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tkelley on DSKBCP9HB2PROD with PROPOSALS

Federal Register / Vol. 86, No. 5 / Friday, January 8, 2021 / Proposed Rules supports. Because identification of core business lines is only the first step in a resolution planning process, by proposing a relatively short period from the effective date of a final rule to the submission date of an initial identification notice, FHFA seeks to balance the Enterprises need for sufficient time to develop and implement a meaningful identification process with FHFAs need for the Enterprises to develop and submit initial resolution plans that consider those core business lines, within a reasonable period of time after the effective date of a final rule. For the same reasonthe desire for the Enterprises to complete initial resolution plans within a reasonable time after the effective date of a final ruleFHFA expects that it would view an Enterprises initial identification process as sufficient if it reflects thoughtful consideration and application of a methodology consistent with a final rule, even if improvements to the Enterprises identification process are warranted and would be undertaken as part of any subsequent identification activities.
Following its initial preliminary identification of core business lines, each Enterprise would be expected to review its business lines periodically, in accordance with the methodology set forth in the proposed rule, and to do so sufficiently in advance of its next resolution plan submission that the Enterprise could complete the noticeand-review process for FHFA
identification of any new core business lines and also submit information required to be in the resolution plan for each core business line. Up-to-date identification of core business lines and associated operations, services, functions, and supports is critical for Enterprise resolution planning and to the development of a credible resolution plan.
In line with the proposed definition of core business line, in the period from submission of one resolution plan to the next, business lines identified as core may not change. To avoid unnecessary burden on the Enterprises and FHFA
which may result if, out of an abundance of caution, an Enterprise conducts more frequent identification processes than necessary, FHFA also proposes to reserve authority to direct the Enterprises as to the timeframe for conducting any subsequent periodic identification process. Such direction would address only the timing of a periodic identification process and would not, for example, relieve an Enterprise of the need to review its business lines if it experienced a
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material change, as addressed below.
By reserving authority to direct the timing of periodic identification processes, FHFA seeks to balance the need for up-to-date information about core business lines with the burden of conducting a periodic process, if it becomes apparent that identified core business lines are not changing over the course of several resolution plan submissions.
Change to identification as a core business line, including FHFA
reconsideration. FHFA recognizes that there may be different views on whether a business line is core, for purposes of resolution planning, and that business lines may evolve over time, such that a business line once identified as core may cease to be a core business line.
Three elements of the proposed rule address possible changes in identification of a core business line.
First, an Enterprise may identify new core business lines when conducting its periodic identification process. Such identification would be a material change, which FHFA proposes to define as a change, event, or occurrence that could reasonably be foreseen to have a material effect on the resolvability of the Enterprise, the Enterprises resolution strategy, or how the Enterprises resolution plan may be implemented. That material change would be an extraordinary event, described in the proposed rule as any material change, merger, reorganization, sale or divestiture of a business unit or material assets, or similar transaction, or any fundamental change to the Enterprises resolution strategy. Such a material change would thus trigger an Enterprise notice to FHFA within 45
days after the occurrence of the change the new identification. Relatedly, an extraordinary event could occur that gives rise to identification of a new core business line outside of an Enterprises periodic identification process. In that instance as well, notice to FHFA would be required within 45 days of the identification of the new core business line. Finally, because the definition of core business line includes associated operations, services, functions, or supports, a notice of material change would also be required when there is a material change to such operations, services, functions, or supports that could affect the Enterprises resolution plan.
The proposed rule would also provide a process for FHFA reconsideration of identification of a core business line.
Only FHFA may remove the identification of a core business line including removing the identification of any associated operation, service,
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function, or support, and it may do so on its own initiative, at any time, upon notice to an Enterprise. An Enterprise would be permitted to initiate a reconsideration, by submitting a written request to FHFA that includes arguments and other material information that the Enterprise believes would be relevant to that reconsideration. The proposed rule would provide FHFA three months to respond to a reconsideration request, unless FHFA extended that review period. If the Enterprise requests FHFA
to reconsider a core business line that FHFA has previously reconsidered, pursuant to an earlier Enterprise request, the written request should describe the material differences between the current request and the most recent prior request. The proposed rule does not set forth a process for discussion or negotiation with an Enterprise about reconsideration, but FHFA anticipates that it would engage with an Enterprise as part of an established supervisory process to understand any different views on the nature of a particular business line.
Finally, FHFA recognizes that a resolution plan is necessarily developed at a point in time, while business activities are fluid through time. For that reason, a notice removing identification as a core business line may include an effective date or other delaying conditions or triggers such as, for example, sufficient decrease in volume of a core business line, after which it would not be necessary to consider that business line in the Enterprises resolution planning process.
FHFA invites comment on all aspects of the proposed processes for identifying core business lines and changing a core business line identification. FHFA invites comment on a process element that it has not proposed but is consideringwhether, due to similarities between the activities each Enterprise is authorized or directed to take in its charter, there would be benefit to FHFAs providing notice to each Enterprise of all core business lines identified or any removal of a core business line identification, across both Enterprises. In contrast to bank holding companies subject to the DFA section 165 rule, where there presumably would not be common core business lines and critical operations across companies, there exist greater possibilities of common core business lines across the Enterprises. This is apparent if core business lines are identified primarily based on the Enterprise charter acts.
FHFA believes that there could be alignment of core business lines across
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