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Federal Register / Vol. 86, No. 174 / Monday, September 13, 2021 / Rules and Regulations
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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 institutions 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.
3b. Code of Ethics. 612.2137c Proposed 612.2137c 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 institutions 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
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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 institutions 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.

renumbered as paragraph d7. As finalized, 612.2137d1 contains the requirement to file a conflict of interest report, including the timing of the report, and providing disclosure information required under 620.6a, 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 612.2137d2 that the System institution must establish criteria to help directors, employees, agents and the SOCO identify conflicts and those that are material.

3c. Policies and Procedures.
612.2137d 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 d1 on contents of a conflicts of interest report is renumbered paragraph d2.
Proposed paragraph d2 on resolving conflicts is renumbered paragraph d3.
Provisions on third party relationships in proposed paragraph d3 is renumbered paragraph d4.
Proposed paragraphs d4 and 5
on enforcing the SOC program are consolidated into renumbered paragraph d6 and now follow renumbered paragraph d5 discussing receipt of gifts.
Proposed paragraph e3 on anonymous reporting is moved and
i Identifying Ordinary course of business Transactions and Materiality.
612.2137d2i 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 620.6e 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 620.6e 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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