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Federal Register / Vol. 86, No. 174 / Monday, September 13, 2021 / Rules and Regulations
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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.
2a. 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 Systems 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 612.2135a and one other commenter suggested replacing proposed financial banking industry with financial services industry.
In response to comments, we retain the current rules 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
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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 a5 the words between an individuals 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.
2b. 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 612.2135c 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
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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.
2c. 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 612.2135b does not add the distinction requested by the commenter but does contain clarification that compliance with an institutions 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 612.2135b that the provision on reporting known or suspected activities refers to anonymous reporting procedures.
2d. Compliance With Training We proposed to require directors and employees to certify participation in the institutions 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 12 This language should not be interpreted as referring to our regulations in part 609 on electronic
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