50956 Federal Register / Vol. 86, No. 174 / Monday, September 13, 2021 / Rules and Regulations 

1Public Law 92–181, 85 Stat. 583. 

2See, for example, 12 U.S.C. 2011, 2071, 2091 

and 2121. 

3Public Law 102–552, 106 Stat. 4102, 4131. 

4Public Law 107–204, July 30, 2002. 

5 83 FR 27922. We last issued regulations on 

System standards of conduct May 13, 1994 (59 FR 

24894). 6Public Law 104–105, 110 Stat. 162 (H.R. 2029). 

FARM CREDIT ADMINISTRATION 

12 CFR Part 612 

RIN 3052–AC44 

Standards of Conduct 

AGENCY: Farm Credit Administration. 

ACTION: Final rule. 

SUMMARY: The Farm Credit 

Administration (FCA, we, or our) is 

amending the its regulations governing 

standards of conduct (SOC) of directors 

and employees of Farm Credit System 

(System) institutions, excluding the 

Federal Agricultural Mortgage 

Corporation (Farmer Mac). The final 

rule requires each System institution to 

have or develop a Standards of Conduct 

Program based on core principles to put 

into effect ethical values as part of its 

corporate culture. 

DATES: This regulation will be effective 

30 days after publication in the Federal 

Register during which either or both 

Houses of Congress are in session. 

Pursuant to 12 U.S.C. 2252(c)(1), we 

will publish a notification of the 

effective date in the Federal Register. 

FOR FURTHER INFORMATION CONTACT: 

Technical information: Lori 

Markowitz, Senior Policy Analyst, 

Office of Regulatory Policy, Farm Credit 

Administration, (703) 883–4487, TTY 

(703) 883–4056,ORPMailbox@fca.gov. 

Legal information: Laura McFarland, 

Senior Counsel, Office of General 

Counsel, Farm Credit Administration, 

(703) 883–4020, TTY (703) 883–4056. 

SUPPLEMENTARY INFORMATION: 

I. Objectives 

The objectives of this final rule are to: 

• Establish principles for ethical 

conduct at System institutions; 

• Enhance Standards of Conduct 

Programs using core principles; 

• Require each System institution to 

adopt a Code of Ethics; and 

• Encourage and enhance ethical 

behavior within the Farm Credit 

System. 

II. Background 

The Farm Credit Act of 1971, as 

amended, (Act) 1 establishes System 

institutions as federally chartered 

instrumentalities of the United States.2

This status confers on System 

institutions additional responsibility to 

strive for high ethical standards and 

business practices. We believe that 

public confidence in the integrity and 

ethical business practices of any 

financial institution is fundamental to 

its ongoing viability. Unethical or 

preferential business practices can 

damage a financial institution’s 

reputation and lead to earnings and 

credit risk. Further, Congress explained 

in section 514 of the Farm Credit Banks 

and Associations Safety and Soundness 

Act of 1992 (1992 Act) that disclosure 

of financial information and the 

reporting of potential conflicts of 

interest by System directors, officers, 

and employees helps enhances the 

financial integrity of the System.3 This 

concept is also reflected in many of the 

provisions of the Sarbanes-Oxley Act of 

2002.4

We published a proposed rule on June 

15, 2018, to update FCA’s standards of 

conduct regulations.5 The 2018 

proposed rule set forth core principles 

that would serve as the foundation for 

ethical conduct, including requiring 

each System institution to adopt a Code 

of Ethics and address the 

responsibilities of directors, employees, 

and Standards of Conduct Officials. 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. The final rule 

gives full consideration to the role our 

examinations play in ensuring safe and 

sound operations of the System. 

The comment period for the 2018 

proposed rule closed September 13, 

2018. 

III. Comments and Our Responses 

We received 151 comment letters, all 

of which came from System institutions 

or persons affiliated with the System. Of 

the comment letters received, one came 

from the Farm Credit Council (Council) 

acting on behalf of its membership. Each 

of the four Farm Credit banks submitted 

a letter, with 15 directors or officers 

from AgFirst FCB also submitting letters 

(herein after collectively referred to as 

‘‘FC banks’’). Additionally, 121 letters 

came from associations, or directors and 

officers of an association, which 

represents 34 associations, and another 

10 letters were submitted on behalf of 

one service corporation and two 

unincorporated business entities. A total 

of 139 comment letters expressed 

support for the Council’s letter, with 

eighty-two stating specific support, 

among which were the four FC banks. 

Of the comments received from 

associations and persons or entities 

affiliated with associations, a total of 44 

letters stated support for the comments 

coming from the FC banks: 32 expressed 

support for comments made by AgFirst 

FCB, nine supported comments made by 

the Farm Credit Bank of Texas (FCB of 

Texas) and three expressed support for 

comments made by CoBank ACB. All 

151 comment letters contained 

constructive comments, some 

supporting portions of the proposed 

rule, but most asking for changes. A few 

commenters requested we withdraw the 

proposed rule and keep the existing 

regulations in place. Several 

commenters expressed support for the 

proposed rule’s principles-based 

approach, explaining it allows for 

greater flexibility. 

In our response to comments we have 

made some changes on certain proposed 

provisions, including not finalizing 

some proposed items, and have 

provided explanations to further clarify 

the final rule, all of which are discussed 

below. 

A. General Comments 

The Council and several other 

commenters complained that the 

proposed changes would be 

administratively burdensome, require 

revisions of existing policies and 

procedures, amounting to a needless 

overhaul of existing System institution 

standards of conduct processes. 

Comments were also made questioning 

our Regulatory Flexibility Act (RFA) 

analysis and adherence to section 212 of 

the Farm Credit System Reform Act of 

1996 (1996 Act).6

We received general comments that 

the preamble to the proposed rule 

discussed things that the regulatory text 

did not say. We have addressed a few 

of those comments by moving preamble 

discussions into the relevant provisions 

in the final rule as clarifying changes, 

but, for the most part, because the intent 

of this rule is to present general 

parameters for compliance and allow 

the System institution the flexibility to 

develop a Standards of Conduct 

Program that best suits its own needs, 

we provide guidance within the 

preamble without putting forth 

accompanying regulatory requirements. 

1. Regulatory Burden and 1996 Act 

Comments were made that the 

proposed rule presented items that were 

unnecessary, burdensome, or 

inconsistent with the 1996 Act. Section 

212(b) of the 1996 Act requires us to 

continuously review our regulations to 

eliminate rules that are unnecessary, 


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unduly burdensome, costly, or not 

based on law. The 1996 Act specifies 

that we are to make these eliminations 

only if they would be consistent with 

law, safety, and soundness. Congress 

charged us to issue regulations to ensure 

the safety and soundness of the System. 

Congress explained in section 514 of the 

1992 Act that reporting of potential 

conflicts of interest by System directors, 

officers, and employees helps ensure the 

financial viability of the Farm Credit 

System. This rule is consistent with the 

law and safety and soundness concerns. 

2. Regulatory Flexibility Act (RFA) 

The Council and a couple of others 

commented that the rule should not be 

exempt from the RFA as our analysis 

should focus on the individual impact 

of this rulemaking to each System 

institution and not consider financial 

affiliations between the FC banks and 

associations. Under the RFA, an agency 

must certify that a rulemaking will not 

have a significant economic impact on 

a substantial number of small entities. If 

the rulemaking will have such an 

impact, then the agency must conduct a 

regulatory flexibility analysis. The RFA 

definition of a ‘‘small entity’’ 

incorporates the Small Business 

Administration (SBA) definition of a 

‘‘small business concern,’’ including its 

size standards. A small business 

concern is one independently owned 

and operated, and not dominant in its 

field of operation. The SBA explains 

that ‘‘independently owned and 

operated’’ is determined, in part, by the 

entity’s affiliation with other businesses. 

Generally, an affiliate is one that is 

controlled by, or has control over, the 

entity. Businesses with ownership, 

management, and contractual 

relationships that make them 

economically dependent may also be 

affiliates. 

For purposes of the RFA, the 

interrelated ownership, control, and 

contractual relationship between 

associations and their funding banks are 

sufficient to permit them to be treated 

as a single entity. Further, System 

institutions fall under the SBA ‘‘Credit 

Intermediation and Related Activities’’ 

size category for small business 

concerns and the ‘‘All Other NonDepository Credit Intermediation’’ 

subcategory. This subcategory defines a 

small entity as one with average annual 

assets less than $6 million. As affiliates, 

the combined average annual assets of 

each Farm Credit bank and its affiliated 

associations exceed $6 million. 

Therefore, System institutions do not 

satisfy the RFA definition of ‘‘small 

entities.’’ Because System institutions 

are not small entities and the FCA 

regulations apply only to System 

operations, FCA regulations generally 

do not and will not have a substantial 

economic impact on small entities. 

3. Organization 

We proposed consolidating, renaming 

and assigning new regulatory section 

numbers to most existing provisions as 

well as removing other sections 

altogether. The Council and its 

supporters objected to the proposed 

reorganization of subpart A of part 612, 

asking us to retain existing rule 

numbering wherever possible. Fourteen 

commenters found the consolidation of 

director and employee provisions 

problematic, stating the existing 

separation in the rules makes them wellstructured and easy to follow. In 

response to these concerns, we are 

finalizing some, but not all, of our 

proposed reorganization. Specifically, 

we are finalizing the proposed changes 

to section headings and the 

consolidation of provisions to remove 

separate sections on director and 

employee conduct matters. However, we 

are keeping most existing sections 

numbers for matters covering the same 

subject matter as what was proposed. 

We are also keeping the separate section 

for standards of conduct for agents but 

renumbering it as § 612.2180. We 

discuss later in this preamble content 

changes to the existing provisions on 

agents resulting from our proposals on 

the issue and comments received. 

B. Specific Issues 

1. Definitions. [§ 612.2130] 

We proposed adding new terms, as 

well as either removing or modifying 

the meaning of some existing terms used 

in subpart A of part 612. Specifically, 

we proposed as new terms: 

• Code of Ethics 

• Preferential 

• Reportable business entity 

• Resolved 

• Standards of Conduct Program 

We proposed removing the terms 

‘‘controlled entity’’, ’’OFI’’, ‘‘officer’’, 

‘‘relative’’, and ‘‘service corporation’’ 

due to redundancy. We also proposed 

revising the following existing terms: 

• Agent 

• Conflict of Interest 

• Employee 

• Entity 

• Family 

• Financial interest 

• Financially obligated 

• Material 

• Ordinary course of business 

• Standards of Conduct Official 

• System institution 

As proposed, there would be a total of 

twenty terms in the definition section. 

The final rule contains twenty-one 

terms in § 612.2130 due to keeping the 

definition of ‘‘officer.’’ 

We received 129 comment letters on 

proposed changes to § 612.2130, 

including a letter each from the Council 

and three FC banks. Comments were 

directed at thirteen of the twenty terms 

contained in this section of the 

proposed rule, plus the removal of the 

term ‘‘officer.’’ Over half of the 

commenters objected to the proposed 

changes to the meaning of ‘‘agent’’ and 

‘‘family.’’ One-third of the commenters 

sought changes to the terms ‘‘conflict of 

interest’’, ‘‘employee’’, and ‘‘standards 

of conduct official.’’ Less than a quarter 

of comments were on the term 

‘‘reportable business entity’’. The 

remaining comments were on the terms: 

‘‘entity’’, ‘‘ordinary course of business’’, 

‘‘resolved’’, ‘‘Code of Ethics’’, 

‘‘material’’, ‘‘preferential’’, and 

‘‘standards of conduct program.’’ In 

addition, twenty-two commenters, 

including the Council, CoBank, and FCB 

of Texas, objected to removing the term 

‘‘officer.’’ Two commenters expressed 

specific support for removing the term 

‘‘relative.’’ 

What follows is a discussion of the 

comments on the definitions and our 

responses. If a term is not discussed, it 

is finalized as proposed. 

1–a. Agent 

As proposed, changes to the 

definition of agent would have 

explained that an agent is someone who 

currently represents the System 

institution as a fiduciary in contacts 

with third parties, including cybersecurity and internet technology 

providers. We received 78 comments 

objecting to our proposed changes to 

this term. The Council and many other 

commenters remarked that the changes 

expand the reporting burden, with some 

commenters stating that those covered 

by the proposed definition may be 

prevented by other laws from filing 

conflict reports. Letters from the 

Council, FCB of Texas and several other 

commenters asked that the definition be 

confined to the legal meaning of ‘‘agent’’ 

where a fiduciary duty is included. 

Some commenters stated that an agent 

is more than someone with fiduciary 

duties, but also one with power to act 

for the institution. Some commenters 

remarked that the change was too broad 

and the term should exclude those 

already bound by a code of professional 

conduct. One commenter said it would 

be better to ensure those with fiduciary 

duties act in accordance with a Code of 

Ethics then extend the SOC program by 

changing definition of ‘‘agent.’’ Another 

commenter expressed concern with 


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7Public Law 115–334, 132 Stat. 4490. 

8The existing term is defined as ‘‘any person, 

other than a director or employee, who currently 

represents a System institution in contacts with 

third parties or who currently provides professional 

services to a System institution, such as legal, 

accounting, appraisal, and other similar services.’’ 

liability in trying to control the conduct 

of third parties. The FCB of Texas and 

one other commenter stated the 

definition of ‘‘agent’’ is a longstanding 

issue and the proposed change does not 

improve the situation. These 

commenters added that merely adding 

the word ‘fiduciary’ to the definition 

serves to complicate compliance with 

proposed provisions regarding third 

party adherence to the standards of 

conduct program. These commenters 

agreed that using ‘‘fiduciary’’ clarifies 

an agent has a legal relationship, but the 

definition should include that the 

person has agreed to be an agent with 

fiduciary duties. 

The Council, CoBank, FCB of Texas, 

and several other commenters 

specifically objected to identifying cyber 

security and information technology 

professionals as agents of a System 

institution. The Council, FCB of Texas 

and one other commenter stated these 

persons are not members of a profession 

having a generally recognized code of 

conduct as the other professions listed 

in the definition (e.g., attorney, 

appraiser, accountant) and some 

commenters stated that System 

institutions will lose their best 

contractors. CoBank and several other 

commenters asked that we limit the 

meaning of agent to the legal meaning 

and manage vendors through contract 

and institution policies. Some 

commenters expressed concern with 

including vendors in the term ‘‘agent’’ 

when they clearly are not agents. FCB of 

Texas suggested that vendors like cyber 

security and information technology 

professionals be added as a subcategory 

of third parties subject to the 

institution’s conduct policies. 

We note that after issuance of the 

proposed rule and closure of the 

comment period, the Act was further 

amended by the Agricultural 

Improvement Act of 2018 (2018 Farm 

Bill).7 Specifically, FCA’s enforcement 

authorities were enhanced by adding 

section 5.31A (12 U.S.C. 2267a), which 

gives FCA enforcement jurisdiction over 

‘‘institution-affiliated parties’’. The 2018 

Farm Bill also modified section 5.35 of 

the Act (12 U.S.C. 2271) to define an 

‘‘institution-affiliated party,’’ which 

definition includes both agents and 

independent contractors of System 

institutions as well as ‘‘any other 

person, as determined by the Farm 

Credit Administration (by regulation or 

on a case-by-case basis) who 

participates in the conduct of the affairs 

of a System institution.’’ 

We considered all the comments 

made on the meaning of ‘‘agent’’ and the 

new authorities granted FCA in the 2018 

Farm Bill. In general, the comments 

offered three suggestions: 

• Keep the existing definition; 

• Use the legal definition of ‘‘agent’’; or 

• Remove vendors from the definition. 

In response to commenters, we finalize 

the rule using all three key suggestions 

in a manner that preserves the policy 

objectives behind the proposed rule. 

The final rule uses the existing 

definition of ‘‘agent’’,8 but removes 

references to any particular service 

being provided, and adds language to 

better reflect the basic legal meaning of 

the term, including fiduciary 

relationships. As a result, we finalize 

the term ‘‘agent’’ to mean any person 

who is not a director or employee of the 

institution but who has the power to act 

for the institution, by contract or 

apparent authority, in either a 

representational capacity or through 

provision of professional or fiduciary 

services. 

1–b. Code of Ethics 

A Code of Ethics was proposed to 

mean a written statement of the 

principles and values the System 

institution follows to establish a culture 

of ethical conduct for directors and 

employees. The FCB of Texas and a few 

others asked that Code of Ethics be 

referred to as ‘‘code of conduct’’ to 

avoid confusion with the existing 

financial disclosure code of ethics. FCB 

of Texas also suggested adding 

‘‘including, at a minimum, the core 

principles set forth in § 612.2136’’ to the 

definition. We decline to change the 

name from a Code of Ethics and finalize 

its meaning as proposed, with one 

change. We agree that the Code of Ethics 

should have a connection to the core 

principles and have included the 

statement recommended by FCB of 

Texas. 

1–c. Conflict of Interest 

We proposed to define a conflict of 

interest to mean a set of circumstances 

creating a risk that a secondary or nonwork-related interest could unduly 

influence or materially impact a 

director’s or employee’s decisionmaking with respect to a primary 

interest. The Council, two FC banks and 

32 others commented on this proposed 

definition. The Council, CoBank and 

some others commented that changes to 

this term are not customary, remarking 

on the ambiguity of using primary and 

secondary interests in the definition of 

a conflict of interest, with one 

commenter asking for more specificity. 

FCB of Texas and CoBank asked for 

explanation of what are primary and 

secondary interests. The Council and 

some other commenters objected to 

expanding the definition to cover 

activities which ‘‘could’’ materially 

impact someone’s objectivity, stating the 

current scope of actual impact and 

appearance of impact are sufficient. The 

Council, CoBank and several others 

asked that proposed changes not be 

made, allowing the existing definition to 

remain. FCB of Texas stated no change 

to the existing definition was needed 

but offered a new definition it believed 

clarified what interests are primary in 

nature. FCB of Texas also asked that if 

the term was going to be expanded as 

proposed, that the companion term 

‘‘material’’ be adjusted as well, and that 

guidance be given on when a set of 

circumstances would rise to a conflict. 

FCB of Texas also commented that the 

proposed definition implied that a 

financial interest was not the only 

circumstance that could give rise to a 

conflict. 

In response to comments, we have 

made changes to the proposed 

definition of conflict of interest. The 

final rule keeps the existing definition 

of ‘‘conflicts of interest.’’ In regards to 

the commenters who objected to 

expanding the definition to cover 

activities which ‘‘could’’ materially 

impact someone’s objectivity, we 

believe that potential conflicts of 

interest should remain in the definition 

because they can affect or give the 

appearance of affecting the impartiality 

of the director or employee and as such, 

need to be reported under § 612.2145. 

The final definition provides that a 

conflict of interest includes known 

circumstances or circumstances that 

appear to affect a person’s ability to 

perform official duties and 

responsibilities in a totally impartial 

manner due to a financial interest in a 

transaction, relationship, or activity. 

System institutions should understand 

that the definition’s use of a reasonable 

person’s perspective is applied in a 

manner that gives full consideration to 

the cooperative structure of the System. 

1–d. Employee 

Changes to the definition of 

‘‘employee’’ were proposed to ensure 

that everyone working at the System 

institution, including temporary 

employees, would be part of the ethical 

corporate culture, regardless of length of 

employment. The Council, two FC 

banks and twenty-two other 

commenters remarked upon this 


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9 IRS Form 1099–NEC is used by payers to report 

payments made in the course of a trade or business 

to others for services. If you paid someone who is 

not your employee $600 or more for services 

provided during the year, a Form 1099–NEC is 

issued January 31 of the year following payment. 10 12 CFR 651.22. 

proposal. The Council and some others 

asked that third-party contractors not be 

considered employees as was stated in 

the proposed rule preamble. The 

Council, CoBank and a few commenters 

also asked for exemptions to the 

definition for persons employed only 

temporarily, suggesting a 6-months or 

less timeframe, to recognize seasonal 

workers and summer interns. FCB of 

Texas requested that the current 

definition be retained, pointing out the 

current definition does not include 

contractors. CoBank asked that 

contractors be removed from the 

definition, stating its inclusion raises 

employment law issues. A few 

commenters asked that ‘‘employee’’ and 

‘‘officer’’ be kept as separate terms since 

consolidating them creates confusion for 

training and reporting requirements. 

One commenter asked that the word 

‘‘working’’ be replaced with 

‘‘employed’’ to avoid including 

independent contractors. 

In the final rule, we adopt the 

suggestion to replace ‘‘employed’’ with 

‘‘working’’ within the definition of 

‘‘employee.’’ We have also modified our 

proposed definition of ‘‘employee’’ in 

response to comments received to 

clarify the term does not include those 

persons not maintained on the 

institution’s payroll, which we believe 

would include those for whom the 

institution withholds payroll taxes. In 

the final rule text, we specifically 

identify that independent contractors 

are not ‘‘employees’’ for purposes of the 

standards of conduct rules. Generally, 

an independent contractor can be 

identified: (1) By how he or she is paid, 

which distinguishes them from those on 

the payroll (e.g., someone who receives 

an Internal Revenue Service (IRS) Form 

1099–NEC or similar document from the 

institution) 9 and (2) if employee-type 

benefits are provided (i.e., pensions, 

insurance, vacation pay) by the 

institution. We use the example of 

payroll versus an IRS form only to 

illustrate what would be a clear 

indicator of employment status, but it 

will not always be the deciding element. 

We also explain in this preamble that 

we consider an employee to be a person 

in the service of another under any 

contract of hire, express or implied, oral 

or written, where the employing 

institution has the power or right to 

control and direct the employee in the 

material details of how work is to be 

performed. Conversely, we consider an 

independent contractor to be someone 

who contracts to do a piece of work 

according to his or her own methods 

and who is subject to the contracting 

institution’s control only as to the end 

product or final result of that work. 

We are not exempting seasonal 

employees as suggested by commenters. 

We believe that temporary employees, 

including interns, regardless of how 

long employed, may have positions in 

the institution that put them in contact 

with sensitive information that could be 

used in misconduct. Therefore, we 

believe temporary and other short-term 

employees who are being paid by the 

institution should be held to the same 

standards of conduct as full- and parttime employees. 

The proposed rule would have 

eliminated the definition of ‘‘officer’’ 

because officers are a type of employee. 

Commenters asked that we retain the 

part 612 definition of ‘‘officer’’ as the 

term is useful in differentiating 

prohibited actions and reporting 

requirements amongst general 

employees and those specific to officers. 

In response to this request, we are not 

removing the definition of ‘‘officer’’ as 

was proposed. 

1–e. Entity 

The term ‘sole proprietorship’ was 

proposed as an addition to the 

definition of ‘‘entity’’. FCB of Texas and 

one other commenter asked that we 

remove ‘sole proprietorships’ from the 

definition as those businesses are 

normally understood to be other than an 

entity. FCB of Texas suggested that we 

include businesses owned by one or 

more individual in the definition, such 

as unincorporated business entities, 

limited liability companies, or limited 

partnerships. The final rule addresses 

these comments by adding explanatory 

parentheticals for ‘partnerships’ and 

‘trusts’ and by removing ‘sole 

proprietorships’ from the definition. 

The explanatory parentheticals address 

comments on capturing unincorporated 

businesses by explaining a partnership 

can be general or limited and a trust can 

be formed for business or otherwise. 

Also, the term ‘sole proprietorships’ is 

moved to the definition of ‘‘person’’ to 

ensure that type of operation is 

captured. 

1–f. Family 

As proposed, the phrase ‘‘significant 

other’’ would have been added to the 

definition of family. The Council, three 

FC banks, and 83 other commenters 

remarked on this proposal. The Council, 

FCB of Texas, three commenters from 

AgFirst FCB, and many other 

commenters objected to the proposed 

use of ‘‘significant other’’ in the 

definition, with some asking for its 

removal or replacing it with ‘‘civil 

union partner’’. Many commenters 

stated the expanded definition was 

burdensome for reporting purposes and 

unreasonable because it created the 

expectation that institutions make the 

determination as to the seriousness of 

an individual’s relationship status. 

CoBank and some other commenters 

asked that the use of ‘‘significant other’’ 

in the definition be removed as it is a 

vague term and several commenters 

explained that there is no common 

understanding of the phrase. Some 

commenters specifically remarked that 

‘‘significant other’’ needed to be 

defined. One commenter supported 

adding ‘‘significant other’’ to the 

definition. 

The Council, CoBank and FCB of 

Texas suggested that instead of 

quantifying relationships under the 

definition of ‘‘family’’ by using specific 

titles, we should use the description 

applied in the Standards of Conduct 

regulations for Farmer Mac regarding 

households and financial dependence.10

Specifically, they suggested we define 

‘‘family’’ as all persons residing in the 

household or who are otherwise legal 

dependents. The Council and some 

others also suggested keeping the 

existing § 612.2130 definition of 

‘‘family’’ as it has a clearer means of 

identifying who is covered by standards 

of conduct requirements. FCB of Texas 

and two other commenters suggested 

limiting the scope of ‘‘family’’ to 

immediate family as is done under 12 

CFR part 620 regulations for annual 

reports. A few commenters agreed it was 

important to include those seen as 

family but preferred to limit it to those 

living in the household or the 

immediate family. AgFirst FCB observed 

that the proposed definition of ‘‘family’’ 

does not require a legal relationship in 

all cases. 

Additionally, the individual 

commenters from the FC banks and 

several commenters expressed concern 

with expanding the definition to 

include cousins, as was discussed in the 

proposed rule preamble. Some 

commenters said that would create a 

broad burden as there was no 

accompanying limit on if only first 

cousins were contemplated or more 

lineal remote cousins. These 

commenters asked that the term not 

include cousins, but if it does, then it 

should be put in the regulatory text. 

These commenters also asked that if 

cousins were included, it be limited to 

first cousins and to only those first 


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cousins a director or employee has 

reason to know is conducting business 

with the System. 

The final meaning of ‘‘family’’ has 

been revised from what was proposed to 

incorporate most of the comments 

received. First, reference to significant 

others has been replaced with a 

reference to civil union partners. 

Second, cousins have not been added to 

the definition. Next, highly specific 

relationships are replaced with more 

gender-neutral terms and accompanying 

language that those terms apply whether 

the relationship arises from biological, 

adoptive, martial, or other legal means. 

This action also brings the definition 

closer to that of ‘‘immediate family’’ 

used in 12 CFR part 620 as requested by 

some commenters. Finally, persons 

residing in the household or who are 

legal/financial dependents, regardless of 

familial relationships, have been added 

as requested. This change makes the 

definition similar to the existing Farmer 

Mac guidance found at § 651.22(a) and 

harmonizes it with other areas of the 

law. 

1–g. Material 

No substantive changes to this 

definition were proposed. However, the 

FCB of Texas asked that the current 

definition be retained without change. 

The commenter then suggested that if 

the intent was to expand the definition 

to include personal interests that the 

rule clearly state that, adding that a 

parallel change should be made to the 

definition of conflict of interest. The 

term is finalized as proposed. We have 

not made the suggested changes to the 

definition as we do not believe they are 

necessary. 

In the preamble to the proposed rule, 

we discussed that something that is 

material in one context or geographic 

area may not be material in a different 

context or geographical area. We also 

discussed our expectation that each 

System institution would develop its 

own guidelines on that which is 

material, possibly including a dollar 

threshold for what would not be 

material. We continue to believe the 

System institution board should be 

accountable for, and involved in 

approving, these guidelines as required 

in § 612.2137. 

1–h. Ordinary Course of Business 

Changes proposed to the definition of 

‘‘ordinary course of business’’ would 

separate out the existing definition for 

‘‘preferential’’ and define ‘‘ordinary 

course of business’’ as: 

• A transaction that is usual and 

customary in the business in question 

on terms that are not preferential, or 

• A transaction with a person who is 

in the business of offering the goods or 

services that are the subject of the 

transaction on terms that are not 

preferential. 

The FCB of Texas and seven others 

commented on the proposed change to 

the meaning of ‘‘ordinary course of 

business.’’ FCB of Texas asked that we 

keep the current definition because the 

proposed changes are confusing and too 

subjective for consistent application. 

The other six commenters asked that we 

keep the current term since the 

proposed changes go beyond what is 

ordinary, potentially causing common 

business negotiations to be reported to 

the Standards of Conduct Official 

(SOCO). One commenter asked that we 

leave the existing term alone, stating it 

does not need to be changed. Another 

commenter observed that there is little 

meaningful difference between the first 

and second paragraphs of the proposed 

definition. 

This term is being finalized as 

proposed. We do not find the proposed 

definition confusing or subjective. The 

current definition applies to 

transactions that are usual and 

customary, as does our proposed 

definition. The current definition also 

applies to transactions with a person 

who is in the business of offering the 

goods or services that are the subject of 

the transaction, as does our proposed 

definition. Additionally, we do not 

agree with the commenters’ concerns 

regarding the first and second 

paragraphs. The first paragraph applies 

to a transaction that is usual and 

customary in a business but is not 

necessarily with a person in that 

business. The second applies to a 

transaction with a person in the 

business that is the subject of the 

transaction. In either case, the rule does 

not allow a director or employee to 

trade on their position within the 

System institution to get a special deal 

or preferential treatment for goods and 

services. 

1–i. Preferential 

In the proposed rule, the definition of 

‘‘preferential’’ currently contained 

within the definition for ‘‘ordinary 

course of business’’ would be a separate 

term. Only the FCB of Texas commented 

on the proposed change, suggesting we 

include a reference to the institution’s 

policies and procedures in the 

regulatory definition of preferential. 

This term is being finalized as proposed. 

Although we decline the suggestion to 

add a reference to institution policies 

and procedures because we believe the 

addition would be overly prescriptive, a 

System institution can include a 

discussion of preferential in its SOC 

program policies and procedures for 

business transactions. 

1–j. Reportable Business Entity 

We proposed changing the term 

‘‘controlled entity’’ to ‘‘reportable 

business entity’’, defining it as an entity 

in which a person owns, controls, or has 

power to vote a material percentage of 

the equity. The intent behind this 

proposed change was to avoid confusion 

with the term ‘control’ in the corporate 

context, and to allow the System 

institution discretion to determine when 

an interest in a business entity may 

present a conflict and therefore should 

be reported to the institution. 

The Council, two FC banks and 15 

other commenters remarked on this 

proposal. The Council, CoBank and one 

other commenter stated the revisions to 

this definition do not align clearly with 

how ‘‘affiliated organizations’’ is used in 

12 CFR part 620. The Council pointed 

out that the part 620 disclosures for 

some directors and senior officers are 

taken directly from standards of conduct 

reports and it is difficult to understand 

how the two sets of regulations will 

work together with the new term 

‘‘reportable entity’’ only used in one of 

the rules. The Council asked for the two 

rules to be reconciled or that FCA 

otherwise state if the proposed change 

in part 612 means a separate process for 

part 620 disclosures is now expected. 

FCB of Texas said the proposed 

definition is an improvement over 

‘‘controlled entity’’ but disagrees with 

replacing the 5% ownership threshold 

with the less specific ‘‘material 

percentage’’ language. The FCB of Texas 

also remarked that it was unreasonable 

to ask an institution’s board to set a 

dollar threshold for materiality in 

different situations, instead suggesting 

we keep the specific ownership 

threshold but raise it 25%. The same 

commenter also suggested changing 

language on the power to exercise 

‘‘material influence’’ to ‘‘controlling 

influence.’’ In the alternative, the 

commenter recommended replacing the 

definition entirely with that used to 

define ‘‘affiliated organization’’ in 

§ 620.1. CoBank supported removing the 

5% ownership language. Fourteen 

commenters stated support for the term 

‘‘reportable business entity’’ but would 

like it used with the existing definition 

of ‘‘controlling entity’’ because it 

reflects numerical ownership of an 

entity, which does not always mean 

control of that entity. 

We appreciate that it would be easier 

to comply with this provision if we 

simply used a bright line percentage 


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11The term ‘‘affiliated organization’’ is defined in 

12 CFR 620.1 as ‘‘Any organization, other than a 

Farm Credit organization, of which a director, 

senior officer or nominee for director of the 

reporting institution is a partner, director, officer, 

or majority shareholder.’’ The term as defined only 

applies to 12 CFR part 620. 

threshold. However, as mentioned 

previously, our intent in this 

rulemaking is to provide performance 

criteria using a principles-based 

approach. The final definition provides 

flexibility based on each institution’s 

definition and support for what it 

considers material without setting 

specific percentages or dollar amounts. 

As we explained in the proposed rule 

preamble, we avoid using specific 

measurements to allow a System 

institution discretion to determine what 

constitutes a conflict of interest. 

Commenters also asked that we use 

the definition of affiliated organization 

in § 620.1(a).11 However, the reporting 

requirements of the Standards of 

Conduct regulations have a purpose that 

is more expansive than that used for 

making annual disclosures to 

shareholders and requires consideration 

of more than affiliated organizations as 

that term is defined in part 620. The 

Standards of Conduct use of ‘‘reportable 

business entity’’ serves to put the 

System institution on notice that a 

director or employee with an interest in 

a business entity that is significant 

enough that the interest may give rise to 

a conflict, or an appearance of a conflict, 

with that director’s or employee’s 

responsibilities to the System institution 

under certain circumstances requires 

reporting to the institution. 

The final rule modifies the proposed 

definition of ‘‘reportable business 

entity’’ by adding to the third and last 

listed item, the phrase ‘‘. . . from his or 

her status as a partner, director, officer, 

or majority shareholder in the entity.’’ 

This addition comes from 12 CFR 620.1 

and is made in response to comments 

asking us to reconcile the term with that 

of ‘‘affiliated organization’’ in part 620. 

We also point out that if a System 

institution is concerned about picking 

up all § 620.1(a) affiliated organizations 

in its standards of conduct disclosures, 

it can provide, through its own policies 

and procedures, that all § 620.1(a) 

affiliated organizations be treated as 

reportable business entities when 

making conflicts of interest reports. 

1–k. Resolved 

We proposed adding a new term 

‘‘resolved.’’ One commenter remarked 

on this proposal, asking that we remove 

the term since not all conflicts are 

resolved. The commenter instead 

suggested leaving it to each institution 

to identify how conflicts are addressed. 

This term is being finalized as proposed 

as we believe it is important that there 

be a common understanding and 

application of the term. We agree that 

each institution should identify how 

conflicts are to be addressed and allow 

the institution that opportunity in its 

policies and procedures. The rule 

requires the institution to address the 

process by which real and apparent 

conflicts will be resolved and explain 

action(s) to be taken when a conflict 

cannot be resolved to the satisfaction of 

the institution in its policies and 

procedures as part of its standards of 

conduct program. 

1–l. Standards of Conduct Official (or 

SOCO) 

Changes proposed to the definition of 

a Standards of Conduct Official (SOCO) 

would have required the SOCO to be an 

employee of the System institution and 

have the authority to report to the 

institution board of directors or 

designated board committee on 

standards of conduct matters. The 

Council, one FC bank, and 37 

individuals from several associations 

commented upon this proposal. The 

Council and several other commenters 

specifically disagreed with limiting the 

SOCO to an employee of the institution 

while supporting the SOCO having 

direct access to the institution’s board of 

directors. The Council asked that if the 

proposed limitation is finalized, FCA 

make clear the SOCO’s employment 

reporting relationship is within the 

organizational structure, not a direct 

supervisory relationship with the board. 

One commenter suggested defining the 

SOCO as either an employee or agent of 

the institution with direct access to the 

institution’s board of directors. 

FCB of Texas and some other 

commenters strongly disagreed with 

limiting the SOCO to employees of an 

institution explaining there is validity 

in using someone from the outside, 

especially for smaller associations. One 

commenter stated it saw the benefit of 

limiting the position to employees and 

another saw value in multiple SOCOs. 

Both said there should be flexibility to 

outsource. Other commenters expressed 

strong belief in allowing each institution 

to decide who should serve as the 

SOCO. These same commenters 

explained the value of outside sources 

for the SOCO, stating there is greater 

confidentiality and file protection. 

In response to commenters, the final 

rule incorporates commenter 

suggestions but in a manner that 

preserves the policy objectives behind 

the proposed rule. Some of the 

suggested changes are reflected in the 

definition of SOCO and others are 

captured in the rule sections on SOC 

program elements and the SOCO duties 

and responsibilities, both discussed 

later in this preamble. In the definition 

section of the final rule, and in response 

to comments, the SOCO is defined as a 

person appointed by the institution’s 

board of directors to administer and 

report on the standards of conduct 

program, as well as investigate 

allegations of misconduct. We clarify in 

this preamble that the Standards of 

Conduct Official must be in a position 

to be independent and impartial in 

order to discharge his or her duties but 

does not have to be an employee. We 

also agree with comments that the 

institution is in the best position to 

know its needs and resources, including 

the person who would best satisfy the 

SOCO role in light of those needs and 

the program in place, whether such 

person is employed by the institution or 

is an outside resource. 

1–m. Standards of Conduct Program 

As proposed, the Standards of 

Conduct Program would be defined to 

mean the policies and procedures, 

internal controls, and other actions a 

System institution must put into 

practice to meet the requirements of this 

rule. Only the FCB of Texas commented 

on this term, suggesting that the 

definition include ‘‘specific guidelines 

and comprehensive rules.’’ The 

definition explains that the Standards of 

Conduct Program includes the policies 

and procedures, internal controls, audit, 

training, and other activities that 

promote ethical behavior. Therefore, we 

are not making the suggested change, 

preferring to keep the principals-based 

approach of the rule. Further, as was 

explained in the proposed rule, we 

reiterate that the Standards of Conduct 

Program is the totality of the policies, 

procedures, internal controls, audit, 

training, and other activities used to 

promote ethical behavior at a System 

institution. 

2. Standards of Conduct—Core 

Principles. [§ 612.2135] 

We proposed substantially revising 

current rule § 612.2135 to set forth the 

core principles we believe are essential 

to fostering an ethical culture within the 

System. We also proposed certain basic 

minimum requirements for compliance 

as well as requiring cooperation 

between employees, directors, and the 

SOCO. We received 23 comment letters 

on this section, including one from the 

Council and two FC banks. Most of 

these same commenters asked us to 

retain the existing rule instead of what 

was proposed, stating the proposed 


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12This language should not be interpreted as 

referring to our regulations in part 609 on electronic 

changes were not an improvement. FCB 

of Texas generally supported the 

proposed core principles but asked for 

a few changes in the language and in the 

organization of the section. Specifically, 

FCB of Texas suggested listing all the 

proposed provisions sequentially. 

We finalize this section substantially 

as proposed but make some changes in 

response to comments that we discuss 

in the subsections below. We also make 

small changes to improve readability 

and align the format of the rule, such as 

adding headings to main paragraphs and 

clarifying language on fulfilling the core 

principles. At the request of 

commenters, we are retaining the 

numbering of this section as § 612.2135. 

2–a. Compliance With Ethical Standards 

In paragraph (a) we proposed 

increasing the ethical standard to ‘‘the 

highest ethical standards of the financial 

banking industry, including standards 

of care, honesty, integrity, and fairness.’’ 

The Council and most other 

commenters to this section objected to 

raising the standard from ‘‘high’’ to 

‘‘highest’’ and using the financial 

banking industry as the guide. The 

Council and six others said the highest 

standard is ambiguous, leading to 

uncertainty, and recommended keeping 

the existing high standard. The Council, 

FCB of Texas, and twenty other 

commenters stated the current high 

standard does not need to be replaced, 

with FCB of Texas suggesting use of a 

more focused approach directed at the 

System’s reputation and mission. 

CoBank and one other commenter 

expressed support for maintaining the 

highest ethical standards but 

characterized it as an aspirational goal 

rather than a requirement. The Council, 

CoBank, and seven other commenters 

remarked that the financial banking 

industry is an inappropriate guide 

because commercial banks are not 

subject to the same conduct rules as the 

System. Commenters asked that 

reference to financial banking industry 

be removed. CoBank suggested keeping 

the current language of § 612.2135(a) 

and one other commenter suggested 

replacing proposed financial banking 

industry with ‘‘financial services 

industry’’. 

In response to comments, we retain 

the current rule’s language requiring 

‘‘high’’ ethical standards and remove the 

proposed reference to the financial 

banking industry. We also replace 

proposed language asking employees 

and directors to ‘‘vet’’ conflicts of 

interest with the SOCO to clarify that 

the provision requires identification and 

reporting conflicts of interest as well as 

resolving those conflicts. We make this 

change in direct response to FCB of 

Texas and fourteen other commenters 

stating the verbiage ‘‘vet’’ was 

confusing. To further clarify this 

provision, the final rule lists reporting 

to the SOCO conflicts of interest 

involving a director or employee (or 

family and reportable business entities 

thereof) separately from the requirement 

to work with the SOCO to identify 

conflicts and resolve any conflict 

reported. 

FCB of Texas suggested that we add 

to proposed paragraph (a)(5) the words 

‘‘between an individual’s personal 

interests and official duties’’ before the 

words ‘‘in System business 

relationships and activities’’ to make 

clear where conflicts of interest actually 

arise. We are not making the changes 

suggested by FCB of Texas. The 

suggested language by FCB of Texas was 

designed to clarify the provision. We 

believe we have achieved the requested 

clarity through other changes made to 

this provision. 

2–b. Compliance With Fiduciary Duties 

We proposed requiring directors and 

employees to fulfill fiduciary duties, as 

applicable. FCB of Texas asked that we 

insert ‘‘as a director or employee’’ when 

talking about fiduciary duties instead of 

the phrase ‘‘as applicable.’’ Five 

commenters remarked that the proposal 

would extend fiduciary duties beyond 

those currently in law, causing a 

significant burden for all concerned. 

One of these commenters also remarked 

that the proposal would change director 

and senior officer disclosures made 

under 12 CFR 620.6, significantly 

expanding them beyond directors and 

senior officers and adding no benefit. 

The commenters asked that the 

provision only apply to directors and 

senior officers or be removed entirely. 

Commenters expressed that not all 

employees have fiduciary duties and 

that the phrase ‘‘as applicable’’ is 

confusing and should be clarified or 

eliminated. 

FCA expects System institution 

directors to acknowledge their fiduciary 

duties. Additionally, most officers have 

fiduciary duties, whether they are senior 

officers or not. To distinguish 

established fiduciary duties from other 

conduct requirements, the final rule 

moves the provision on fulfilling 

fiduciary duties to § 612.2135(c) and 

adds clarifying language that these 

responsibilities apply to officers and 

directors of the institution. We continue 

to believe there are fiduciary 

responsibilities held by non-officer 

employees in the financial sector. 

However, we are not currently 

regulating it for all employees as a 

System institution is in the best position 

to determine which employees have 

fiduciary duties based on job 

responsibilities. We expect each 

institution to address these 

responsibilities within the Standards of 

Conduct policies and procedures. 

2–c. Compliance With Law 

As proposed, directors and employees 

would be required to comply with all 

applicable laws and regulations. One 

commenter expressed that this 

provision should also include violations 

of state or local laws in determining a 

standards of conduct violation. The 

final rule at § 612.2135(b) does not add 

the distinction requested by the 

commenter but does contain 

clarification that compliance with an 

institution’s standards of conduct means 

following the SOC policies and 

procedures as well as law and 

regulation. We believe that ‘‘all 

applicable laws’’ would include state 

and local laws and therefore, it is 

unnecessary to make it a condition in 

this final rule. However, a System 

institution may specifically address 

state and local laws in its policies and 

procedures if it wishes. We also clarify 

in § 612.2135(b) that the provision on 

reporting known or suspected activities 

refers to anonymous reporting 

procedures. 

2–d. Compliance With Training 

We proposed to require directors and 

employees to certify participation in the 

institution’s annual standards of 

conduct training. The FCB of Texas 

suggested that this provision belongs in 

the section that would establish the 

standards of conduct training as part of 

the Standards of Conduct Program. We 

agree with this comment and have 

relocated the provision to the section on 

standards of conduct training. We 

renumber the remaining subparagraphs 

of this section in conformance with this 

change. 

Six commenters expressed that 

directors and employees should be able 

to certify participation in standards of 

conduct training using methods other 

than in writing. We did not intend to 

limit the manner in which conflicts of 

interest reports are filed or how training 

participation is certified as long as 

records are created. Therefore, we have 

added language to the definition section 

at § 612.2130 to explain that for 

purposes of this subpart, words like 

report, certify, file, and sign are to be 

treated as permitting their electronic 

equivalent.12 Institutions are expected 


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commerce. Standards of conduct disclosures are not 

considered ‘‘business transactions’’ so neither the ecommerce or e-sign provisions of part 609 apply. 

13 Institution employees have a different legal 

status than do directors. Employees can be required 

to use electronic filing procedures as a condition of 

employment, but directors are not ‘‘employees’’ so 

cannot be treated as such. Instead, to require 

electronic filing for directors, the SOC policies and 

procedures would need to specifically address the 

issue. 

to specify what methods will be used 

within their standards of conduct 

policies and procedures.13 Institutions 

are cautioned that the option to use 

electronic methods does not mean the 

contents of any standards of conduct 

filings may differ depending on the 

format used: The contents are the same 

whether paper or electronic means are 

used. Institutions must also ensure that 

any electronic conversion of these 

disclosures does not adversely affect the 

filing of annual reports. 

3. Elements of a Standards of Conduct 

Program. [§ 612.2137] 

Proposed § 612.2137 would set forth a 

System institution’s responsibility to 

establish a Standards of Conduct 

Program that includes policies and 

procedures and a Code of Ethics, among 

other things, to implement the 

objectives of this rule. We received 118 

comment letters on this section of the 

proposed rule, including letters from the 

Council and three FC banks. A 

significant number of the commenters 

asked that we retain current rule 

provisions in certain areas, including 

the treatment of agents, family and 

reportable business entities under the 

Standards of Conduct Program. 

Commenters also asked for clarifications 

and exceptions to what was proposed, 

with a few asking us to relocate 

reporting information to the section on 

disclosures and training information to 

the section on SOCO duties. 

We finalize the rule with changes 

based on comments received and we 

discuss those changes in the subsections 

below. We also make small changes to 

improve readability and align the format 

of the rule, such as adding headings to 

main paragraphs and clarifying language 

on designing a standards of conduct 

program. 

3–a. Core Principles and SOCO. 

[§ 612.2137(a) and (b)] 

Proposed § 612.2137(a) would 

establish that the Standards of Conduct 

Program set forth the core principles in 

§ 612.2135 and provide resources for its 

implementation. FCB of Texas suggested 

that language be inserted after the 

reference to § 612.2135 to make explicit 

that the Standards of Conduct Program 

comply with more than just the core 

principles of the regulation. We agree 

and have revised the regulatory text in 

final rule § 612.2137(a) accordingly. 

This commenter also suggested that the 

preamble language ‘‘including but not 

limited to, additional staffing or access 

to outside counsel where necessary,’’ be 

added to the end of § 612.2137(a). We 

are making this change but not using 

specific language provided. Instead, we 

have added language to require 

resources for both implementation and 

operation of the SOC program. We leave 

specificity on the type of resources to 

each institution. For example, reference 

to adequate resources could include 

staffing and access to outside counsel if 

the institution deems it necessary. It is 

up to each institution’s board of 

directors to provide the necessary 

resources to implement an effective SOC 

program. 

(i) Recordkeeping and SOC Program. 

[§ 612.2137(a)] 

Proposed § 612.2137 would require a 

System institution to maintain records 

of conflicts of interest reports, 

investigations, and other documents for 

at least 6 years. As proposed, 

institutions would be required to protect 

these records and other confidential 

information obtained as part of the 

standards of conduct program from 

unauthorized release. Each institution 

would also have to periodically review 

and update the SOC program. One 

commenter expressed general agreement 

with the recordkeeping requirements 

but asked for wording changes. Another 

commenter suggested that these records 

be maintained by outside counsel for 

confidentiality reasons. FCB of Texas 

suggested naming the person 

responsible for the reviews and updates. 

In response to the comment asking us 

to clarify record retention and 

consolidate like provisions, we move 

language from proposed paragraph (d) to 

this paragraph, which requires 

maintaining conflict of interest reports a 

minimum of six years. Language from 

proposed paragraph (e)(1) on 

maintaining SOC program records of 

investigations for six years is also 

moved into paragraph (a). No significant 

wording was revised but the suggested 

language of the commenter was 

considered. Although not in rule text, 

we clarify that a System institution may 

choose to place records with outside 

counsel, but we decline to make it a 

requirement. We also apply to this 

section the comment from FCB of Texas 

on naming responsible parties in the 

section addressing SOC program 

administration. 

(ii) Appointing a SOCO. [§ 612.2137(b)] 

In § 612.2137(b), we finalize the 

requirement to appoint a SOCO and add 

language in response to comments on 

who may serve as a SOCO. When 

offering comments on proposed duties 

of the SOCO, thirty-two commenters 

also remarked on the proposed limit of 

who may be SOCO in two regards: The 

limitation of the SOCO being an 

employee and the supervisory 

implications of the SOCO reporting 

directly to the board. These commenters 

generally expressed that the board 

should retain full discretion in selecting 

the SOCO and espoused the belief that 

using a person outside the institution as 

SOCO provides greater independence 

and security in monitoring and 

reporting conflicts. Six commenters 

from one association explained that at 

smaller associations only the Chief 

Executive Officer (CEO) reports directly 

to the board and the CEO may not be the 

best person to serve as the SOCO. These 

same commenters expressed a 

preference for continuing the existing 

practice of contracting with an outside 

law firm, where the SOCO is free from 

undue pressures by management and 

offers an independence desirable to 

employees for discussing conflict issues. 

Twenty commenters from two 

associations stated that the board should 

retain the discretion to select the SOCO 

whether inside or outside the 

institution. One other commenter stated 

that FCA’s reasons for proposing the 

SOCO be an employee can be satisfied 

to a greater extent by outsourcing the 

position, as the independence from 

internal operations gives greater 

objectivity in standards of conduct 

issues and makes reporting directly to 

the board more manageable. Another 

commenter expressed significant 

concern with having a SOCO report to 

its board for standards of conduct issues 

but report to management on other job 

tasks. This commenter asks if FCA is 

insisting institutions create a standalone, full time SOCO position. If so, the 

commenter said that would be a real 

burden for smaller associations. Another 

commenter stated the proposed SOCO 

limitation threatens critical 

independence and objectivity. This 

commenter also remarked that the 

proposed change removes clarity, makes 

the SOCO role more difficult for 

employees to hold as the proposed 

SOCO duties appear to require legal 

expertise. This commenter also 

remarked upon the day-to-day work 

environment for employees serving as 

SOCO, especially once the employee 

takes actions against co-workers or 


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supervisors for standards of conduct 

noncompliance. 

The final rule removes the proposed 

restriction on using only employees as 

the SOCO. To offer flexibility in 

response to comments, the rule 

specifically authorizes institutions to 

appoint a SOCO from several sources 

including using: One if its officers, the 

resources of a 4.25 service corporation, 

another institution’s SOCO, or 

contracting with a third-party to serve as 

SOCO (including under a contract 

shared with another System institution). 

In situations where institutions share a 

SOCO, the rule requires the existence of 

a separate confidential relationship. 

Whether the SOCO serves in a full-time 

capacity, as a collateral duty, or in an as 

needed capacity is a decision of the 

institution. 

3–b. Code of Ethics. [§ 612.2137(c)] 

Proposed § 612.2137(c) would require 

each System institution to adopt a Code 

of Ethics that establishes principles and 

values for the ethical conduct of its 

directors and employees, including 

standards for appropriate professional 

conduct at the workplace and in matters 

related to employment. It was proposed 

that System institutions also be required 

to post the Code of Ethics on the 

external website for public access. The 

Council, CoBank, and most other 

commenters remarked that the Code 

should not include matters normally 

associated with employment conduct. 

Seventeen commenters specifically said 

much of the provision was redundant of 

work done by the human resources staff, 

making it inefficient to have the SOCO 

duplicate those efforts, and asking that 

language be removed. CoBank 

supported requiring a Code of Ethics but 

objected to publishing it for fear of 

litigation. Two commenters also 

objected to public posting of the Code, 

with one stating the whistleblower 

information is already on the website 

providing the public a venue for 

reporting issues. Eighteen commenters 

supported the suggestion of posting a 

general statement of the institution’s 

professional integrity and conduct but 

saw no benefit in posting the entire 

Code of Ethics. Instead, most of these 

commenters said they viewed posting 

the Code as an invitation for borrowers 

to contest credit decisions on other than 

the merits. FCB of Texas supported 

requiring a Code of Ethics and 

publishing it, if the Code is limited to 

general ethical statements and does not 

include matters related to employment. 

This commenter also offered specific 

wording to soften the regulation in this 

area. Comments asking to rename this 

Code as a ‘‘code of conduct’’ were made 

when remarking on the definition for 

‘‘Code of Ethics’’ and are addressed in 

that section. 

The proposed requirement to adopt 

and maintain a written Code of Ethics 

is finalized with the following changes 

made in response to comments received: 

• Adding clarifying language 

explaining the Code must be kept up-todate; 

• Replacing language regarding 

employment matters with language 

explaining the Code is directed at 

business transactions; and 

• Revising the proposed requirement 

of posting the Code on an institution’s 

website with a requirement for posting 

a statement that the Code has been 

adopted. The statement must summarize 

the Code and advise the public that a 

copy of the Code of Ethics is available 

on request and at no cost. 

3–c. Policies and Procedures. 

[§ 612.2137(d)] 

As proposed, a System institution 

would have responsibility to establish 

policies and procedures that further the 

objectives of this rule. We noted that 

some commenters confused the 

proposed responsibilities of the System 

institution to develop policies and 

procedures on reporting of conflicts of 

interest in real time with the proposal 

for the periodic reporting of other 

matters. The institution, its directors, its 

employees and the SOCO all have a role 

in implementing the Standards of 

Conduct Program. The periodic 

reporting of other matters is a 

responsibility of each director and 

employee. Developing policies and 

procedures for those reporting 

responsibilities is a duty of the 

institution. We offer further 

clarifications in the respective 

discussions that follow. 

In the process of addressing 

comments to specific provisions within 

this section, the organization and 

numbering of paragraphs has changed, 

including: 

• Proposed paragraph (d)(1) on 

contents of a conflicts of interest report 

is renumbered paragraph (d)(2). 

• Proposed paragraph (d)(2) on 

resolving conflicts is renumbered 

paragraph (d)(3). 

• Provisions on third party 

relationships in proposed paragraph 

(d)(3) is renumbered paragraph (d)(4). 

• Proposed paragraphs (d)(4) and (5) 

on enforcing the SOC program are 

consolidated into renumbered 

paragraph (d)(6) and now follow 

renumbered paragraph (d)(5) discussing 

receipt of gifts. 

• Proposed paragraph (e)(3) on 

anonymous reporting is moved and 

renumbered as paragraph (d)(7). As 

finalized, § 612.2137(d)(1) contains the 

requirement to file a conflict of interest 

report, including the timing of the 

report, and providing disclosure 

information required under § 620.6(a), 

(e), and (f). The part 620 items were 

moved to this section in partial response 

to comments asking us to reconcile the 

conflicts of interest disclosure 

requirements of parts 612 and 620. 

Commenters were concerned that the 

proposed rule preamble discussion on 

requirements for reporting of material 

interests was not adequately reflected in 

the rule. To address commenters’ 

concerns, we include a requirement in 

final rule § 612.2137(d)(2) that the 

System institution must establish 

criteria to help directors, employees, 

agents and the SOCO identify conflicts 

and those that are material. 

(i) Identifying ‘‘Ordinary course of 

business’’ Transactions and Materiality. 

[§ 612.2137(d)(2)(i) and (ii)] 

As proposed, each System institution 

would have the flexibility to develop a 

Standards of Conduct Program most 

suited to its unique needs, and to use its 

existing Standards of Conduct Program 

if it is adequate to satisfy the purposes 

of this regulation. The Council and 

several other commenters objected to 

the rule requiring reports outside the 

ordinary course of business, stating it 

was too broad. The Council, FCB of 

Texas and some other commenters 

asked that this provision give the SOCO 

authority to exclude non-material 

activities and that transactions be 

limited to fiscal year interactions with 

institution directors, employees, and 

agents. Fourteen commenters stated the 

provision conflicted with other 

provisions as it is not limited to 

transactions with the institution but 

could be read to include all business 

transactions. FCB of Texas observed the 

rule does not require reporting ordinary 

business transactions as is done in 12 

CFR 620.6(e) and (f). Similarly, one 

commenter stated the requirement to 

annually report all business transactions 

was too broad and inconsistent with 12 

CFR 620.6 disclosures. This commenter 

asked that current reporting language be 

kept instead of the proposed provision. 

The commenter also asked that the 

reporting expectations be reconciled 

with 12 CFR 620.6(e) and (f) as well as 

the term ‘‘affiliated organization’’ used 

in part 620. One commenter asked for 

general clarifications and to relax the 

requirements to allow institutions to 

tailor their policies to their needs. 

We discussed in the preamble to the 

proposed rule our expectation that each 

System institution should set its own 


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14 83 FR 27922, 27924. 

specific parameters for what would 

constitute a material financial interest 

and what activities and transactions 

would present real or potential 

conflicts, including those in the 

ordinary course of business.14 Some 

commenters were concerned that we did 

not clearly set forth this expectation in 

the rule. In response to comments, we 

are revising the final rule at 

§ 612.2137(d) to clearly require that 

every System institution have policies 

and procedures to help directors and 

employees identify interests and 

circumstances that could lead to a 

conflict of interest, including 

identifying transactions posing real or 

apparent conflicts of interest, explaining 

what would constitute a material 

financial interest, and establishing how 

transactions occurring in the ordinary 

course of business are identified. The 

board must give due consideration to 

the potential adverse impact of any 

activities identified as not presenting 

conflicts. We decline the request to give 

the SOCO specific authority to exclude 

non-material transactions. The authority 

and requirement to define what 

constitutes a material transaction lies 

with the board of directors. The SOCO 

implements these policies as required 

under § 612.2170. 

FCB of Texas asked that we move all 

reporting details to the proposed 

disclosure section. We believe the final 

rule achieves this by consolidating all 

reporting requirements in § 612.2145, 

which correspond with the policy 

requirements in § 612.2137(d). However, 

discussion of reporting content and how 

reports are made is still a part of 

§ 612.2137 as each institution’s board of 

director must address these issues in 

their SOC program policies and 

procedures. 

(ii) Identifying Reportable Business 

Entities and Family 

Proposed § 612.2137(d)(1)(iii) and (iv) 

would require System institutions to 

establish policies and procedures for 

disclosing conflicts arising from family 

and business entities. We received 

several comments on this proposal and 

address them in III.B.4 of this preamble 

discussion of provisions on the 

reporting of conflicts. 

(iii) Standards of Conduct Policies and 

Procedures for Resolving Conflicts of 

Interest. [§ 612.2137(d)(3)] 

We proposed that an institution’s 

policies and procedures address how 

reported conflicts of interest will be 

resolved. We received no substantive 

comments on this area, but there were 

related comments asking us to clarify 

the role of the SOCO in the resolution 

process. We finalize the rule in this area 

substantially as proposed but make 

some changes to improve readability 

and clarity. We also add language 

clarifying that the policies and 

procedures must explain the process for 

how conflicts will be resolved and the 

role of the SOCO in resolving conflicts. 

This clarification is made in response to 

comments on the issue and is in keeping 

with our principals-based approach to 

the rule. 

(iv) Standards of Conduct Policies and 

Procedures for Agents and Other ThirdParties. [§ 612.2137(d)(4)] 

As proposed, System institutions 

would establish policies and procedures 

to address third-party relationships, 

including disclosing known conflicts. 

Several commenters questioned the 

ability to get agents to cooperate in 

reporting the required information and 

whether all System personnel know all 

the institution’s agents. Some 

specifically suggested keeping the 

current requirements of § 612.2260 

saying it is clear and understandable. 

The Council asked how the phrase 

‘‘third-party relationships’’ differed 

from the proposed definition of ‘‘agent’’. 

The Council, CoBank and several others 

suggested that those parties not covered 

as ‘‘agents’’ be handled by the 

institution’s vendor management 

policies. The Council and nineteen 

other commenters also asked that 

service providers covered by 

professional conduct and ethics 

standards be exempted from compliance 

with an institution’s standards of 

conduct or be treated as satisfying those 

requirements if in compliance with their 

own professional and ethical standards. 

CoBank and some others asked that 

existing agent contracts be 

grandfathered in to avoid costly 

renegotiations. A few commenters asked 

that we allow institutions to follow 

reasonable policies on agents. Four 

commenters remarked on preamble 

language discussing conditioning an 

agent’s appointment on the misconduct 

rules, stating that is an overreach and 

inconsistent with rule text. Another 

comment stated vendors cannot be 

expected to know the institution’s SOC 

program and asked us to remove the 

requirement. Still others asked that we 

add a knowledge element to the 

reporting requirement for agents. One 

commenter pointed out that most agents 

do not have direct knowledge of the 

institution’s borrowers so would be 

unable to accurately report any potential 

conflicts of interest. Seventeen 

commenters said the requirement was 

unnecessary as contract language to 

engage an agent already has behavior 

clauses. 

In response to comments asking to 

keep the current rules on agents in 12 

CFR 612.2260, the final rule does not 

implement the proposed removal of that 

section. However, the existing provision 

is renumbered as § 612.2180. A full 

discussion of this retained section is 

contained later in this preamble at 

III.B.7. In connection with making this 

requested change, the final rule replaces 

proposed language with language 

requiring an institution’s board of 

directors to adopt conflict of interest 

polices for third party relationships 

(including agents). And, following the 

comments regarding use of contracts, 

the final rule requires each board to 

apply ethical safeguards in contracts 

with third parties, including agents. The 

final rule also implements commenter 

suggestions by adding a knowledge 

requirement of conflicts disclosed by 

agents and other third-parties. At a 

minimum, board policies address its 

expectations for agents and other thirdparty service providers to disclose 

known conflicts to the institution. By 

definition, an agent is someone who has 

the power to act for the institution 

either by contract or apparent authority; 

therefore, it is important that agents and 

other third-parties maintain the same 

high ethical standards as directors and 

employees. We consider not finalizing 

the proposed third-party reporting 

provision, along with keeping existing 

rule text on conflict of interest reporting 

by agents, as satisfying all other 

comments asking for changes to that 

requirement. 

Some commenters objected to the 

suggestion in the proposed rule 

preamble that a System institution 

should require agents to acknowledge a 

System institution’s Code of Ethics by 

signing it. This is not a requirement in 

the rule, although a System institution 

could consider imposing this 

requirement on their own in future 

agency relationships. 

(v) Policies and Procedures on Gifts. 

[§ 612.2137(d)(5)] 

As proposed, System institutions 

would be required to establish policies 

and procedures prohibiting gifts but 

could have rules in place to allow 

directors and employees to accept de 

minimis gifts. The Council and three 

others asked that a gift exception be 

made for transactions that would not 

otherwise be reported, such as 

giveaways of token items, explaining the 

de minimis language is unclear on this 

point. AgFirst FCB and seventeen other 

commenters asked the gift exceptions 


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15Federal Deposit Insurance Corporation, FDIC 

Law, Regulations, Related Acts. 5000—Statements 

of Policy, ‘‘Guidelines for Compliance With the 

Federal Bank Bribery Law,’’ Nov. 10, 1987, https:// 

www.fdic.gov/regulations/laws/rules/5000- 

2300.html#fdic5000guidelinesfc. 

include traditional gift giving events or 

gift between family and friends. CoBank 

supported the de minimis gift 

exception. Twelve commenters asked 

that the rule clarify gifts reported do not 

include de minimis gifts. FCB of Texas 

commented that the limitations on gifts 

is more restrictive than the current rule 

or past proposals as this rule does not 

tie gift restrictions to those intended to 

influence official actions. This 

commenter then stated that FCA offered 

no rationale for the more restrictive gift 

rules. FCB of Texas also identified 

inconsistencies with this provision as 

compared to the proposed reporting 

provisions which allow exceptions for 

de minimis gifts. FCB of Texas 

suggested that to resolve this, at a 

minimum, the rule should replace the 

word ‘‘prohibiting’’ with the words 

‘‘governing permissible’’ gifts. FCB of 

Texas also suggested allowing specific 

exceptions for reasonable business 

expenses like those outlined in the 

FDIC’s Guidelines for Compliance with 

the Federal Bank Bribery Laws.15

The final rule clarifies that the 

required policies and procedures on 

gifts address those gifts not otherwise 

prohibited by FCA regulation. As 

requested by commenters, the final rule 

alters proposed language on the 

contents of these policies and 

procedures to provide that institutions 

may make appropriate exceptions for 

gift giving related to non-business 

events as long as gift exchanges would 

not be viewed as an attempt to influence 

official institution activities. While 

commenters suggested various changes 

and specific exceptions on gifts, in 

keeping with the principals-based 

approach of this rulemaking the final 

rule does not adopt those detailed 

suggestions nor do we include a de 

minimis level. Instead, the rule leaves it 

to the institution to set specific gift 

parameters. The final rule also clarifies 

that authorized gift exchanges must 

have de minimis thresholds at both the 

individual gift level and in the annual 

aggregate, per recipient. 

We do not believe the restrictions on 

gifts are more restrictive. The 

principles-based approach to the 

regulations allows the institutions to set 

criteria for accepting gifts and includes 

an exception for non-business events 

where the gift is not viewed by the 

institution as attempting to influence 

official institution business. We 

encourage institutions to have internal 

controls or policies to ensure adequate 

de minimis levels are set and followed. 

The final rule retains the proposed 

requirement that the policies and 

procedures establish disclosure 

requirements for gifts received as well 

as any disposed of because they were 

impermissible. In response to other 

changes, this provision is renumbered 

as § 612.2137(d)(5). 

(vi) SOC Program Enforcement. 

[§ 612.2137(d)(6)] 

Proposed paragraphs (d)(4) and (5) 

would require SOC program policies 

and procedures to discuss how the SOC 

program is monitored and enforced. We 

received no substantive comments on 

this area, but there were related 

comments asking us to clarify the role 

of the SOCO in enforcement actions. We 

finalize the rule in this area 

substantially as proposed but make 

some changes to improve readability 

and clarity, including consolidating the 

provisions into renumbered paragraph 

(d)(6). As requested by commenters, we 

also specifically require the policies and 

procedures identify who is authorized 

to take enforcement actions and discuss 

the SOCO role in investigating certain 

conduct issues. 

(vii) Anonymous Reporting. 

[§ 612.2137(d)(7)] 

The proposed rule would require 

internal controls for anonymous 

reporting of suspected standards of 

conduct and Code of Ethics violations 

through a hotline or other reporting 

procedure. FCB of Texas suggested 

adding language to clarify that reporting 

is for any individual action. CoBank 

stated that this provision appears to 

codify the Whistleblower Program that 

is already in place for reporting 

financial improprieties and used for 

other types of anonymous reporting and 

thus the new provision should be 

eliminated. We finalize the rule 

substantially as proposed but add 

reference to individuals making a report 

and make small changes to improve 

readability. We feel that providing an 

avenue to anonymously report both 

known and suspected violations is an 

important part of a Standards of 

Conduct Program and believe it should 

be included within SOC program 

policies and procedures even when 

there is Whistleblower Program in 

place. We also add that nothing in the 

rule prevents institutions from adapting 

existing Whistleblower or Hotline 

programs for SOC program purposes. In 

response to other changes, this 

provision is renumbered as 

§ 612.2137(d)(7). 

3–d. Internal Controls for SOC Program. 

[§ 612.2137(e)] 

Proposed § 612.2137(e) would require 

each System institution to arrange 

periodic internal audits of the Standards 

of Conduct Program to identity 

weaknesses, measure effectiveness, and 

conduct reviews to prescribe necessary 

corrective actions. Two commenters 

said the program as written would be 

costly to implement especially for those 

associations who do not have an 

internal audit department. The 

commenters asked that the word 

‘‘internal’’ be removed to allow for 

outsourcing the service. One commenter 

also asked if FCA was requiring each 

institution to establish a new 

department of internal SOC audits. 

Another commenter asked us to explain 

how the provision would be applied at 

unincorporated business entities (UBE) 

of a System institution. 

We finalize the rule in this area 

substantially as proposed but, as 

discussed earlier, moved some 

provisions to other paragraphs. We also 

add a heading to the paragraph in 

keeping with the overall format of the 

rule. We make some clarifying changes 

considered necessary based on 

comments received and to improve 

readability. The final rule clarifies that 

the institution’s board of directors 

establishes the internal controls 

program but does so with the assistance 

of the SOCO and other officers of the 

institution. However, the board 

ultimately decides the scope of the 

internal review and identifies who will 

conduct the audit. Also, the final rule 

clarifies that all audit results of the SOC 

program go directly to the board. A 

commenter asked about the proposed 

rule’s reference to UBEs so the final rule 

adds reference to FCA regulations in 

§ 611.1150(b). 

The final rule’s requirement for an 

‘‘internal’’ audit of the SOC program 

refers to an audit of the internal 

operations of the program. It does not 

limit the persons who perform the audit. 

System institutions are not required to 

establish an internal audit department. 

While we recognize there could be some 

additional costs involved, the audit 

could be a component of the 

institution’s risk assessment process as 

established by the Audit Committee and 

conducted by a person or entity 

independent of the Standards of 

Conduct Program. The board is 

responsible for identifying who will 

conduct the internal audit, which is 

important to ensure the program is 

being managed effectively. We believe 

that to ensure a strong ethical culture, 

ethical conduct must be encouraged 


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across all System activities, including 

those conducted in UBEs. Therefore, we 

require periodic audits that cover the 

entire System institution. 

3–e. Training Policies. [§ 612.2137(f)] 

Proposed § 612.2137(f) would require 

each System institution to establish 

within its policies and procedures SOC 

program training, setting the timeframes 

for conducting such training. FCB of 

Texas remarked that this could be 

duplicative of the training requirements 

proposed elsewhere and suggested 

consolidating them all into this section. 

As discussed earlier in this preamble at 

III.B.2–d, the final rule relocates most 

provisions on standards of conduct 

training into this paragraph. The final 

rule makes some clarifying changes to 

§ 612.2137(f) considered necessary 

based on consolidating like provisions 

and adds a heading to the paragraph in 

keeping with the overall format of the 

rule. Changes made in response to other 

comments are discussed below. 

(i) New Director SOC Program Training 

As proposed, new directors would 

receive standards of conduct training 60 

calendar days before or after the 

director’s election or beginning of his or 

her term. The Council, CoBank, and 16 

others separately commented on the 

proposed timeframes, questioning if 

there was an error in asking for training 

before a director begins his or her term 

of service. The commenters explained 

the unworkability of trying to 

administer training before a director 

begins his or her term of office and how 

such an action would be contrary to 

cooperative principles. Commenters 

also pointed out there is an existing 

regulation at § 611.210(b) requiring 

director orientation training to be 

completed within one year of a director 

assuming his or her position on the 

board. Commenters asked that we 

correct the error by having the required 

training occur 60 calendar days after a 

director’s term of office begins. Some 

also asked that we use the one-year time 

frame of § 611.210(b) instead of the 

proposed 60 days. 

We agree with commenters that it is 

impractical as well as generally 

impossible to provide training to 

directors who have not yet begun 

serving their terms of office. Directors 

are not employees of the institution so 

providing individuals access to the 

institution’s resources for training or 

other reasons before board service 

would be impermissible due to 

confidentiality laws and regulations, 

especially as there is no basis under 

which to obtain confidentiality 

agreements from these individuals until 

board service begins. 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 institution and shareholders as a 

whole. As such, an institution may take 

measures to ensure each director abides 

by policies defining and specifying the 

treatment of the institution’s 

confidential information, including 

restricting directors from disclosing 

confidential information to the 

shareholders electing them to serve on 

the institution’s board. However, this 

authority does not arise until board 

service begins. We appreciate 

commenters identifying our inadvertent 

mistake. In this final rule we correct the 

error on director training by changing 

‘‘before’’ to ‘‘after’’ and, for further 

clarity and consistency, use the 

language of § 611.210(b) on when to 

start the 60 days. New director training 

must occur within 60 calendar days of 

a director assuming his or her position 

on the board. We decline requests to 

extend the timeframe to one year as 

directors should be made aware of their 

standards of conduct responsibilities as 

soon as possible. We clarify that this 

new director standards of conduct 

training can be considered part of the 

overall § 611.210(b) orientation training 

as nothing in § 611.210(b) requires all 

components of orientation training to 

occur at one time; rather, it all must just 

be completed within 1 year. 

(ii) New Employee SOC Program 

Training 

We proposed that newly hired 

employees receive training within five 

business days of starting employment. 

One commenter asked that we provide 

a longer timeframe, suggesting 10 

business days. FCB of Texas also 

remarked five days was too short. In 

response to the commenters’ request for 

a longer period of time, we are changing 

the time period in the final rule from 

five days to the suggested ten days. We 

believe the requested timeframe of 10 

days is reasonable and meets policy 

objectives. 

(iii) Periodic SOC Program Training 

Over 30 commenters supported the 

requirement for annual SOC training, 

with fourteen of them asking to 

incorporate it into existing training 

requirements rather than treat it as a 

separate training event. Six commenters 

asked that periodic training be every 

other year (e.g., biennial) instead of each 

year as that timing is sufficient to stay 

current on requirements. Five 

commenters asked us to clarify that SOC 

program training on fiduciary duties 

would only apply to directors, not 

employees as well. 

We believe it is important for all 

employees, not just directors, to receive 

SOC training to ensure knowledge of 

prohibited conduct and any changes to 

the SOC program. We do not agree that 

training every 2 years is sufficient and 

final the requirement for annual 

training. We think it is important for 

training to reinforce the SOC 

requirements. The institution can 

decide if that can be accomplished 

effectively by incorporating the SOC 

training into existing training. 

Additional comments on SOC program 

training are addressed in III.B.6–c of this 

preamble. 

4. Disclosing and Reporting Conflicts of 

Interest. [§ 612.2145] 

We proposed consolidating and 

revising existing standards of conduct 

reporting requirements to enhance the 

quality of information captured in a 

standards of conduct report as well as 

implement a principles-based approach. 

As proposed, the rule would establish 

requirements for directors and 

employees to identify and report 

conflicts of interest. We received 132 

comments on the proposed changes to 

the standards of conduct reporting 

requirements, including comments from 

the Council and three FC banks, as well 

as individual letters representing 27 

associations. The majority of comments 

were directed at the proposed paragraph 

regarding the contents of conflict of 

interest reports. 

We finalize the provisions on 

reporting conflicts of interest with 

changes based on comments received. 

We discuss those changes in the 

subsections below. We also make small 

changes to improve readability and 

align the format of the rule, such as 

adding headings to main paragraphs and 

clarifying language. 

FCB of Texas asked that the heading 

for this section read as only ‘‘reporting 

requirements’’ to avoid confusion. In 

response to the suggestion on the 

heading for this section, the final rule 

changes the heading for this provision 

to ‘‘Disclosing and reporting conflicts of 

interest.’’ Additionally, in response to 

requests that we keep existing section 

numbering, we do not final the proposal 

to move reporting requirements to a new 

§ 612.2138. Section 612.2145, which 

currently addresses SOC program 

reporting for directors, will now 

encompass reporting for directors and 

employees. The § 612.2155 employee 

reporting section is removed and 

reserved. 


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4–a. Disclosing Conflicts of Interest. 

[§ 612.2145(a)] 

As proposed, directors and employees 

would be required to take affirmative 

action to identify, report and resolve 

conflicts or potential conflicts of interest 

of which they are aware. It is intended 

to compel each director and employee 

to take ownership of and invest in 

ethical responsibilities. We also 

proposed that a director or employee 

with a conflict in a matter subject to 

official action refrain from participating 

in the official action (i.e., recusal). FCB 

of Texas and one other commenter 

remarked that provisions on cooperating 

was redundant with requirements to 

report conflicts and suggested 

consolidating them within paragraph 

(a), leaving recusal issues in paragraph 

(b). One commenter expressed 

appreciation for adding rule text on 

recusals, calling it an improvement over 

the existing regulation. 

The final rule consolidates into 

paragraph (a) the proposed paragraphs 

discussing identification and reporting 

conflicts of interest. To further group 

the responsibilities into paragraph (a), 

the proposed contents of paragraph (b) 

are consolidated and renumbered as 

(a)(1). As suggested by a commenter, 

language on recusals is now in new 

paragraph (a)(1). In the process of 

consolidating these provisions, some 

language was revised for readability and 

to remove redundancy. Also, a new 

paragraph (a)(2) is added as a 

conforming change with retaining 

existing language regarding reporting 

illegal or unethical behavior, which is 

further discussed in this preamble at 

III.B.6-d. The contents of paragraph 

(a)(2) resemble the core principles in 

§ 612.2135(b)(3). 

(i) Scope of Transactions Disclosed 

CoBank and several others asked that 

the requirement to report ‘‘any matter’’ 

be limited to transactions outside the 

ordinary course of business. The 

commenters also asked to limit entity 

reporting to material business 

transactions with the System. 

Commenters explained that normal 

business interactions should not trigger 

a report as operating as a cooperative, 

many System directors are farmers and 

conduct farm business in the same 

communities as their institution’s 

borrowers. The final rule replaces the 

proposed language on reporting ‘‘any 

matter, transactions or activities 

pending at the System institution’’ with 

language explaining that identification, 

disclosure and reporting on conflicts 

means ‘‘any interest or circumstance 

that does or could constitute’’ a conflict 

or potential conflict. The final rule has 

a related requirement for directors and 

employees to disclose actual conflicts 

with ‘‘a matter, transaction or activity 

subject to official action’’ by the 

institution. We think that it is more 

important to both disclose the conflict 

of interest and refrain from participating 

in any action or board discussion of the 

matter rather than prescribe what must 

be in the disclosure. As was proposed, 

the final rule at § 612.2145(a)(1) requires 

directors and employees to refrain from 

participating in official actions at the 

institution that are related to the matter 

disclosed. In keeping with the 

principals-based approach, we have not 

finalized the proposed language 

detailing what the disclosure must 

contain. Additionally, System 

institutions should understand that 

identifying conflicts uses a reasonable 

person’s perspective in a manner that 

gives full consideration to the 

cooperative structure of the System, and 

institutions may build their SOC 

program policies and procedures 

accordingly. 

(ii) Identifying Conflicts of Interest 

As proposed, directors and employees 

would identify, report, and cooperate 

with the SOCO to resolve conflicts of 

interest. Commenters asked that a 

director or employee not be required to 

identify conflicts of interest when 

functionally it is the SOCO who has the 

obligation to determine whether there is 

a conflict. We view the process of 

reporting conflicts of interest as a 

collaborative one between the director 

or employee making the report and the 

SOCO. We have made clarifying 

changes to better reflect that process. 

We have revised the wording in final 

rule § 612.2145(a) to provide that the 

director or employee must identify, 

disclose, and report any interest or 

circumstance that does or could be a 

conflict of interest. The rule at 

§ 612.2170(b)(1) lists helping institution 

personnel identify conflicts as a SOCO 

responsibility. Next, the rule at 

§ 612.2145(a) requires directors and 

employees to cooperate with the SOCO 

in identifying if a conflict is material or 

not. The rule elaborates in § 612.2145(b) 

that this includes providing enough 

information to the SOCO for a 

‘‘reasonable person’’ to make a 

materiality determination. Elsewhere we 

explain that the SOCO will use the 

institution’s SOC program policies and 

procedures to determine materiality. 

Further guidance on any interest or 

circumstance that might give rise to a 

conflict of interest must be provided in 

the System institutions’ policies and 

procedures as discussed earlier in 

III.B.3-c of this preamble. 

The Council and a few other 

commenters specifically asked that 

directors be excused from detailed 

reporting as they are no longer involved 

in loan approvals. We decline the 

request. Directors of System institutions 

have ultimate responsibility for all that 

occurs at the institution and are directly 

involved in hiring the CEO. Directors 

also play a role in credit decisions when 

setting institution lending policies and 

through service on the institution’s 

credit review committee. 

4–b. Reporting Conflicts of Interest. 

[§ 612.2145(b)] 

As proposed, annual reporting of 

interests in business matters, names of 

family members, material financial 

interests, reportable business entities, 

and persons residing in the home would 

be required. The Council and most 

associations (or persons and entities 

affiliated with associations) objected to 

the language on reporting the names of 

family and reportable business entities, 

stating it is too broad and inconsistent 

with 12 CFR 620.6(e) and (f). The 

Council and 20 other commenters 

recommended keeping existing 

regulations in this area and explaining 

how these reports interact with the part 

620 annual reporting requirements on 

conflicts of interest for directors and 

senior officers. CoBank and a few other 

commenters likewise objected to 

reporting requirements on entities, 

asking to limit it to those with current 

year transactions. Eleven of these also 

asked that the provision be reconciled 

with how affiliated organizations are 

reported in part 620. 

The reporting requirements of 

§ 612.2145(b) were revised in response 

to comments received. Some changes 

were made to general areas of 

§ 612.2145, but most were specific to 

certain subject matters and we discuss 

those in the subsections below. 

Additionally, existing language from 

current §§ 612.2145(b) and 612.2155(b) 

was inadvertently omitted from the 

proposed rule. The final rule restores: 

• The language requiring directors 

and employees to file conflicts of 

interest reports with the SOCO that 

contain the disclosures required by this 

section and the institution’s SOC 

program policies and procedures; 

• The current provisions of 

§§ 612.2145(b)(2) and 612.2155(b)(2) 

regarding the scope of reporting for 

reportable business entities; and 

• The current provisions of 

§§ 612.2145(b)(1) and 612.2155(b)(1) 

regarding the scope of reporting for 

family. 


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In response to comments, the final 

rule also modifies the proposed list of 

minimum report contents as follows: 

• Clarifies that ‘‘business matters’’ 

includes loans and loan applications. 

• Clarifies that ‘‘business matters’’ 

reported must include those before the 

institution, a supervised institution, and 

a supervising institution. 

• Limits reported material 

transactions to those with any director, 

employee, agent or borrower of the 

institution, or a supervised or 

supervising institution; and 

• Clarifies that the report must 

include gifts received or disposed of 

that are reportable under the 

institution’s SOC program policies and 

procedures. 

As a conforming change to the 

consolidation of proposed paragraphs 

(a) and (b), this provision is now 

numbered as § 612.2145(b). 

(i) Reporting of Past, Present, and Future 

Transactions—Paragraph (b) 

The Council, CoBank, FCB of Texas, 

three commenters from AgFirst, and 

most of those associations commenting 

expressed concern with being required 

to report all past transactions. These 

commenters asked that only current and 

new transactions be subject to reporting. 

We agree that the obligation to report 

should be limited to current and new 

transactions and think that limiting 

transactions to the current year should 

be sufficient to capture any known or 

potential conflicts of interest. The final 

rule clarifies that transactional 

timeframes are those occurring in the 

current year, as that term is defined in 

the institution’s SOC program policies 

and procedures. 

(ii) Reporting ‘‘any’’ Business Interests— 

Paragraph (b)(1) 

The Council and FCB of Texas 

remarked that the requirement to report 

‘‘any’’ interest in ‘‘any’’ business matter 

is too broad. The Council recommended 

moving into the rule text the preamble 

explanation that this provision captures 

direct and indirect business matters 

pertaining to the System institution, 

including those occurring through an 

entity. FCB of Texas recommended 

limiting the requirement to interests 

with System personnel. This commenter 

added that if we keep the provision as 

proposed, the phrase ‘‘any business 

matter’’ should create a link with the 

initial conflict of interest report. One 

association questioned the need for 

disclosure of personal relationships. In 

response to the request of some 

commenters, the final rule specifies that 

only those transactions with the 

institution or the supervising or 

supervised institution must be reported 

under paragraph (b)(1). 

(iii) Reporting Material Financial 

Interests With System Personnel— 

Paragraph (b)(2) 

The Council, three commenters from 

AgFirst FCB, and several others objected 

to the requirement to report ‘‘all’’ 

material financial interests regardless of 

any System connection, asking the 

reporting expectation to be limited to 

transactions with System institutions 

and System borrowers. The Council and 

CoBank asked that this element be 

further limited to reporting only those 

transactions that are outside the 

ordinary course of business. The 

Council remarked that without these 

constraints, the reporting requirement 

would be overly broad and burdensome. 

FCB of Texas said this reporting 

requirement overlaps with those in 

proposed § 612.2138, asking us to clarify 

if the intent is for both ordinary 

transactions and those outside the 

ordinary course of business be reported, 

or just those outside the ordinary course 

of business. 

In § 612.2145(b)(2), a material interest 

with any director, employee, agent, or 

borrower must be reported, regardless of 

the nature of the interest. We 

understand this may result in an 

ordinary course of business transaction 

being reported because the transaction 

presents a conflict or is material in 

nature. The policies and procedures of 

the System institution should provide 

further clarification and explain how 

materiality of a conflict is identified. 

FCB of Texas asked that ‘‘business 

affiliates’’ be removed from the 

provision to avoid confusion, while 

twenty other commenters asked that it 

be defined. The final rule in this area 

does not contain the phrase ‘‘business 

affiliates’’ as requested by commenters. 

(iv) Reporting Transactions by 

Reportable Business Entities—Paragraph 

(b)(3) 

The Council asked that reporting on 

‘‘reportable business entities’’ be limited 

to only where the person holds a 

material interest in an entity that poses 

a conflict. The Council, FCB of Texas 

and several other commenters suggested 

following the existing rule under 

§ 612.2145(b)(1), which only requires 

reporting those entities doing business 

with the System. The final rule does not 

make the requested change to only limit 

entity reporting on a materiality 

standard. We do not think it is 

necessary to limit reporting on 

‘‘reportable business entities’’ to where 

the person holds a material interest in 

the entity because the term ‘‘reportable 

business entity’’ is based on ownership 

and control. However, the final rule 

does make the requested change to 

follow existing rules on with whom 

transactions occur that will make them 

reportable. The final rule limits the 

listing of reportable business entities to 

those transacting business in the current 

year with the institution, a supervised 

or supervising institution, or a borrower 

who has business with your System 

institution, or a supervised or 

supervising institution. 

(v) Reporting Family Transactions With 

the System—Paragraph (b)(4) 

AgFirst FCB remarked that the 

proposed definition of ‘‘family’’ would 

make the reporting requirement unduly 

burdensome, especially as the ‘‘family’’ 

definition does not require a legal 

relationship. This commenter and a few 

others said the requirement 

substantially increases the workload of 

the SOCO, who reviews all submissions. 

AgFirst FCB and many others suggested 

the requirement be limited to reporting 

family members when there is actual 

knowledge of business transactions with 

the institution. CoBank and several 

other commenters stated the rule was 

unclear on if extended family needed to 

be reported and expressed support for 

keeping the current requirement to 

report only immediate family having 

business with the institution during the 

reporting year. One commenter 

suggested restricting the scope of family 

to immediate family to reduce the 

reporting burden and place focus on 

those family members who are most 

likely to present a risk of undue 

influence risk to the institution director 

or employee. 

The Council, FCB of Texas and 

several other commenters objected to 

expanding existing requirements on 

naming family and placing no time 

constraints on activities to be reported. 

The Council and several others 

suggested limiting the requirement to 

transactions occurring in the reporting 

year, including those that ended in the 

reporting year. In the alternative, the 

Council suggested following the 

proposed rule preamble explanation by 

leaving the reporting of past business 

transactions to each institution’s 

discretion. FCB of Texas also said the 

transactions being reported should be 

tied to System transactions as is done in 

existing § 612.2155(b). Three others said 

reporting on family transactions should 

be limited to when it occurs rather than 

a set time annual timeframe. These 

commenters suggested keeping the 

existing rule provision requiring 

positive reporting on family when there 

is actual knowledge. 


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We have changed the definition of 

family, which was discussed above in 

III.B.1–f of the preamble. In response to 

comments, we have also changed the 

reporting requirements for family and 

reportable business entities to those 

‘‘you know or have reason to know’’ and 

included a timeframe of the current 

year. In response to other comments, the 

final rule modifies the reporting 

requirements for family to resemble that 

of the current rules in §§ 612.2145(b) 

and 612.2155(b). Reportable 

transactions by family are those 

occurring in the current year with the 

director’s or employee’s System 

institution or any supervised or 

supervising institution. We have chosen 

not to limit the requirement to 

immediate family, preferring to use the 

definition of family found in § 612.2130. 

We believe the changes to that 

definition provide sufficient limits 

while still addressing potentials for 

conflict to arise. 

(vi) Persons ‘‘known’’ To Do Business 

With the System—Paragraphs (b)(3) and 

(4) 

The proposed standard for what to 

disclose as a real or potential conflict of 

interest was ‘‘to the best of your 

knowledge and belief.’’ When reporting 

for family, the proposed standard was 

supplemented to require reporting the 

name of those family members ‘‘you 

know or have reason to know’’ have 

business with the System. The Council, 

CoBank and some others asked for 

clarification of whether the proposed 

reporting requirement for family was 

intended to be more or less restrictive 

and if this same requirement poses a 

duty to inquire. The Council, FCB of 

Texas and some commenters remarked 

that combining a knowledge standard 

with a ‘‘reason to know’’ standard is 

contradictory and suggested using an 

actual knowledge standard for this 

provision or at least clarifying the same 

standard used for all reporting areas. 

The Council and a few others also asked 

if the ‘‘reason to know’’ standard was 

restricted to family reporting. FCB of 

Texas, CoBank and some other 

commenters recommended we use the 

existing rule’s actual knowledge 

standard. A couple of commenters 

suggested using ‘‘to the best of 

knowledge’’ as not all directors and 

employees know the financial activities 

of family. The majority of commenters 

expressed a preference for the same 

standard to be used in all of the 

proposed reporting items. 

As a director or employee, you should 

know what interests you have in 

business matters or loan applications 

that are being considered by your 

institution or supervising institution. 

However, you may not be directly 

involved in transactions with family 

members or reportable business entities. 

Therefore, the final rule applies a 

‘‘know or have reason to know’’ 

standard for reporting on family and 

reportable business entities transactions 

with the System. The other reportable 

items do not have a similar qualifier. 

(vii) Reporting Gifts—Paragraph (b)(5) 

FCB of Texas asked that gift reporting 

requirements from the SOC program 

elements be moved to this section. We 

are not moving the gift requirements as 

suggested but have modified the rule to 

explain the report must include 

reportable gifts received or disposed of 

that are reportable under the 

institution’s SOC program policies and 

procedures. 

4–c. Making Part 620 Disclosures. 

[§ 612.2145(c)] 

The proposed rule would have 

required all directors and employees to 

make the disclosures required under 12 

CFR 620.6(f). The part 620 provision 

currently only applies to directors and 

senior officers. The proposal also 

inadvertently omitted paragraphs (a) 

and (e) of 12 CFR 620.6 from this 

requirement. A few commenters asked 

that we keep the term ‘‘senior officer’’ 

to clarify that reporting on part 620 

disclosures is not being extended to all 

employees. A few asked if institutions 

have the authority to limit reporting 

under this provision to senior officers 

and directors and if so, asked that the 

rule text reflect that. 

We agree with comments that the part 

620 disclosures only apply to directors 

and officers and make appropriate 

changes in the final rule. The final rule 

also moves references to reports made 

under 12 CFR 620.6 to a new paragraph 

(c) since those disclosures are only 

required of directors and officers. In 

conformance with final provisions on 

the SOCO duties discussed in this 

preamble at III.B.6–b, § 612.2145(c) 

requires directors and officers give the 

SOCO disclosures required under 

§ 620.6(a), (e), and (f). We note that the 

§ 612.2130 definition of ‘‘officer’’ is 

substantially similar to that of ‘‘senior 

officer’’ as used in part 620 and defined 

in § 619.9310. The final rule leaves it to 

the institution to determine the timing 

of these disclosures, but specifies they 

must at least occur annually (in 

connection with filing the institution’s 

annual report) and when the institution 

issues an Annual Meeting Information 

Statement under FCA regulations 

§ 620.21(a)(3). 

5. Prohibited Conduct. [§ 612.2150] 

We proposed consolidating the 

current prohibited activities for 

directors, employees and joint 

employees into one section. We also 

proposed incorporating the existing 

prohibitions on purchasing System 

obligations into this same section. In the 

process, we proposed clarifications and 

elaborations to existing rule text. We 

received 45 comments on the proposed 

changes to prohibited conduct and the 

related consolidation, including 

comments from the Council and two FC 

banks. Outside of general comments to 

keep the existing rule, all the comments 

for this section were directed at a few 

specific provisions. We make some 

changes to the proposed provisions on 

prohibited conduct in response to 

comments and to reconcile provisions 

with changes elsewhere, which we 

discuss in the subsections that follow. 

We also make small changes to improve 

readability and align the format of the 

rule, such as adding headings to main 

paragraphs and clarifying language. 

Those changes include: 

• Consolidating proposed paragraph 

(a)(1) into the main portion of paragraph 

(a), renumbering the remaining 

subordinate paragraphs, and adding a 

new lead to paragraph (a) for the list of 

prohibited activities. 

• Adding clarifying language that 

‘‘you’’ refers to both directors and 

employees. 

• Clarifying that the subordinate 

paragraph on gifts refers to prohibited 

gifts. 

• Using consistent language to 

identify supervising and supervised 

institutions. 

• Numbering provisions containing 

exceptions for ease of reference; and 

• Only using the term ‘‘family’’ since 

the additional language on persons 

residing in the home is now captured in 

the definition of ‘‘family.’’ 

In response to general requests that 

we keep existing section numbering 

where possible, we do not final the 

proposal to number these provisions as 

§ 612.2139. Instead, we have 

consolidated and moved prohibited 

conduct provisions to the existing 

section on employee prohibited conduct 

in § 612.2150. The current § 612.2140 

director prohibited conduct numbering 

is removed and reserved. 

5–a. Using Position for Personal Gain. 

[§ 612.2150(a)(1)] 

As proposed, the current director and 

employee prohibitions on participation 

in matters affecting certain financial 

interests would be retained. The final 

rule clarifies this prohibition includes 


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16This exception in the rule does not extend to 

directors and employees of the Funding 

Corporation. 

17The Funding Corporation works with a selling 

group of approximately 30 investment and dealer 

banks that provide distribution, trading and 

underwriting capabilities for Farm Credit debt 

securities. 

both direct and indirect effect on 

financial interests. The final rule also 

retains a sentence from the existing rule 

that was inadvertently omitted in the 

proposed rule. That sentence prohibits 

directors and employees from using 

their positions to obtain special 

advantages for themselves, their families 

and their reportable business entities. 

5–b. Accepting Prohibited Gifts. 

[§ 612.2150(a)(3)] 

The proposed language on gifts would 

prohibit directors and employees from 

soliciting, obtaining or accepting, 

directly or indirectly, any gift, fee or 

other compensation that could be 

viewed as offered to influence decisionmaking, or official action or to obtain 

information. The final rule makes minor 

changes to reconcile the provision with 

the final language on the elements of a 

SOC program, located in § 612.2137, 

discussing an institution’s role in setting 

SOC program policies and procedures 

for gifts, including limiting the blanket 

gift prohibition to gifts offered because 

a person serves as a director or 

employee of a System institution. 

5–c. Acquired Property. 

[§ 612.2150(a)(4)] 

We proposed keeping the current 

prohibitions against directors and 

employees knowingly purchasing or 

otherwise acquiring any interest in real 

or personal property owned by his or 

her System institution within the past 

12 months. FCB of Texas asked for an 

exception to the 12-month provision 

when a third party purchases the 

property from the institution and then 

sells it by competitive bid within 1 year. 

The Council and CoBank asked if the 

provision applied to inventory property 

held by a UBE, as was mentioned in the 

proposed rule preamble but not 

regulatory text. Many commenters 

offered the general observation that 

items were put in the proposed 

preamble that should be contained in 

rule text. In some instances, we have 

agreed with commenter requests and in 

others we have not. 

We stated in the preamble to the 

proposed rule that the prohibition on 

acquired property would apply to 

collateral acquired by a System 

institution, including collateral acquired 

directly or through an acquired property 

UBE. As requested by commenters, the 

final rule text specifically references 

property held or sold by a UBE or a 4.25 

service corporation. In one of our 

preamble explanations for this section, 

we said that the acquired property 

prohibition does not affect a director’s 

right of first refusal to inventory 

property under 12 U.S.C. 2219a. 

Commenters asked that this be included 

in the rule text and the final rule adds 

that exception. As finalized, this 

paragraph sets forth all the exceptions 

on acquiring institution property in 

subparagraph form: (i) By inheritance, 

(ii) through the right of first refusal, and 

(iii) when property is sold by public 

auction. We caution that although we do 

not directly include agents in the 

acquired property prohibition, System 

institutions should be aware of agent 

conflicts and not allow an agent to 

purchase acquired property if he or she 

has non-public information (e.g., 

property type, location, condition) of 

such property that would give him or 

her an unfair advantage over other 

interested parties. 

One commenter questioned why 

employees were included in the 

prohibition. The current rule does not 

exempt employees from this prohibition 

and we did not propose to change that. 

Unlike directors, institution employees 

are heavily involved in the acquisition 

and sale of acquired properties and thus 

present real possibility for actual 

conflicts of interest. To minimize the 

potential for misconduct and the burden 

of institutions augmenting their internal 

controls and monitoring systems, we 

believe that it is in the best interest of 

the System to keep employees covered 

by the prohibition. 

5–d. Transactions With Prohibited 

Sources. [§ 612.2150(a)(5)] 

We proposed keeping the current 

limitations on directors and employees 

entering into lending relationships with 

individuals who may have a financial 

relationship with a System institution, 

with certain exceptions. The FCB of 

Texas and one other commenter 

expressed concern that the proposed 

rule does not keep the existing 

exception for transactions with any 

person residing in the director’s or 

employee’s household. The final rule 

retains the existing exemption for family 

and given the final rule also changes the 

definition of ‘‘family’’ to now include 

persons residing in the household, we 

believe the final rule addresses this 

comment. These same two commenters 

questioned the absence of the existing 

exception for non-material transactions. 

These comments are directed at the 

current provision allowing the SOCO to 

determine an otherwise prohibited 

transaction as permissible because it 

does not involve a material amount of 

money and the director or employee 

does not participate in the other party’s 

business with the institution. We did 

not propose to keep this exemption 

based on other changes to the subpart 

and are not otherwise persuaded by the 

comments to now do so. We point out 

that the final rule retains the prohibited 

transaction exception for ordinary 

course of business transactions. 

However, the extent to which these 

transactions will be allowed is for each 

institution to address as part of the SOC 

program policies and procedures. 

The final rule makes minor changes to 

improve the readability of the provision, 

including breaking the main sentence 

into two. This action separates the 

language prohibiting financial 

transactions with the institution from 

those with a borrower of the institution. 

No change in the meaning is intended 

by this. Also, as mentioned earlier, the 

exceptions to this prohibition are set 

forth in subparagraph form. In making 

this modification, we identified that an 

existing exception to the prohibition on 

financial transactions was inadvertently 

omitted. The final rule restores the 

exception for official transactions 

connected with the institution’s 

relationships with Other Financing 

Institutions. 

5–e. System Obligations. 

[§ 612.2150(a)(6)] 

We proposed keeping the current 

limitations on directors and employees 

purchasing System obligations. The 

Council, CoBank, and one other 

commenter asked that the prohibition 

exclude those obligations held in a 

mutual fund or other account where an 

individual investor is not involved in 

selecting the securities comprising the 

mutual fund. The commenters do not 

elaborate on if the mutual funds would 

be publicly available or private funds. 

We understand the concern 

surrounding mutual funds. At this time, 

we are not making the requested change. 

Because of the complicated nature of 

this request, we will review this issue 

and possibly include it in another rule 

making action. We remind the 

commenters that the rule does not 

prevent most System directors and 

employees 16 from purchasing those 

System obligations that are part of a 

public offering when bought from 

members of the Funding Corporation 

selling group 17 or in the secondary 

market. 


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5–f. Employee Only Prohibitions: Joint 

Employee—Board Service. 

[§ 612.2139(b)(1) and (4)] 

We proposed retaining most existing 

joint employment prohibitions for 

employees, but also proposed 

establishing additional ones. We 

received comments on some of the 

proposals for this issue and discuss 

them below. 

(i) Non-System Entities. 

[§ 612.2150(b)(1)] 

We received sixteen comments on 

limiting service on the board of 

directors of a non-System entity. Four 

commenters expressed concern with 

limiting service on other rural boards. 

Eleven comments discussed service on 

a family-owned company, explaining 

the current rule allows employees to 

work on family-owned entities but the 

proposed rule would change that to 

‘‘reportable business entities’’, 

eliminating many family-owned 

businesses because of the proposed 

definition of ‘‘reportable business 

entity.’’ These commenters state the 

proposed change will reduce the 

employment pool in rural areas and 

asked FCA to keep the exception for 

family-owned businesses that may not 

satisfy the new meaning of ‘‘reportable 

business entity.’’ 

The final rule prohibits serving as a 

director or employee of any commercial 

bank, savings and loan, or other nonSystem financial institution in all 

situations. The final rule retains the 

exception for service at an employee 

credit union. However, the proposed 

limits on serving at an entity transacting 

business with the institution or serving 

at another System institution in the 

district are not being finalized as 

proposed. Instead, the prohibition on 

serving at an entity transacting business 

with the institution or with any 

institution in the district now applies 

the exceptions for ‘transacts business 

with’ as provided in the rule. 

Additionally, the final rule further 

limits application of the provision to 

non-System entities. We believe this 

change provides some of the requested 

relief but remind commenters that the 

provision is in our current Standards of 

Conduct rules, so it is not a new 

prohibition. 

In response to comments regarding 

family businesses that may not satisfy 

the definition of ‘‘reportable business 

entities’’, the final rule includes those 

family businesses as one of the named 

exceptions to the ‘transacts business 

with’ provision. We recognize that 

employees may work on family-owned 

entities that do not necessarily meet the 

definition of a ‘‘reportable business 

entity.’’ Without this broader exception, 

employees who assist in family farming 

operations without having a material 

influence might be prohibited from 

serving as a director or employee of a 

family operation, which was not our 

intent. Therefore, we have added 

family-owned entities into the 

exception. The final rule provides that 

the phrase ‘‘transacts business’’, as used 

in this provision, does not include loans 

by a System institution to a familyowned entity or a reportable business 

entity; service on the board of directors 

of the Federal Agricultural Mortgage 

Corporation; transactions with nonprofit entities; or transactions with 

entities in which the System institution 

has an ownership interest. As a 

conforming change, the final rule 

removes the sentence cross-referencing 

the joint employment provision of 

paragraph (b)(4) since it is redundant 

with the final rule language regarding 

non-System entities. 

As proposed, the current exception 

allowing an employee of a Farm Credit 

Bank or association to serve as a director 

of a cooperative that borrows from a 

bank for cooperatives (BCs) would be 

removed. One commenter remarked that 

the offered reason of mergers for 

removing this exception was not clear, 

stating there was a need for board 

members to serve cooperatives in small 

rural areas. The commenter suggested 

limiting prohibitions on board service to 

System institutions. We agree with the 

commenter that service on a cooperative 

board would not be a conflict in all 

situations. As such, we do not final the 

proposed removal of the current 

provision giving an exception for 

serving as a director of a cooperative 

borrowing from the System under Title 

III authorities. However, the rule 

updates the current language of this 

provision to recognize that the former 

BCs merged and now exist within 

CoBank. As a result of a subsequent 

merger with a Farm Credit Bank, 

CoBank is currently the only institution 

possessing Title III lending authority 

under the Act. The final rule recognizes 

there is an obvious conflict with 

employees of CoBank also serving as 

directors of cooperatives borrowing 

from CoBank. As existed in the current 

rule, this final rule allows System 

employees—except those employed at 

CoBank—to serve as a director of a 

cooperative borrowing from the System 

under Title III authorities. This 

authorization is dependent upon the 

current employing institution approving 

service on that cooperative’s board of 

directors. We expect each institution to 

consider the potential for conflict when 

approving or disapproving an employee 

request to serve on a cooperative’s 

board, particularly if the employee 

involved works at a System association 

for which CoBank is the funding bank. 

(ii) Joint Employees. [§ 612.2150(b)(4)] 

We proposed keeping the current joint 

employee prohibition but with an 

exception to allow certain joint 

employee relationships. The proposed 

exception would require both boards to 

authorize the service and that the duties 

and compensation at each institution be 

delineated in the board’s approval. The 

institutions would also provide 

reasonable notice to the FCA 

beforehand. CoBank expressed support 

for the changes, adding that joint 

employment between banks and 

associations does not often occur. The 

Council and CoBank commented that 

proposed language regarding service on 

the board of other System institutions 

differs from the existing rule. The 

Council contended that under the 

existing rule an employee may serve on 

the board of another System institution, 

particularly service corporations, 

regardless of ownership. Both 

commenters expressed concern that the 

proposal limits service to only those 

institutions where the employing 

institution has an ownership interest. 

We also received eight comments from 

persons affiliated with the Foundations 

service corporation, two from persons 

associated with Farm Start, and 34 

letters from association personnel or 

directors. All commented that paragraph 

(b)(4), as proposed, could be interpreted 

to preclude System institution 

employees from serving as officers or 

managers of a service corporation or 

other entity in which a System 

institution has an ownership interest. 

One commenter specifically stated the 

provision would preclude alliances 

among System institutions. 

The final rule does not contain 

language requiring or prohibiting 

ownership interest in both institutions 

when sharing an employee. The relevant 

measure is the relationship between a 

supervised and supervising institution. 

To prevent potential conflicts, the rule 

prohibits officers from serving 

simultaneously at both the supervising 

and supervised institutions: Other 

employees are not similarly prevented 

from this activity. This reflects the 

current prohibitions for banks and 

association officers, excepting use of the 

terms ‘‘supervising’’ and ‘‘supervised’’ 

institutions. The definitions of these 

terms as proposed and as contained in 

this final rule do not include service 

corporations. We believe commenters 


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mistakenly relied upon the definition of 

‘‘institution’’ alone, which does include 

service corporations, when reading this 

provision. To clarify this, we have 

revised the way this rule text is 

presented. 

FCB of Texas commented on 

proposed language regarding notice to 

FCA of the joint employees, asking that 

it be clarified regarding the terms 

‘‘extraordinary situations’’ and 

‘‘reasonable prior notice’’. FCB of Texas 

suggested removing the latter term, 

replacing it with a requirement for FCA 

approval. CoBank also commented that 

‘‘reasonable prior notice’’ was vague, 

asking for clarification or, in the 

alternative, removal of all restrictions on 

joint employment. FCB of Texas also 

observed this section of the proposed 

rule used the word ‘‘officer’’ when the 

word had been proposed for 

replacement with ‘‘employee.’’ The 

commenter suggested keeping the term 

and related definition of ‘‘officer.’’ 

The final rule implements the 

suggestions of commenters regarding 

FCA involvement in joint employee 

arrangements. The rule explains that in 

extraordinary circumstances, FCA may 

approve a non-officer Farm Credit bank 

employee serving as an officer at a 

supervised institution when both 

institutions have board approval of the 

joint service and the division of the 

shared employee’s duties and 

compensation are identified in the 

board approval documents. To address 

the concern over the term ‘‘reasonable 

prior notice’’, the final rule changes the 

requirement to send the approval 

documents to FCA at least 10 business 

days in advance of the joint 

employment beginning. Comments 

regarding use of the term ‘‘officer’’ have 

been addressed by the final rule 

retaining the definition of ‘‘officer.’’ 

To incorporate changes made at the 

suggestion of commenters, the layout of 

paragraph (b)(4) was revised. Now the 

opening sentence of the provision 

contains the blanket prohibition on 

serving at a supervised or supervising 

institution. Thereafter, subordinate 

paragraphs are used to identify the two 

exceptions: 

• Serving as a non-officer employee at 

a Farm Credit bank and association 

when expenses are appropriately 

divided; or 

• Serving as an officer at a supervised 

association in extraordinary 

circumstances. 

Paragraph (b)(4)(ii) also contains the 

language on obtaining FCA approval for 

the joint employment. 

6. Standards of Conduct Official. 

[§ 612.2170] 

We proposed enhancing the role of 

the Standards of Conduct Official (or 

SOCO) by identifying the SOCO as the 

point of contact for advice, guidance, 

and reporting on matters related to 

conflicts of interests. We also proposed 

charging the SOCO with responsibility 

for training in this area and requiring 

the SOCO to have direct access to an 

institution’s board of directors. We 

received 59 comment letters on the role 

of the SOCO, including comments from 

the Council and two FC banks. Most 

expressed support, some asked for 

modifications and ten commenters from 

one association remarked that the listed 

SOCO responsibilities were 

unreasonable and will make finding a 

SOCO difficult. Two other commenters 

asked us to keep the existing language 

of § 612.2170, stating the current rule 

works well and the proposed rule does 

not improve on existing provisions. 

Some commenters, including FCB of 

Texas, noted that this section is 

duplicative of other sections, asking us 

to consolidate like provisions. 

6–a. SOCO Authority. [§ 612.2170(a)] 

In conformance with changes made 

elsewhere in the rule on defining and 

appointing a SOCO, the final rule adds 

a new paragraph (a) on the authority of 

the SOCO to administer the program. In 

response to commenters’ requests, the 

final rule also consolidates provisions 

on the SOCO authority to carry out 

assigned responsibilities, clarifying that 

the SOCO must have access to directors, 

employees and agents to fulfill these 

duties as well as possess the resources 

and legal authority to do his or her job. 

This preamble adds the clarification that 

legal authority is directed at the ability 

to receive confidential SOC program 

communications. This was added 

because of FCA regulations in 12 CFR 

part 618, subpart G, regarding an 

institution’s responsibilities to 

safeguard its files and records from 

unauthorized disclosure. Under the 

final rule, the institution board 

authorizes the SOCO to handle these 

confidential documents as a means of 

recognizing it is necessary for 

performing official duties of the 

institution as SOCO and therefore 

permitted under FCA regulation 

§ 618.8300. 

We had proposed as part of the SOCO 

definition a requirement for access to 

the institution’s board of directors. 

Further, the proposed duties of the 

SOCO included reporting to the 

institution’s board of directors or 

designated board committee any 

instance of non-compliance with the 

System institution’s standards of 

conduct rules or Code of Ethics. Based 

on comments made elsewhere, we 

consolidated that language to this 

section. 

Three commenters, including one FC 

bank, asked that only significant or 

material instances of non-compliance be 

reported by the SOCO to the board. 

Another commenter asked for 

clarification that the board access did 

not replace supervisory reporting lines 

or other institution organizational 

structures. The final rule clarifies that 

the SOCO must have direct access to the 

board for purposes of discussing and 

reporting on matters related to standards 

of conduct or the Code of Ethics. 

Information reported by the SOCO is 

determined by each institution’s SOC 

program policies and procedures. 

6–b. SOCO Implementation of 

Standards of Conduct Program. 

[§ 612.2170(b)] 

As proposed, the SOCO would 

provide guidance and information to 

directors and employees on conflicts, 

resolve reported conflicts, maintain 

appropriate documentation and report 

to the institution’s board 

noncompliance with the SOC program. 

A few commenters stated that the SOCO 

should not be responsible for giving 

advice, especially not to agents, and 

eighteen commenters objected to 

language in the proposed rule preamble 

naming the SOCO the authority for 

giving advice. These commenters 

remarked that the SOCO can provide 

guidance and information, but not 

advice. Two commenters suggested 

consolidating the proposed language on 

the SOCO providing guidance with the 

paragraph on helping identify conflicts. 

One remarked that nothing in this 

section requires the SOCO to identify 

conflicts of interest, only help others to 

do so. This commenter suggested the 

SOCO have responsibility for 

identifying and reporting conflicts. 

In conformance with changes made 

elsewhere in the rule on SOC program 

elements and comments on how a 

SOCO duties are characterized, the final 

rule consolidates into paragraph (b) 

various provisions in proposed 

§ 612.2170 regarding SOC program 

administration, making some language 

modifications in response to comments. 

The consolidation results in a list of key 

duties for the SOCO: 

• Providing guidance and aiding in 

the identification of conflicts required to 

be reported (from proposed paragraph 

(b)); 

• Receiving conflicts of interest 

reports (from proposed paragraph (d)); 


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18FCA Bookletter ‘‘Criminal Referral Guidance 

(BL–073)’’, issued January 19, 2021. 

• Receiving the disclosures required 

under 12 CFR 620.6(a), (e), and (f) as a 

supplement to any conflicts-of-interest 

report filed under part 612 (from 

proposed § 612.2138(c)(4) and existing 

standards of conduct reporting 

requirements at §§ 612.2145(a), 

612.2155(a), and 612.2165(b)(12)); 

• Reviewing and acting upon filed 

reports, including documenting 

resolution efforts for material conflicts 

(from proposed paragraphs (d), (e), and 

(f)); 

• Maintaining SOC program records 

(from proposed paragraph (f)); 

• Conducting investigations 

authorized under FCA regulations or the 

institution’s SOC program policies and 

procedures (from existing rule text 

inadvertently omitted); and 

• Promptly reporting to the 

institution’s board of directors those 

matters as required under FCA 

regulations or the institution’s SOC 

program policies and procedures (from 

proposed paragraph (g)). We believe the 

consolidation and clarifications address 

the general comments made on this 

provision. Below we address more 

specific comments on certain SOCO 

duties. 

(i) Resolving Conflicts 

As proposed, the Standards of 

Conduct Official would make written 

determinations on how conflicts of 

interest will be resolved, consistent with 

the System institution’s policies and 

procedures. The SOCO would also 

document resolved and unresolved 

material or significant conflicts of 

interest. One commenter observed the 

word ‘‘significant’’ is redundant and 

confusing. Another commenter 

questioned how the Standards of 

Conduct Official can resolve a conflict 

when the resolution is to fire the 

employee or director. One commenter 

remarked that conflict situations are 

fluid so one set process for reporting 

and addressing the conflicts as proposed 

is unrealistic. This commenter asked to 

keep resolution processes in the hands 

of the association through the SOC 

program policies and procedure. The 

commenter also remarked that 

documenting conflicts is given too 

much importance when focus should be 

on reporting transactions and financial 

obligations as well as avoiding conflicts. 

The final rule requires the SOCO to 

review and act upon reports and 

disclosures. In response to comments, 

we are not finalizing the requirement to 

document ‘‘significant’’ conflicts of 

interest but have retained a requirement 

on making determinations on how 

conflicts of interest will be resolved and 

documenting material conflicts, whether 

resolved or unresolved. The process of 

deciding the appropriate resolution to a 

conflict does not always empower the 

SOCO to enforce the resolution, that is 

dependent upon the institution’s SOC 

program policies and procedures as is 

the resolution process. 

(ii) Recordkeeping 

Two commenters observed we had 

not proposed a record retention 

schedule on reported conflicts within 

§ 617.2170. We talk about maintaining 

SOC program documentation in 

§ 612.2137(a) so do not believe it is 

necessary to repeat it in this section. 

6–c. SOCO Training Responsibilities. 

[§ 612.2170(c)] 

In proposed paragraphs (c)(1) through 

(6), the SOCO would give training for 

the following: 

• Procedures for the review of the 

institution’s standards of conduct rules 

and the Code of Ethics, and 

recommendations of any updates; 

• Procedures for anonymously 

reporting known or suspected violations 

of standards of conduct and Code of 

Ethics and unethical conduct; 

• Rules for prohibited conduct; 

• Fiduciary duties; 

• Conflicts of interest and apparent 

conflicts of interest; 

• Reporting requirements; and 

• New director and new employee 

training. 

The Council, CoBank and several others 

commented that the list of items was 

prescriptive and did not consider 

whether all items would be appropriate 

for both directors and employees. 

Commenters asked for more flexibility 

to develop appropriate training rather 

than detailed rules on the content of 

such training. Some commenters 

specifically asked that we remove the 

requirement for the training to cover 

revisions to an institution’s SOC 

program or Code of Ethics. 

Commenters’ concerns with the 

specificity of the training requirements 

proposed in this section are reasonable. 

Therefore, the final rule does not 

include the proposed list. We believe 

this allows each System institution the 

requested flexibility to develop the 

training that meets its needs and 

improve its ethical culture. We clarify 

that SOC program training could 

include separate training for directors, 

officers and other employees. We 

consider our removal of the training list 

as satisfying all other comments asking 

for changes to that list, including 

comments asking us to change 

terminology used and asking us to 

restrict training requirements for 

fiduciary duties to directors. We 

continue to see a need for targeted 

training for those employees with 

fiduciary duties and strongly encourage 

each institution to devote time to 

providing that training. The final rule 

continues to require that the SOC 

program training include updates to the 

institution’s Code of Ethics and 

standards of conduct policies and 

procedures. 

The rule finalizes the proposal to 

require the SOCO to obtain certification 

of participation from every director and 

employee taking the SOC program 

training. Comments regarding the format 

of training certifications are addressed 

in III.B.2–d of this preamble. Also, as 

discussed earlier at III.B.3–e, the final 

rule relocates most provisions on 

standards of conduct training, including 

timelines, into § 612.2137(f). 

6–d. SOCO Investigative Duties. 

[§ 612.2170(d)] 

We did not propose keeping the 

SOCO’s existing responsibilities 

regarding criminal referrals. We 

received no comments on this change 

but are not finalizing it. At the time of 

the proposed rulemaking, discussions 

were underway to modify the criminal 

referral process of subpart B of part 612. 

However, FCA issued Bookletter–073 

instead of making a rule change,18

meaning the SOCO’s existing duties for 

criminal referrals need to remain intact. 

As a result, we are keeping the existing 

requirements of § 612.2170(a)(5) and (6) 

and (b)(4). In coordination with the 

reorganization of subpart A, we move 

these provisions within § 612.2170 to 

new paragraph (d). We also make a 

technical correction to a reference 

currently contained in the existing 

regulations. The reference is changed to 

direct readers to criminal referrals made 

under subpart B of part 612, instead of 

part 617. Several years ago criminal 

referral provisions were moved from 

part 617 to subpart B of part 612 and the 

current cross reference should have 

been updated at that time. 

7. Standards of Conduct for Agents. 

[New § 612.2180] 

We proposed removing the current 

separate provision on standards of 

conduct for agents at § 612.2260. At the 

request of commenters, we are not 

finalizing that change. The final rule 

retains this section but renumbers it as 

§ 612.2180. Additionally, the final rule 

makes small changes to improve 

readability and align the format of the 

section with the rest of the rule, such as 


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adding headings to main paragraphs and 

breaking out longer sentences into 

subparagraphs. No change to the current 

meaning of the rule text is intended by 

these formatting actions. 

The final rule also adds a new 

paragraph (d) to capture a legal change 

in FCA’s authority over ‘‘institutionaffiliated parties.’’ As is discussed 

earlier in this preamble at III.B.1–a, 

FCA’s enforcement authorities were 

enhanced to give FCA enforcement 

jurisdiction over ‘‘institution-affiliated 

parties’’, which definition includes both 

agents and independent contractors of 

System institutions as well as ‘‘any 

other person, as determined by the Farm 

Credit Administration (by regulation or 

on a case-by-case basis) who 

participates in the conduct of the affairs 

of a System institution.’’ The final rule 

adds this statutory language to the 

regulations without elaboration or 

interpretation. 

IV. Regulatory Flexibility Act and 

Major Rule Conclusion 

Pursuant to section 605(b) of the 

Regulatory Flexibility Act (5 U.S.C. 601 

et seq.), FCA hereby certifies that the 

final rule will not have a significant 

economic impact on a substantial 

number of small entities. Each of the 

banks in the System, considered 

together with its affiliated associations, 

has assets and annual income in excess 

of the amounts that would qualify them 

as small entities. Therefore, System 

institutions are not ‘‘small entities’’ as 

defined in the Regulatory Flexibility 

Act. 

Under the provisions of the 

Congressional Review Act (5 U.S.C. 801 

et seq.), the Office of Management and 

Budget’s Office of Information and 

Regulatory Affairs has determined that 

this final rule is not a ‘‘major rule,’’ as 

the term is defined at 5 U.S.C. 804(2). 

List of Subjects in 12 CFR Part 612 

Agriculture, Banks, banking, Conflict 

of interests, Crime, Investigations, Rural 

areas. 

For the reasons stated in the 

preamble, part 612 of chapter VI, title 12 

of the Code of Federal Regulations is 

amended as follows: 

PART 612—STANDARDS OF 

CONDUCT AND REFERRAL OF 

KNOWN OR SUSPECTED CRIMINAL 

VIOLATIONS 

■ 1. The authority citation for part 612 

is revised to read as follows: 

Authority: Secs. 5.9, 5.17, 5.19, 5.31A of 

the Farm Credit Act of 1971, as amended, 

(Act) (12 U.S.C. 2243, 2252, 2254, 2267a); 

Sec. 514 of Pub. L. 102–552, 106 Stat. 4102. 

■ 2. Subpart A, consisting of 

§§ 661.2130 through 612.2270, is 

revised to read as follows: 

Subpart A—Standards of Conduct 

Sec. 

612.2130 Definitions. 

612.2135 Standards of conduct—core 

principles. 

612.2137 Elements of a Standards of 

Conduct Program. 

612.2140 [Reserved] 

612.2145 Disclosing and reporting conflicts 

of interest. 

612.2150 Prohibited conduct. 

612.2155–612.2165 [Reserved] 

612.2170 Standards of Conduct Official. 

612.2180 Standards of conduct for agents. 

612.2260–612.2270 [Reserved] 

Subpart A—Standards of Conduct 

§ 612.2130 Definitions. 

For purposes of this subpart, the 

following terms and definitions apply 

excepting that words like document, 

record, certify, report, sign, and write 

generally should be interpreted to 

permit their electronic equivalents: 

Agent means any person, other than a 

director or employee of the institution, 

with the power to act for the institution 

either by contract or apparent authority 

and who currently either represents the 

System institution in contacts with third 

parties or provides professional or 

fiduciary services to the institution. 

Code of Ethics means a written 

statement of the principles and values 

the System institution follows to 

establish a culture of ethical conduct for 

directors and employees, including, at a 

minimum, the core principles 

established under this subpart. 

Conflicts of interest means a set of 

circumstances or appearance thereof 

where a person has a financial interest 

in a transaction, relationship, or activity 

that could or does actually affect (or has 

the appearance of affecting) that 

person’s ability to perform official 

duties and responsibilities in a totally 

impartial manner and in the best 

interest of the institution when viewed 

from the perspective of a reasonable 

person with knowledge of the relevant 

facts. 

Employee means any individual 

working on a part-time, full-time, or 

temporary basis by the System 

institution, including those identified as 

officers of the institution. Persons not 

maintained on the institution’s payroll 

(i.e., independent contractors) are not 

employees for purposes of this subpart. 

Entity means a corporation, company, 

association, firm, joint venture, 

partnership (general or limited), trust 

(business or otherwise) or other 

business operation whether or not 

incorporated. 

Family means parents, spouses or 

civil union partners, children, siblings, 

uncles, aunts, nephews, nieces, 

grandparents, grandchildren, and the 

spouses of the foregoing, whether 

arising from biological, adoptive, 

marital, or other legal means (e.g., 

stepparents, stepchildren, half-siblings, 

in-laws). The term also includes anyone 

residing in the household or who is a 

legal or financial dependent, regardless 

of any familial relationship. 

Financial interest means an interest in 

an activity, transaction, property, or 

relationship with a person that involves 

receiving or providing something of 

monetary value or other present or 

deferred compensation. 

Financially obligated with means 

having a legally enforceable joint 

obligation with, being financially 

obligated on behalf of (contingently or 

otherwise), having an enforceable legal 

obligation secured by property owned 

by another person, or owning property 

that secures an enforceable legal 

obligation of another. 

Material, when applied to a financial 

interest or transaction (including a 

series of transactions viewed in the 

aggregate), means that the interest or 

transaction is of sufficient magnitude 

that a reasonable person with 

knowledge of the relevant facts would 

question the ability of the person who 

has the interest or is party to such 

transaction(s) to perform the person’s 

official duties objectively and 

impartially and in the best interest of 

the institution and its statutory purpose. 

Mineral interest means any interest in 

minerals, oil, or gas, including but not 

limited to, any right derived directly or 

indirectly from a mineral, oil, or gas 

lease, deed, or royalty conveyance. 

Officer means the chief executive 

officer, president, chief operating 

officer, vice president, secretary, 

treasurer, general counsel, chief 

financial officer, and chief credit officer 

of the System institution, and any 

person not so designated but who holds 

a similar position of authority. 

Ordinary course of business, when 

applied to a transaction, means: 

(1) A transaction that is usual and 

customary in the business in question 

on terms that are not preferential; or 

(2) A transaction with a person who 

is in the business of offering the goods 

or services that are the subject of the 

transaction on terms that are not 

preferential. 

Person means individual or entity 

(including sole proprietorships). 

Preferential means that the 

transaction is not on the same terms as 

those prevailing at the same time for 

comparable transactions for other 


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persons who are not directors, 

employees or agents of a System 

institution. 

Reportable business entity means an 

entity in which the reporting individual, 

directly or indirectly, or acting through 

or in concert with one or more persons: 

(1) Owns a material percentage of the 

equity; 

(2) Owns, controls, or has the power 

to vote a material percentage of any 

class of voting securities; or 

(3) Has the power to exercise a 

material influence over the management 

of policies of such entity from his or her 

status as a partner, director, officer, or 

majority shareholder in the entity. 

Resolved means an actual or apparent 

conflict of interest that has been 

addressed with an action such as 

recusal, divestiture, approval or 

exception, job reassignment, employee 

supervision, employment separation or 

other action, with the result that a 

reasonable person with knowledge of 

the relevant facts would conclude that 

the conflicting interest is unlikely to 

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 Farm Credit System. 

Standards of Conduct Official or 

‘‘SOCO’’ means a person appointed by 

the institution’s board of directors 

pursuant to this subpart to administer 

and report on the institution’s Standards 

of Conduct Program, as well as 

investigate allegations of misconduct by 

institution directors, employees or 

agents. 

Standards of Conduct Program or 

SOC program means the policies and 

procedures, internal controls and other 

actions a System institution must 

implement to put into practice the 

requirements of this subpart. 

Supervised institution is a term that 

only applies within the context of a 

Farm Credit bank or employee of a Farm 

Credit bank and refers to each 

association supervised by that Farm 

Credit bank. 

Supervising institution is a term that 

only applies within the context of an 

association or employee of an 

association and refers to the Farm Credit 

bank that supervises that association. 

System institution and institution 

means any Farm Credit System bank, 

association, or service corporation 

chartered under section 4.25 of the Act, 

and the Funding Corporation. It does 

not include the Federal Agricultural 

Mortgage Corporation. 

§ 612.2135 Standards of conduct—core 

principles. 

(a) Conduct. If you are a System 

institution director or employee, you 

must: 

(1) Maintain high ethical standards, 

including high standards of care, 

honesty, integrity, and fairness. 

(2) Act in the best interest of the 

institution. 

(3) Preserve the reputation of the 

institution and the public’s confidence 

in the Farm Credit System. 

(4) Exercise diligence and good 

business judgment in carrying out 

official duties and responsibilities. 

(5) Report to the Standards of Conduct 

Official conflicts of interest and 

circumstances or transactions that have 

the appearance of creating a conflict of 

interest involving yourself, your family, 

or your reportable business entity. 

(6) Work with the Standards of 

Conduct Official to identify conflicts 

and resolve reported conflicts of interest 

and appearances of conflicts of interest. 

(7) Avoid self-dealing and acceptance 

of gifts or favors that may be deemed as 

offered, or have the appearance of being 

offered, to influence official actions or 

decisions. 

(b) Responsibilities. To achieve the 

high standards of conduct of this 

subpart, every institution director and 

employee must: 

(1) Comply with the standards of 

conduct and Code of Ethics policies and 

procedures maintained at his or her 

institution. 

(2) Comply with all applicable laws 

and regulations. 

(3) Timely report to the Standards of 

Conduct Official, or use the institution’s 

anonymous reporting procedures, any 

known or suspected: 

(i) Illegal or unethical activity; or 

(ii) Violation of the institution’s 

standards of conduct and Code of 

Ethics. 

(c) Fiduciary duties. Every officer or 

director of a System institution must 

fulfill his or her fiduciary duties to the 

institution and its stockholders. 

§ 612.2137 Elements of a Standards of 

Conduct Program. 

Each System institution board of 

directors is ultimately responsible for 

the implementation, oversight of, and 

compliance with, the Standards of 

Conduct Program. In fulfilling these 

responsibilities, each System institution 

board of directors must do the 

following: 

(a) Establish a SOC program. Each 

institution’s board of directors must 

establish and maintain a Standards of 

Conduct Program that sets forth the core 

principles of § 612.2135 and meets the 

requirements of this subpart. The board 

must act to ensure the SOC program has 

adequate resources for its 

implementation and operation. The SOC 

program must include maintaining 

conflicts of interest and other reports 

required under this subpart, along with 

any investigations, determinations, and 

supporting documentation, for a 

minimum of 6 years. 

(b) Appoint a Standards of Conduct 

Official. Each institution must have a 

Standards of Conduct Official who is 

appointed pursuant to § 612.2170. An 

institution may use one of its officers to 

serve as SOCO or may use a chartered 

service corporation or third-party to 

provide the services of a SOCO. 

Institutions may also use another 

institution’s SOCO or hire a SOCO 

under a shared contract with other 

System institutions when each 

institution has a separate confidential 

relationship with the person serving as 

SOCO. 

(c) Adopt a written Code of Ethics. 

Each institution as part of its SOC 

program must adopt and maintain an 

up-to-date written Code of Ethics. The 

Code must establish the institution’s 

values and expectations for the ethical 

conduct of directors and employees in 

business transactions and include a 

general statement of expectations for 

appropriate professional conduct. The 

entire Code of Ethics must be available 

to all directors, employees, agents, and 

shareholders of the institution. The 

institution must post on its external 

website a statement that it has adopted 

a professional Code of Ethics, 

summarizing what that Code is, and 

advising the public the entire Code of 

Ethics is available on request at no cost. 

(d) Establish Standards of Conduct 

policies and procedures. Each 

institution’s board of directors must 

adopt policies and procedures to 

implement the institution’s SOC 

program. These policies and procedures 

must address all aspects of the SOC 

program, including, but not limited to, 

the following: 

(1) Requiring conflict of interest 

reporting from all directors and 

employees pursuant to § 612.2145. The 

frequency of conflicts of interest 

reporting and other disclosures must be 

addressed in SOC program policies and 

procedures using the institution’s fiscal 

year calendar. At a minimum, each 

person must annually report to the 

SOCO known conflicts occurring in the 

current year. Pursuant to § 612.2145(c), 

the board must also require directors 

and officers to give the SOCO the 

disclosures required under § 620.6(a), 

(e), and (f) of this chapter, regardless of 


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who else in the institution receives the 

disclosures. 

(2) Explaining what constitutes SOC 

program compliance, including setting 

criteria for documentation submitted 

with conflicts of interest reports and 

providing instructions to help directors 

and employees identify and report on 

interests or circumstances that could 

give rise to an actual or apparent 

conflict of interest. 

(i) The board must explain within the 

policies and procedures what 

transactions are likely to present real or 

potential conflicts, setting benchmarks 

and thresholds for both single and 

aggregate activities. The policies and 

procedures must also explain how 

transactions in the ordinary course of 

business are identified. 

(ii) The board must explain within the 

policies and procedures, setting 

benchmarks and thresholds, how 

materiality of a conflict is identified. 

The materiality guidelines must be used 

when evaluating conflicts of interest 

reports filed by employees and 

directors. An exception for those 

matters affecting all shareholders or 

borrowers may be used in making the 

determination of materiality. 

(3) Addressing the process by which 

real and apparent conflicts will be 

resolved. The procedures must also 

explain action(s) to be taken when a 

conflict cannot be resolved to the 

satisfaction of the institution. The 

procedures must explain the role and 

authorities of the SOCO in resolving 

conflicts. 

(4) Addressing the conduct of thirdparty relationships. The board of 

directors at each institution must adopt 

conflict-of-interest policies for thirdparty relationships and develop 

safeguards for use in contractual 

obligations that require third-party 

service providers to perform services on 

behalf of the institution in an ethical 

manner. At a minimum, the policies for 

third-party relationships must set forth 

expectations for disclosing known 

conflicts of interest to the institution. 

The policies must also implement the 

requirements of § 612.2180 for agents of 

the institution. 

(5) Setting criteria for accepting gifts 

that are not otherwise prohibited by this 

subpart. The criteria must explain the 

scope of application and may make 

appropriate exceptions for non-business 

events where the gift is not viewed by 

the institution as attempting to 

influence official institution business. 

The gift criteria must include de 

minimis dollar thresholds for all 

permissible gifts, regardless of the gift 

giving reason. The thresholds must 

apply both per gift and in the aggregate 

per recipient, per year. The institution 

must also establish disclosure 

requirements for gifts received as well 

as procedures for disposing of 

impermissible gifts. 

(6) Identifying the appropriate actions 

that may be taken against any director 

or employee who violates the standards 

of conduct policies and procedures, 

Code of Ethics, or regulations under this 

subpart. The board must also identify 

who is authorized to take which action 

and when. The board must address how 

the SOCO exercises his or her authority 

under § 612.2170 to investigate certain 

conduct issues. 

(7) Providing for anonymous reporting 

by individuals of known or suspected 

violations of the institution’s Standards 

of Conduct Program and Code of Ethics, 

through a hotline or other venue. 

(e) Monitor the SOC program through 

internal controls. Each institution’s 

board of directors must establish a 

system of internal controls for its SOC 

program that includes, at a minimum, a 

process to: 

(1) Protect against unauthorized 

disclosure of confidential information 

maintained by the institution. 

(2) Conduct scheduled periodic 

reviews of the Standards of Conduct 

Program that determine the continued 

adequacy of the program. Each review 

must look for consistency with 

institution practices, financial services 

industry best practices, and Farm Credit 

Administration (FCA) regulations in this 

chapter, identifying any required 

updates. 

(3) Perform internal audits of the 

Standards of Conduct Program. The 

board of directors, with the assistances 

of the SOCO and appropriate officers of 

the institution, must determine the 

scope and depth of the audit. The board 

is responsible for identifying who will 

conduct the internal audit. The audit 

findings must be given directly to the 

institution’s board or designated board 

committee. The audit itself must be 

designed to: 

(i) Review the effectiveness of 

advancing the core principles; 

(ii) Identify weaknesses; 

(iii) Recommend and report necessary 

corrective actions; and 

(iv) Cover the entire Standards of 

Conduct Program across the institution, 

including all activities conducted 

through a System institution 

unincorporated business entity (UBE) 

formed under § 611.1150(b) of this 

chapter, including UBEs organized for 

the express purpose of investing in a 

Rural Business Investment Company. 

(f) Train institution personnel. Each 

institution’s board of directors must 

establish a training program to 

administer periodic Standards of 

Conduct and Code of Ethics training to 

directors and employees. The training 

must be given by the SOCO and the 

board must address how the SOCO will 

exercises his or her training 

responsibilities under § 612.2170. The 

Standards of Conduct training must be 

administered under the following 

timeframes: 

(1) Newly elected or appointed 

directors must receive Standards of 

Conduct training within 60 calendar 

days of the director assuming his or her 

position. 

(2) New employees must receive 

Standards of Conduct training within 10 

business days of beginning work. 

(3) Periodic training for all directors 

and employees must occur at least 

annually but may be more frequent. 

§ 612.2140 [Reserved] 

§ 612.2145 Disclosing and reporting 

conflicts of interest. 

(a) Responsibilities. As a director or 

employee of a System institution you 

must identify, disclose, and report on 

any interest or circumstances that does 

or could constitute a conflict of interest 

and potential conflict of interest. You 

must carry out this responsibility to the 

best of your knowledge and belief. You 

must cooperate with, and provide 

information requested by, the Standards 

of Conduct Official for use in 

determining the materiality of a conflict 

and to resolve conflicts of interest and 

potential conflicts of interest. 

(1) If you have a conflict of interest in 

a matter, transaction, or activity subject 

to official action by the institution or 

before the board of directors then you 

must disclose it and refrain from 

participating in official action or board 

discussion of the matter, transaction, or 

activity. You must also avoid voting on 

or influencing any decision directed at 

the matter, transaction, or activity. 

(2) You must report, either to the 

SOCO or by using the institution’s 

anonymous reporting procedures, any 

known or suspected activity by a person 

affiliated with the institution that you 

suspect is illegal, unethical, or a 

violation of the institution’s standards 

of conduct and Code of Ethics. 

(b) Reporting conflicts of interest. As 

a director or employee of a System 

institution, you must file with the SOCO 

reports on any real or potential conflicts 

of interest. The reports must be filed at 

least annually and at such other times 

as may be required by your institution 

policies and procedures. The reports 

must be in sufficient detail for a 

reasonable person to make a conflict of 

interest determination and decide if the 


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conflict is material. You must file a 

report with the SOCO that contains the 

disclosures required by this section and 

those required by the institution’s SOC 

program policies and procedures. At a 

minimum, the report must be signed by 

you and include: 

(1) Any interest you have in any 

business matter, including any loan or 

loan application, to be considered by 

the System institution, or supervised or 

supervising institution in the current 

year; 

(2) All material financial interests, 

including those arising in the ordinary 

course of business, you have with any 

director, employee, agent, or borrower 

of your System institution, or a 

supervised or supervising institution; 

(3) The name(s) of your reportable 

business entities that you know or have 

reason to know in the current year 

transacted business with: 

(i) Your System institution; 

(ii) Any supervised or supervising 

institution; or 

(iii) A borrower that transacts 

business with your System institution, 

or any supervised or supervising 

institution. 

(4) The name(s) of your family 

members you know or have reason to 

know transacted business with your 

System institution or any supervised or 

supervising institution in the current 

year. 

(5) Reportable gifts received or 

disposed of under the institution’s SOC 

program policies and procedures. 

(c) Other required disclosures for 

directors and officers. If you are a 

director or officer at the institution, you 

must give the SOCO the disclosures 

required under § 620.6(a), (e), and (f) of 

this chapter, regardless of who else in 

the institution has been provided them. 

The timing and frequency of disclosing 

the information to the SOCO, or any 

updates to them, is determined by your 

institution’s SOC program policies and 

procedures but must occur no less than 

annually and at issuance of the 

institution’s Annual Meeting 

Information Statement. 

§ 612.2150 Prohibited conduct. 

(a) General. If you are a System 

institution director or employee you 

must not act inconsistently with the 

Standards of Conduct core principles set 

forth in this subpart. You also must not 

act in the following manner: 

(1) Use your position for personal gain 

or advantage. Do not participate in 

deliberations on, or the determination 

of, any matter affecting your financial 

interest either directly or indirectly. 

Matters affecting your financial interest 

include financial interests of family or 

reportable business entities. You also 

may not use your position as a director 

or employee of the institution to obtain 

special advantage or favoritism for 

yourself, your family, or a reportable 

business entity. However, you may 

participate in matters of general 

applicability affecting shareholders or 

borrowers of a particular class if your 

participation occurs in a 

nondiscriminatory way. 

(2) Divulge confidential information. 

Do not make use of or disclose any fact, 

information, or document not generally 

available to the public that you acquired 

by virtue of your position as a director 

or employee of the institution. You may 

use confidential information in the 

performance of your official duties. 

(3) Accept prohibited gifts. Do not 

solicit, obtain, or accept (directly or 

indirectly), any gift, fee, or other 

compensation that is offered or 

requested based on your position as a 

director or employee of an institution if 

it could be viewed as being offered to 

influence your decision-making, an 

official action, or to obtain information 

related to your institution’s operations. 

(4) Purchase property owned by the 

institution. Do not knowingly purchase 

or otherwise acquire (directly or 

indirectly) any interest (including 

mineral interests) in any real or personal 

property that currently is owned, or 

within the past 12 months was owned, 

by your institution, your supervising 

institution, or institutions supervised by 

your institution as a result of 

foreclosure, deed in lieu, or similar 

action. The prohibition in this 

paragraph (a)(4) extends to property 

held or sold by a chartered service 

corporation or a System unincorporated 

business entity. The prohibition does 

not apply in the following situations: 

(i) You acquire the property by 

inheritance. 

(ii) You are exercising your rights of 

first refusal under section 4.36 of the 

Act. 

(iii) If you are a director of the 

institution, you may purchase property 

from a System institution when the 

property is sold through public auction 

or similar open, competitive bidding 

process. The exception in this paragraph 

(a)(4)(iii) only applies if you did not 

participate in the decision to foreclose 

upon the property nor did you 

participate in deciding how the 

institution would dispose of the 

property. Participating in these 

decisions includes setting the sale terms 

or receiving information as a result of 

your position with the institution that 

could give you an advantage over other 

potential bidders or purchasers of the 

property. 

(5) Enter into transactions with 

prohibited sources. Do not directly or 

indirectly borrow from, lend to, or 

become financially obligated with or on 

behalf of a director, employee, or agent 

of your institution, your supervising 

institution, or institution supervised by 

your institution. You are also prohibited 

from directly or indirectly borrowing, 

lending to, or becoming financially 

obligated with or on behalf of a 

borrower or loan applicant of your 

institution. The transaction prohibition 

does not apply to: 

(i) Transactions with family members. 

(ii) Transactions that occur in the 

ordinary course of business as 

determined and documented by the 

written policies and procedures of your 

institution. 

(iii) Transactions undertaken in an 

official capacity and in connection with 

the institution’s discounting, lending, or 

participation relationships with other 

financing institutions (OFIs) and other 

lenders. 

(6) Purchase System obligations. Do 

not purchase any obligation of a System 

institution, including any joint, 

consolidated or System-wide obligation, 

unless such obligation is part of an 

offering available to the public and you 

either purchase it through a dealer or 

dealer bank affiliated with a member of 

the selling group designated by the 

Funding Corporation or purchase it in 

the secondary markets. 

(i) Do not purchase or retire any stock 

in advance of the release of material, 

non-public, information concerning the 

institution to other stockholders. 

(ii) If you are a director or employee 

of the Funding Corporation, do not 

purchase or otherwise acquire, directly 

or indirectly, except by inheritance, any 

obligation or equity of a System 

institution, including any joint, 

consolidated or System-wide 

obligations, unless it is a common 

cooperative equity as defined in § 628.2 

of this chapter. 

(b) Employees only. In addition to the 

prohibitions under paragraph (a) of this 

section, if you are an institution 

employee you must not: 

(1) Serve as a director or employee of 

certain entities. Do not serve as a 

director or employee of any commercial 

bank, savings and loan, or other nonSystem financial institution. You may 

not serve as a director or employee of 

a non-System entity that transacts 

business with a System institution 

within your institution’s district unless 

specifically allowed in this paragraph 

(b). For the purpose of this paragraph 

(b)(1), ‘‘transacts business’’ does not 

include loans by a System institution to 

a family-owned entity or a reportable 


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business entity; service on the board of 

directors of the Federal Agricultural 

Mortgage Corporation; transactions with 

non-profit entities; or transactions with 

entities in which the System institution 

has an ownership interest. The 

prohibition in this paragraph (b)(1) does 

not apply in the following situations: 

(i) You may serve as a director or 

employee of an employee credit union. 

(ii) You may serve as a director of a 

cooperative that borrows from the 

System under the Act’s Title III 

authorities if you are not employed at an 

institution with Title III lending 

authority and your employing 

institution approves your service on the 

cooperative’s board. 

(2) Act as a real estate agent or broker. 

Do not act as a real estate agent or 

broker unless you are buying or selling 

real estate for your own use or for 

family. 

(3) Act as an insurance agent or 

broker. Do not act as an insurance agent 

or broker for the sale and placement of 

insurance, unless authorized by section 

4.29 of the Act. 

(4) Serve as a joint employee. Do not 

serve as an employee for your 

supervising institution if you are an 

officer at your association. Do not serve 

as an employee for a supervised 

institution if you are an officer at your 

Farm Credit bank. The prohibition in 

this paragraph (b)(4) does not apply in 

the following situations: 

(i) You may be both a non-officer 

employee at a Farm Credit bank and a 

supervised association if the 

employment expenses are appropriately 

reflected in each institution’s financial 

statements. 

(ii) If you are currently employed with 

a Farm Credit bank as other than an 

officer, in extraordinary circumstances, 

FCA may approve your serving as an 

officer of a supervised association. This 

requires the boards at both institutions 

to agree to the joint service and for the 

duties and compensation at each 

institution to be delineated in the board 

approval documents. The board 

documents, along with the request, must 

be sent at least 10 business days before 

the effective date to the Director of 

Regulatory Policy, Farm Credit 

Administration. 

§§ 612.2155–612.2165 [Reserved] 

§ 612.2170 Standards of Conduct Official. 

(a) Authority. The Standards of 

Conduct Official must be appointed by 

the board of directors for the institution 

and the board of directors must 

empower the appointed SOCO with all 

of the following: 

(1) Direct access to the board (or 

designated board committee) for the 

purpose of discussing and reporting on 

matters related to the institution’s 

Standards of Conduct Program and Code 

of Ethics; 

(2) Authority to carry out the 

responsibilities set forth in this section; 

(3) Accessibility to all directors, 

employees, and agents of the institution; 

(4) Legal authority to receive 

confidential SOC program 

communications from all directors, 

employees, and agents of the institution; 

and 

(5) Resources adequate for 

implementing a successful Standards of 

Conduct Program. 

(b) Program administration. The 

Standards of Conduct Official must 

implement the institution’s Standards of 

Conduct Program as determined by the 

written policies and procedures of his or 

her institution and FCA regulations in 

this chapter. This may include, but is 

not limited to, the following: 

(1) Providing guidance and 

information to directors and employees 

on conflicts of interest, including aiding 

in the identification of reportable 

conflicts of interest and reportable 

financial interests in accordance with 

this subpart; 

(2) Receiving reports required under 

this subpart from directors, employees, 

and agents; 

(3) Receiving from directors and 

officers the disclosures required under 

§ 620.6(a), (e), and (f) of this chapter for 

treatment as a supplement to an 

individual’s conflicts of interest report; 

(4) Reviewing and acting upon all 

SOC program reports and disclosures, 

including documenting resolved and 

unresolved conflicts of interest that are 

material, and making written 

determinations on how conflicts of 

interest will be resolved; 

(5) Maintaining all SOC program 

records for the required period of time, 

including documentation that explains 

how conflicts are being handled; 

(6) Conducting investigations as either 

authorized under this subpart or by the 

institution’s SOC program policies and 

procedures; 

(7) Reporting promptly to the 

institution’s board of directors (or 

designated board committee) those SOC 

program or Code of Ethics matters 

required by the institution’s SOC 

program policies and procedures or FCA 

regulations in this chapter; and 

(8) Reporting to the institution’s board 

of directors those activities investigated 

pursuant to paragraph (d) of this 

section. 

(c) Training duties. The Standards of 

Conduct Official must give standards of 

conduct training to all directors and 

employees at the institution. The 

training must comply with the 

requirement of § 612.2137 and the 

institution’s Standards of Conduct 

policies and procedures. In addition to 

other matters, periodic training must 

cover updates or revisions to the 

institution’s SOC program and Code of 

Ethics. The SOCO must obtain written 

participation certifications from every 

director and employee taking the 

training. 

(d) Investigative duties. The Standards 

of Conduct Official is responsible for 

investigating complaints alleging 

misconduct or possible criminal 

behavior by the institution, its directors, 

or its employees. 

(1) At a minimum, the Standards of 

Conduct Official must investigate, or 

cause to be investigated, all cases 

involving: 

(i) Possible violations of criminal 

statutes; 

(ii) Possible violations of director or 

employee prohibited conduct 

regulations in § 612.2150, and the 

applicable institution policies and 

procedures; 

(iii) Complaints of misconduct 

received against directors and 

employees of the institution; 

(iv) Possible violations of other 

provisions of this part; and 

(v) Suspected activities of a sensitive 

nature which could affect continued 

public confidence in the Farm Credit 

System. 

(2) The SOCO serves as the reporting 

official for all cases investigated under 

subpart B of this part (criminal 

referrals). In this capacity, the SOCO 

must report to both the institution’s 

board and the Farm Credit 

Administration’s Office of General 

Counsel all cases where: 

(i) A preliminary investigation 

indicates that a Federal criminal statute 

may have been violated; 

(ii) An investigation results in the 

removal of a director or discharge of an 

employee; or 

(iii) A violation may have an adverse 

impact on continued public confidence 

in the System or any of its institutions. 

§ 612.2180 Standards of conduct for 

agents. 

(a) Agents. Agents of System 

institutions must maintain high 

standards of honesty, integrity, and 

impartiality in order to ensure the 

proper performance of System business 

and continued public confidence in the 

System and all its institutions. The 

avoidance of misconduct and conflicts 

of interest is indispensable to the 

maintenance of these standards. 

(b) Institutions. Each institution must 

use safe and sound business practices in 


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the engagement, utilization, and 

retention of agents. These practices shall 

provide for the selection of qualified 

and reputable agents. The institution is 

responsible for the administration of 

relationships with its agents and must 

take appropriate investigative and 

corrective action in the case of a breach 

of fiduciary duties by an agent or failure 

of an agent to carry out other duties as 

required by contract, FCA regulations in 

this chapter, or law. 

(c) Control. System institutions are 

responsible for exercising special 

diligence and control, through good 

business practices, to avoid or control 

situations that have inherent potential 

for sensitivity, either real or perceived. 

These areas include: 

(1) The employment of agents who are 

related to directors or employees of the 

institutions; 

(2) The solicitation and acceptance of 

gifts, contributions, or special 

considerations by agents; and 

(3) The use of System and borrower 

information obtained in the course of 

the agent’s work with the institution. 

(d) Enforcement. Agents of System 

institutions are ‘‘institution-affiliated 

parties’’ as that term is defined in the 

Act and therefore subject to certain FCA 

enforcement authorities contained in 

part C of title V of the Act. An 

‘‘institution-affiliated party’’ is: 

(1) A director, officer, employee, 

shareholder, or agent of a System 

institution; 

(2) An independent contractor 

(including an attorney, appraiser, or 

accountant) who knowingly or 

recklessly participates in: 

(i) A violation of law (including 

regulations) that is associated with the 

operations and activities of one or more 

System institutions; 

(ii) A breach of fiduciary duty; or 

(iii) An unsafe practice that causes or 

is likely to cause more than a minimum 

financial loss to, or a significant adverse 

effect on, a System institution; or 

(3) Any other person, as determined 

by the Farm Credit Administration (by 

regulation or on a case-by-case basis) 

who participates in the conduct of the 

affairs of a System institution. 

§§ 612.2260–612.2270 [Reserved] 

Dated: August 23, 2021. 

Dale Aultman, 

Secretary, Farm Credit Administration Board. 

[FR Doc. 2021–18432 Filed 9–10–21; 8:45 am] 

BILLING CODE 6705–01–P 


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