, as new Sec.  655.20 in new subpart C; and
    <bullet> Adding a new Sec.  655.21 on communications with the U.S. 
Treasury, SEC, and NYSE.
    We also propose enhancements to existing disclosure and reporting 
requirements of part 655 to remove repetitious reporting and 
incorporate technology by allowing for electronic filing of reports 
with OSMO. These proposed enhancements are designed to reduce Farmer 
Mac's reporting responsibilities, while also improving the quality and 
timeliness of information provided to FCA. We are also proposing 
changes to remove repetitious disclosure and reporting requirements 
resulting from the dual reporting responsibilities of Farmer Mac to the 
FCA and the SEC.
1. Definitions [New Subpart A: New Sec.  655.1]
    We propose adding a new Sec.  655.1 for definitions of certain 
terms used in part 655. We are proposing the same definitions to this 
part as are proposed for part 650 (listed in section III.A. of this 
preamble). We are also proposing to add the same definition for 
``person'' as is proposed for part 651. In addition, we propose 
definitions for the term ``material'' and ``report.'' While there is a 
definition for ``material'' in part 651, the one proposed for this part 
is different in that it focuses on the meaning of the term when 
considering financial reports, not conflicts-of-interest. We propose 
these definitions to ensure a common understanding of the terms as used 
in part 655. In addition, we propose changes to the existing provisions 
of part 655 to incorporate the proposed new terms.
2. Prohibitions [New Subpart A: New Sec.  655.2]
    We propose adding a new Sec.  655.2 to prohibit misleading, 
inaccurate, or incomplete disclosures. This prohibition is 
substantially similar to the one that currently exists in our 
regulations for the reports of System banks and associations. The 
provision would establish that no director, officer, employee or agent 
of Farmer Mac may mislead the FCA, Farmer Mac stockholders, or the 
general public by making misleading, inaccurate, or incomplete 
disclosures within the reports required under part 655. The provision 
would also clarify the authority of FCA to require a corrected report 
if we determine it contained any misleading, inaccurate, or incomplete 
disclosures.
3. Reports of Condition [New Subpart B: Existing Sec.  655.1; New 
Sec. Sec.  655.10 and 655.15]
    The Act requires Farmer Mac to register its equities with the SEC 
and be subject to SEC disclosure regulations issued under section 14 of 
the Securities and Exchange Act of 1934.\20\ Also, Farmer Mac's Class A 
and Class C stocks are publicly traded on the NYSE. Thus, Farmer Mac 
must comply with both FCA and SEC disclosure and reporting 
requirements. We are proposing changes to our reporting requirements 
for Farmer Mac to enable the reports filed by Farmer Mac with the SEC 
to also satisfy our requirements in that area, absent instructions from 
us to the contrary. We believe the proposed changes will facilitate the 
coordination of Farmer Mac's financial reporting responsibilities to 
both OSMO and the SEC as well as reduce or eliminate repetitious 
reporting.
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    \20\ Section 8.12 of the Act (12 U.S.C. 2279aa-12).
---------------------------------------------------------------------------

    We propose revising existing Sec.  655.1 (proposed to be 
redesignated as Sec.  655.10) to cover all reports of conditions, not 
just annual reports. We are also proposing to require reports be signed 
and certified. The proposed certification components would be attesting 
that the signatory reviewed the report, the report was prepared in 
accordance with applicable laws and regulations, and the reported 
information is true, accurate, and complete to the best of the 
signatory's knowledge. Further, we are proposing that quarterly and 
annual reports be filed by Farmer Mac with OSMO and that those reports 
either be equivalent to those required by the SEC or according to our 
instructions. We are proposing the provision that reports be filed

[[Page 15941]]

according to our instructions to address the contingency of the SEC 
changing its reporting requirements in such a manner as to reduce the 
usefulness of the reports in safety and soundness matters.
    For the reasons already discussed, we are proposing changes to the 
existing report distribution requirements to reduce timeframes, require 
Web site posting of reports, and ensure reports distributed to 
shareholders and investors are the same as those filed with both the 
FCA and SEC. We are proposing to reduce the existing 120-day timeframe 
to distribute reports to a 90-day timeframe for distribution of reports 
to shareholder and a 5-day filing timeframe with OSMO. We believe the 
reduced timeframes are more reasonable given available technology and 
other advances in reporting systems. We further propose that if the 
report is the same as that filed with the SEC, it be filed with OSMO 
simultaneous with the SEC filing. We next propose changing the existing 
requirement to send us three paper copies of each report by reducing it 
to only one paper copy. We also propose allowing the use of electronic 
filing of reports with OSMO.
    We propose requiring Farmer Mac to post reports on its Web site 
within 3 business days of filing the report with OSMO. We propose that 
a report remain available on the Web site until the next report is 
posted. We further propose that if the report is the same as that filed 
with the SEC, an electronic link to the SEC reports database (EDGAR) 
would satisfy our regulatory requirement in this area. In making this 
proposal, we relied on technological advances, the existing 
availability of the information, and Farmer Mac's existing practice of 
posting reports on its Web site.
    Further, we are proposing a new Sec.  655.15 to require that Farmer 
Mac send OSMO one paper and one electronic copy of every notice, 
interim report, and proxy statement it files with the SEC. We believe 
it is essential that communications between Farmer Mac and OSMO, its 
primary regulator, include the communications Farmer Mac has with the 
SEC. The proposed provision would require Farmer Mac to make these 
disclosures within 1 business day of filing the notice, interim report, 
or proxy statement with the SEC. We believe this requirement is 
necessary to ensure we have timely notice of events outside our 
scheduled examination of these documents.
    Similar to the proposal to post reports on its Web site, we are 
proposing in Sec.  655.15(b) that Farmer Mac post on its Web site 
notices, interim reports, and proxy statements within 5 business days 
of filing them with the SEC. As proposed, this requirement could be 
satisfied with a link to EDGAR. We also propose that these documents 
remain on the Web site for 6 months, or until the next annual report, 
whichever is later.
4. Reports Related to Securities Activities [New Subpart C: Existing 
Sec.  655.50; New Sec. Sec.  655.20 and 655.21]
    We propose revising existing Sec.  655.50 by first breaking it into 
two sections: Sec.  655.20 on unregistered securities (currently Sec.  
655.50(a)) and Sec.  655.21 on all other filings and communications 
with the U.S. Treasury, SEC, and NYSE (currently Sec.  655.50(b) and 
(c)). In new Sec.  655.20, we propose changing the manner of making 
special filings with OSMO by replacing the existing requirement to send 
us three paper copies to require one paper and one electronic copy. In 
new Sec.  655.21, we propose expanding the existing requirement to send 
us copies of ``substantive'' correspondence between Farmer Mac and the 
SEC or U.S. Treasury to include the NYSE. The proposal would also 
remove the limitation on the type of communication. Currently, the 
requirement covers correspondence relating to securities activities or 
regulatory compliance. We believe the Corporation should provide us all 
substantive communications it has with the U.S. Treasury, the SEC, and 
the NYSE as that communication may have a bearing on the safety and 
soundness of Farmer Mac. We also propose setting a 3-day timeframe for 
providing the information to us. Finally, new Sec.  655.21(c) would 
require Farmer Mac to notify us of exemptions from SEC filing 
requirements within 1 business day. The current rule requires this 
information to be sent to us ``promptly.'' In light of the proposed 
changes to reporting requirements, we believe it is necessary to have 
definitive and fast notice of any changes Farmer Mac seeks in SEC 
filing requirements.

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 proposed rule will not 
have a significant economic impact on a substantial number of small 
entities. Farmer Mac has assets and annual income over the amounts that 
would qualify it as a small entity. Therefore, Farmer Mac 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 
proposed to be 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 the Farm Credit Act (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 subpart A to read as follows:

[[Page 15942]]

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.

Subpart A--Regulation, Examination and Enforcement


Sec.  650.1  Definitions.

    The following definitions apply for the purpose of 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 agricultural 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 laws and regulations.
    (c) Other regulatory authorities. The Corporation is required by 
its authorizing statute to comply with certain SEC reporting 
requirements and must register offerings of Farmer Mac Guaranteed 
Securities under the Securities Act of 1933 and related regulations. 
The Corporation is also subject to most of the industry self-regulatory 
requirements of the NYSE.


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 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.


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 
agents 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 Indemnification.
Subpart B--Standards of Conduct
651.21 Code of conduct.
651.22 Conflict-of-interest policy.
651.23 Conflict-of-interest disclosure and reporting.
651.24 Director, officer, employee, and agent responsibilities.
Subpart C--Board Governance
651.30 Director elections.
651.35 Director removal.
651.40 Director fiduciary duties and independence.
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 the Farm Credit Act (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 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).

[[Page 15943]]

    Class A stockholders means holders of common stock in the 
Corporation that are insurance companies, banks, or other financial 
institutions or entities.
    Class B stockholders means holders of common stock in the 
Corporation that are Farm Credit System institutions.
    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 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.
    Potential 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 person having such interest 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.
    Reasonable person means a person under similar circumstances 
exercising the average level of care, skill, and judgment in his or her 
conduct based on societal requirements for the protection of the 
general interest.
    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  Indemnification.

    (a) General. The Corporation is not required to offer 
indemnification insurance. The Corporation must have policies and 
procedures in place before it may offer indemnification insurance to 
its directors, officers, or employees.
    (1) Indemnification policies and procedures must address how the 
board of directors approves or denies requests for indemnification from 
current and former directors, officers, and employees. The policies and 
procedures must include standards relating to indemnification, 
investigations by the board of directors, and reviews by independent 
counsel.
    (2) Indemnification policies and procedures must consider all 
sources of potential indemnification to protect the Corporation against 
over-indemnification of an individual director or officer.
    (b) Oversight. The Corporation must notify OSMO 10 business days 
before issuing any indemnification payment.

Subpart B--Standards of Conduct


Sec.  651.21  Code of conduct.

    (a) General. The Corporation must develop and administer a written 
code of conduct establishing the ethical benchmarks for professional 
integrity, competence, and respect. The code must be reasonably 
designed to assure the ability of board members, officers, employees, 
and agents of the Corporation to discharge their duties and 
responsibilities, on behalf of the Corporation, in an ethical and 
business-like manner. The code of conduct must be consistent with 
applicable laws and regulations.
    (b) Review. Not less often than once every 3 years, the Corporation 
must review the adequacy of its code of conduct for consistency with 
practices appropriate to the entity and compliance with laws and 
regulations and must make any appropriate revisions to such code.


Sec.  651.22  Conflict-of-interest policy.

    (a) The Corporation must 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, impartial, and 
business-like manner that furthers the lawful interests and statutory 
purpose of the Corporation. The conflict-of-interest policy must 
acknowledge and respect the representational affiliations required by 
the Act for elected directors.
    (b) The conflict-of-interest policy must:
    (1) 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:
    (i) Interests of any individual residing in that person's 
household;
    (ii) Interests of any individual identified as a legal dependent of 
that person;
    (iii) Interests of that person's general partner;
    (iv) Interests of an organization or entity that the person serves 
as officer, director, trustee, general partner or employee, unless the 
organization or entity is directly connected to the representational 
affiliations required by the Act for elected directors; and
    (v) Interests of a person, organization, or entity with which that 
person is negotiating for or has an arrangement concerning prospective 
employment.
    (2) Include guidelines for determining when a potential conflict is 
material (as that term is defined in this part);
    (3) Contain procedures for resolving or disclosing material 
conflicts of interest.
    (4) Address recusal from official actions on any matter in which a 
director, officer, employee, or agent is prohibited from participating 
based on a conflict-of-interest identified under this part; and
    (5) Define documentation and reporting requirements, consistent 
with this part, for demonstrating compliance with conflict-of-interest 
decisions.
    (c) The Corporation must notify directors, officers, employees, and 
agents of the conflict-of-interest policy

[[Page 15944]]

and any subsequent changes thereto and allow them a reasonable period 
of time to conform to the policy.
    (d) When requested, the Corporation must provide to any 
shareholder, investor, or potential investor, with a copy of its 
conflict-of-interest policy. The Corporation may charge a nominal fee 
to cover the costs of reproduction and handling.


Sec.  651.23  Conflict-of-interest disclosure and reporting.

    (a) Annually, each director, officer, and employee must provide to 
the Corporation a written and signed conflict-of-interest report. The 
report must disclose information about financial interests, 
transactions, relationships, and activities sufficient enough for a 
reasonable person to make a conflict-of-interest determination.
    (1) The annual conflict-of-interest report must identify any 
transaction, relationship, or activity that, in the director, officer 
or employee's opinion, creates a real or potential material conflict-
of-interest or that is:
    (i) Specifically named in the Corporation's policies on conflict-
of-interest; or
    (ii) Addressed in regulation.
    (2) If potential or real conflicts arise between annual reporting 
periods, each director, officer, and employee must update his or her 
annual disclosure at the time(s) such conflict arises.
    (b) The Corporation must review the annual conflict-of-interest 
reports, and any subsequent reports, within 10 business days of 
receipt.
    (1) The Corporation must determine for each director, officer, and 
employee whether any real or potential material conflict-of-interest 
exists and document its findings.
    (2) If a real or potential conflict-of-interest is identified as 
material by the Corporation, the Corporation must, within 3 business 
days of identification, notify the director, officer, or employee of 
the material conflict-of-interest determination and must provide the 
director, officer, or employee a reasonable opportunity to respond.
    (c) The Corporation must document all resolved and unresolved 
material conflicts-of-interest. Until resolved, the Corporation must 
maintain on-going documentation that explains how unresolved conflicts 
are being handled.
    (d) The Corporation must disclose any unresolved material conflict-
of-interest involving its directors, officers, and employees existing 
at the time to:
    (1) Shareholders through annual reports and proxy statements;
    (2) Investors and potential investors through disclosure documents 
supplied to them; and
    (3) The FCA, through procedures established by OSMO.
    (e) The Corporation must establish and maintain internal controls 
to ensure that conflict-of-interest reports are filed and reviewed as 
required and that conflicts are resolved or disclosed in accordance 
with this subpart.
    (f) The Corporation must maintain all reports of real or potential 
material conflicts-of-interest, including documentation of materiality 
determinations and resolutions, for a period of 6 years.
    (g) The Corporation must establish procedures for obtaining 
conflict-of-interest disclosures from agents of the Corporation. These 
disclosures must provide enough information for the Corporation to 
identify if the agent has material conflicts-of-interest with the 
Corporation. The procedures on agent conflicts-of-interest must satisfy 
the documentation and record retention requirements in paragraphs (c) 
and (f) of this section.


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

    (a) No director, officer, employee, or agent of the Corporation may 
make any untrue or misleading statement of a material fact intended or 
having the effect of reducing public confidence in the Corporation.
    (b) No director, officer, employee, or agent of the Corporation may 
make improper use of official Corporation property or information. 
Improper use includes, but is not limited to, the purchase or 
retirement of any stock in advance of the public release of material 
non-public information concerning the Corporation.
    (c) Except in the performance of official duties, no director of 
the Corporation shall divulge or use any fact, information, or document 
that is acquired by virtue of serving on the board of the Corporation 
and not generally available to the public.

Subpart C--Board Governance


Sec.  651.30  Director elections.

    (a) The Corporation must have in effect at all times director 
election procedures and must administer those procedures in a fair and 
impartial manner.
    (b) The director election procedures must:
    (1) Provide that any holder of an equity interest in the 
Corporation may submit candidates for consideration as director-
nominees to the Corporation's board of directors.
    (2) Allow the board committee used for director nominations to 
engage the services of third parties to evaluate the professional 
qualifications of potential nominees.
    (3) Require that during the director nomination process, a 
director-candidate must receive affirmative votes for nomination from a 
majority of those representing the same class of stockholders as the 
candidate.
    (c) The Corporation must ensure director elections acknowledge and 
respect the voting rights of Class A and Class B stockholders, as well 
as the elected director representational affiliations required by the 
Act. Elected director candidates must have a recognized affiliation or 
relationship with their respective class of voting stockholders at the 
time of nomination and election to the Corporation board of directors. 
The Corporation must maintain documentation supporting the affiliation 
or relationship of each elected director until 3 years after the 
director's service on the board ends.


Sec.  651.35  Director removal.

    (a) The procedures that the Corporation relies upon to initiate 
director removals must be contained in the Corporation's bylaws. 
Director removals initiated by the Corporation include, but are not 
limited to, resignations requested by the Corporation, mandatory 
resignations based on contractual agreements with the Corporation, and 
resignations required in response to predetermined events or actions 
identified in the Corporation's governing documents.
    (b) Director removals initiated by the Corporation may not 
adversely affect the rights of voting shareholders. Appointed directors 
may only be removed as authorized by the President of the United 
States.
    (c) The Corporation must notify OSMO at least 14 days before any 
director removal is initiated by the Corporation.


Sec.  651.40  Director fiduciary duties and independence.

    (a) General. The responsibilities of the Corporation's board of 
directors include having in place adequate policies and procedures to 
assure its oversight of:
    (1) The risk management and compensation programs of the 
Corporation,
    (2) The processes for providing accurate financial reporting and 
other disclosures, and
    (3) Communications with stockholders.
    (b) Responsibility. The board of directors of the Corporation is 
responsible for directing the conduct and affairs of the Corporation in

[[Page 15945]]

furtherance of the safe and sound operation of the Corporation and in 
compliance with all applicable laws and regulations. The board must 
remain reasonably informed of the condition, activities, and operations 
of the Corporation in order to fulfill its duties.
    (c) Duties. Each director of the Corporation must:
    (1) Carry out his or her duties as director in good faith, in a 
manner such director believes to be in the best interests of the 
Corporation, and with such care, including reasonable inquiry, as a 
reasonable person in a similar position would use under similar 
circumstances;
    (2) Administer the affairs of the Corporation fairly and 
impartially and without discrimination in favor of or against any 
investor, stockholder, or class of stockholders; and
    (3) Direct the operations of the Corporation in conformity with 
safety and soundness standards and the requirements set forth in the 
authorizing statute and in compliance with all applicable laws and 
regulations.
    (d) Independence. No director of the Corporation may be prohibited 
by confidentiality agreements or Corporation policies and procedures 
from publicly or privately commenting orally or in writing on non-
private or non-privileged corporate business and related matters. This 
provision does not exempt directors from relevant laws and regulations, 
including securities laws, regarding such statements. This provision 
does not prohibit the Corporation from protecting proprietary, 
privileged, and non-public information.


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 must adopt, and the full board of 
directors of the Corporation must approve, a formal written charter 
that specifies the scope of a committee's powers and responsibilities, 
as well as the committee's structure, processes, and membership 
requirements.
    (1) Each board committee must have at least one elected director 
from each class of voting stock and one appointed director as members 
of the committee.
    (2) No director may serve as chairman of more than one board 
committee.
    (d) Frequency of meetings and records. Each committee of the board 
of directors must meet with sufficient frequency to carry out its 
obligations and duties under applicable laws, regulations, and its 
operating charter. Each committee of the board of directors must 
maintain minutes of its meetings. The minutes must record attendance, 
the agenda, 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 the Farm Credit 
Act (12 U.S.C. 2279aa-3, 2279aa-4, 2279aa-6, 2279aa-8, and 2279aa-
10).


Sec.  653.1  Definitions.

    The following definitions apply for the purpose of 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 
law and regulations.


Sec.  653.2  General.

    The Corporation's board of directors must approve the overall risk-
appetite and risk tolerance of the Corporation and monitor internal 
controls to ensure 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 have in effect at all times an enterprise-wide risk management 
program that, at a minimum, addresses the Corporation's exposure to 
credit, market, liquidity, business and operational risks and ensures 
that the Corporation's activities are exercised in a safe and sound 
manner. The risk management program 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 risk tolerance and the Corporation's operational 
planning strategies and objectives.
    (3) Address the Corporation's exposure to credit, market, 
liquidity, business and operational risks.
    (4) Specify management's authority and independence to carry out 
risk management responsibilities.
    (5) Integrate risk management and control objectives into 
management goals and compensation structures.
    (6) Comply with all applicable FCA regulations and policies.
    (b) Risk committee. The Corporation's board of directors must 
establish and maintain a board-level risk committee that is responsible 
for the oversight of the enterprise-wide risk management practices of 
the Corporation.
    (1) The risk committee must have at least one member with risk 
management expertise 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) Overseeing and documenting the enterprise-wide risk management 
policies and practices of the Corporation;
    (ii) Reviewing and recommending an appropriate risk management 
program commensurate with the Corporation's capital structure, risk 
profile, complexity, activities, size, and other appropriate risk-
related factors; and
    (iii) Receiving and reviewing regular reports from the 
Corporation's Risk Officer.
    (c) Risk officer (RO). The Corporation must have a RO to implement 
and maintain the enterprise-wide risk management practices of the 
Corporation. The RO must be independent from other management functions 
or units and must report directly to the chief executive officer and 
the risk committee. The RO must have risk management experience 
commensurate with the Corporation's

[[Page 15946]]

capital structure, risk profile, complexity, activities, and size. The 
responsibilities of the RO 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 risk management issues, emerging risks, and 
compliance concerns to the chief executive officer and the risk 
committee; and
    (5) Making recommendations to the chief executive officer and board 
risk committee on adjustments to 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 control over, and 
accountability for, operations, programs, and resources to ensure that 
the Corporation's powers, functions, and duties are exercised in a safe 
and sound manner and in compliance with all applicable laws and 
regulations.
    (b) The internal control system must address:
    (1) The efficiency and effectiveness of the Corporation 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;
    (5) The appropriate segregation of duties among the Corporation 
personnel so that personnel are not assigned conflicting 
responsibilities; and
    (6) The transparency of information provided to the Corporation's 
board of directors.
    (c) The Corporation is responsible for establishing and 
implementing an effective system to track internal control weaknesses 
and take action to correct detected weaknesses. As part of that 
program, the Corporation must establish and maintain a compliance 
program that is reasonably designed to assure that the Corporation 
complies with applicable laws, regulations, and internal controls.
    (d) The Corporation must annually report to OSMO on the 
effectiveness of the internal control system.
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.
655.2 Prohibition against misleading, inaccurate, and incomplete 
reports and disclosures.
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 U.S. Treasury, the SEC and 
the NYSE.

    Authority: Secs. 5.9, 8.3, 8.11, and 8.12 of the Farm Credit Act 
(12 U.S.C. 2243, 2279aa-3, 2279aa-11, 2279aa-12).

Subpart A--General


Sec.  655.1  Definitions.

    The following definitions apply for the purpose of 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 to 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 
regulates and examines the Federal Agricultural Mortgage Corporation 
for safety and soundness and compliance with law 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.
    Report refers to the annual report, quarterly report, or notices, 
regardless of form, required by this part unless otherwise specified.
    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.  655.2  Prohibition against misleading, inaccurate, and incomplete 
reports and disclosures.

    The Corporation and any agent, employee, officer, or director of 
the Corporation may not make any report or disclosure to FCA, 
stockholders or the general public concerning any matter required to be 
disclosed by this part that is incomplete, inaccurate, or misleading. 
When any such person makes a report or disclosure that, in the judgment 
of FCA, is incomplete, inaccurate, or misleading, whether or not such 
report or disclosure is made in reports or disclosure statements 
required by this part, the FCA may require the Corporation to make such 
additional or corrective disclosure as is necessary to provide a full 
and fair disclosure.

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 quarterly and 
annual reports of its condition, including financial statements and 
related schedules, exhibits, and other documents that are part of the 
reports. The contents of each quarterly or annual report must be either 
equivalent in content to the quarterly and annual reports to 
shareholders required by the Securities Act or according to our 
instructions.
    (b) Signatures and certification. Each report issued under this 
part 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. Those 
components of the report containing financial information must be 
separately certified as financially accurate. The entire report must be 
certified by the signatories and the certification must, at a minimum, 
state that:
    (1) The signatories have reviewed the report,

[[Page 15947]]

    (2) The report has been prepared in accordance with all applicable 
statutory or regulatory requirements, and
    (3) The information is true, accurate, and complete to the best of 
signatories' knowledge and belief.
    (c) Distribution. The Corporation must distribute the signed report 
of condition to all its shareholders within 90 days of its fiscal year-
end. The Corporation must provide us one paper and one electronic copy 
of every signed report within 5 days of signing. 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 a copy of each report of condition 
on its Web site 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, EDGAR, 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 signed 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 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, EDGAR, 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 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) One paper and 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, one paper and 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
    (2) The pooling and servicing agreement when the security is 
purchased by the Corporation as authorized by section 8.6(g) 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 filed pursuant to Sec.  621.12, and 
at such other times as OSMO 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 copies must be filed with 
us no later than 1 business day after any U.S. Treasury, SEC, or NYSE 
filing. 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.
    (c) The Corporation must notify us within 1 business day if it 
becomes exempt or claims exemption from any filing requirements of the 
Securities Act.

    Dated: March 19, 2015.
Dale L. Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2015-06755 Filed 3-25-15; 8:45 am]
 BILLING CODE 6705-01-P


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