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Federal Register / Vol. 86, No. 174 / Monday, September 13, 2021 / Rules and Regulations across all System activities, including those conducted in UBEs. Therefore, we require periodic audits that cover the entire System institution.

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3e. Training Policies. 612.2137f Proposed 612.2137f 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.2d, the final rule relocates most provisions on standards of conduct training into this paragraph. The final rule makes some clarifying changes to 612.2137f 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 directors 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 611.210b 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 directors term of office begins. Some also asked that we use the one-year time frame of 611.210b 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 institutions 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
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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 institutions confidential information, including restricting directors from disclosing confidential information to the shareholders electing them to serve on the institutions 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 611.210b 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 611.210b orientation training as nothing in 611.210b 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
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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.6c 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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