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Federal Register / Vol. 86, No. 174 / Monday, September 13, 2021 / Rules and Regulations
5f. Employee Only Prohibitions: Joint EmployeeBoard Service.
612.2139b1 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.

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i Non-System Entities.
612.2150b1
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
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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 b4 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 employeesexcept those employed at CoBankto 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 cooperatives board of directors. We expect each institution to
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consider the potential for conflict when approving or disapproving an employee request to serve on a cooperatives board, particularly if the employee involved works at a System association for which CoBank is the funding bank.
ii Joint Employees. 612.2150b4
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 boards 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 b4, 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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