Title: FINAL RULE--Disclosure to Shareholders--12 CFR Part 620
Issue Date: 05/12/1993
Federal Register Cite: 58 FR 27922
FARM CREDIT ADMINISTRATION
12 CFR Part 620
Disclosure to Shareholders
ACTION: Final rule.
SUMMARY: The Farm Credit Administration (FCA), by the FCA Board (Board), adopts a final rule amending its regulations to expand the options available to Farm Credit System (FCS) institutions to comply with the requirements of the directors' certification pertaining to quarterly reports. The proposed rule was published for comment on January 12, 1993 (58 FR 3872). The amendments to the regulations require certification by at least one of the following directors of the board of a filing institution on behalf of the entire board of the institution: The chairperson of the board; the chairperson of the audit committee; or a director designated by the chairperson of the board. After formal board action authorizing the designation, other board members of the institution may continue, but are no longer required, to certify quarterly reports or notices that no significant events have occurred since the previous quarter.
EFFECTIVE DATE: The regulation shall become effective upon expiration of 30 days after this publication in the Federal Register during which either or both Houses of Congress are in session. Notice of the effective date will be published in the Federal Register.
FOR FURTHER INFORMATION CONTACT:
Tong-Ching Chang, Staff Accountant, Technical and Operations Division, Office of Examination, Farm Credit Administration, McLean, Virginia 22102-5090, (703) 883-4483, TDD (703) 883-4444, or
William L. Larsen, Senior Attorney, Regulatory Operations Division, Office of General Counsel, Farm Credit Administration, McLean, Virginia 22102-5090, (703) 883-4020, TDD (703) 883-4444.
SUPPLEMENTARY INFORMATION: In connection with amendments to part 620, Disclosure to Shareholders, undertaken to implement the 1987 amendments (Pub. L. 100-233) to the Farm Credit Act of 1971 (1971 Act), 12 U.S.C. 2001-2279bb-6, the FCA amended § 620.2(b)(3) to require each member of the board of an FCS institution to certify quarterly reports filed with the FCA within 45 days after the end of each reporting quarter. See 56 FR 29412 (June 27, 1991). After the amended regulations became effective on September 10, 1991, the FCA received letters from several FCS institutions indicating that the requirement of § 620.2(b)(3) that each director certify the quarterly report is burdensome and makes it difficult for them to meet their quarterly report filing date. These institutions stated that due to the frequency and timing of their board meetings and the geographic dispersion of board members, directors do not have enough time to certify quarterly reports and still file the reports by the due dates required by the regulations.
To resolve these logistical and timing problems in the certification of quarterly reports, the FCA proposed to amend § 620.2(b)(3) by expanding the options available to institutions to comply with the quarterly report director certification requirements. The proposed amendment would require quarterly reports filed with the FCA to be certified by, at a minimum, one of the following directors on behalf of the entire board of the filing institution: (1) The chairperson of the board; (2) the chairperson of the audit committee; or (3) a board member designated by the chairperson of the board. Other directors of the filing institution would no longer be required to certify the quarterly reports filed with the FCA.
Under proposed § 620.2(b)(3)(i), individual directors may continue to certify quarterly reports if they so choose, or, by formal board action, they may designate one or more directors to certify quarterly reports on behalf of other nonsigning members of the board. This could eliminate the need for each director to certify quarterly reports.
The comment period for the proposed amendments to § 620.2(b)(3) closed on February 11, 1993. The FCA received four letters commenting on the proposed regulations. Two FCS institutions within the Farm Credit Districts of Omaha and Columbia expressed their strong support for the proposed amendments and urged their adoption as proposed.
The Farm Credit Bank of Baltimore and the Farm Credit Council, on behalf of its membership, also commented in support of the proposed regulations, but suggested that a similar change be made to § 620.10(e)(3), which applies only to FCS banks. Under § 620.10(e)(3), for a given reporting quarter, if a majority of the board of directors of an FCS bank certifies to the FCA that no significant events have occurred that are likely to have a material impact on the bank's related associations that are direct lenders or that no significant events which occurred during the preceding quarters continue to materially affect the related associations, the bank can elect not to distribute its quarterly report to shareholders of the related associations for the quarter. The commentors believe that the considerations applicable to the amendment of § 620.2(b)(3) are equally applicable to § 620.10(e)(3). They suggested that if a single director can certify to the accuracy of an institution's quarterly report (as the proposed revision to § 620.2(b)(3) would allow), he/she should also be able to certify on behalf of the entire board that no significant events have occurred since the previous quarter.
The FCA concurs that considerations applicable to directors' quarterly report certification under §§ 620.2(b)(3) and 620.10(e)(3) are similar and that a corresponding change to § 620.10(e)(3) would alleviate logistical and timing problems currently encountered by the banks and their directors in certifying that no significant events have occurred during the quarter. The FCA also notes that under § 620.10(f), bank quarterly reports will continue to be available on request to shareholders of related associations. Therefore, the FCA finds good cause to include amendments to § 620.10(e) in the final rule corresponding to the amendments to § 620.2(b)(3). Due to the similar nature of these amendments as discussed [*27923] above, the FCA finds it unnecessary to seek further public comment on these changes from the proposed rules. See 5 U.S.C. 553(b)(B).
In response to the comments received and based on its consideration of director certification issues, the Board adopts the proposed amendments to § 620.2(b)(3) along with amendments to § 620.10(e) as described above. The Board believes that report certification helps ensure that directors maintain the level of awareness of the institution's activities and financial condition needed to carry out the board members' fiduciary responsibility as directors. While the board may delegate day-to-day operations to management, it remains responsible for ensuring that the institution operates within the board's prescribed policies, in compliance with applicable laws and regulations, and in a safe and sound manner. The designation permitted by these amendments to §§ 620.2(b)(3) and 620.10(e)(3) does not relieve directors of the need to be informed about their institution's activities and financial condition or of their accountability for the institution's affairs.
Whether directors certify the institution's periodic reports or not, all directors are responsible, to the best of their knowledge and belief, for ensuring that the reports are true, accurate, complete, and prepared in accordance with applicable laws and regulations. Accordingly, the boards of FCS institutions should have policies in place to ensure timely review by all directors prior to filing periodic reports. Within this framework of director responsibility, these new regulations are intended to alleviate the regulatory burden of FCS institutions and their directors without compromising the regulatory concern regarding directors' accountability embodied in the current requirements of §§ 620.2(b)(3) and 620.10(e)(3). The FCA notes that the amendment to § 620.2(b)(3) does not alter the requirement that all directors certify annual reports.
List of Subjects in 12 CFR Part 620
Accounting, Agriculture, Banks, Banking, Credit, Organization and functions (Government agencies), Reporting and recordkeeping requirements, Rural areas.
For the reasons stated in the preamble, part 620 of chapter VI, title 12 of the Code of Federal Regulations is amended to read as follows:
PART 620 -- DISCLOSURE TO SHAREHOLDERS
1. The authority citation for part 620 is revised to read as follows:
Authority: Secs. 5.17, 5.19, 8.11 of the Farm Credit Act; 12 U.S.C. 2252, 2254, 2279aa-ll; sec. 424 of Pub. L. 100-233, =B101 Stat. 1568, 1656.
Subpart A -- General
2. Section 620.2 is amended by revising paragraph (b)(3) to read as follows:
$§ 620.2 -- Preparing and filing the reports.
* * * * *
(b) * * *
(3)(i) For each quarterly report filed under this section, each member of the board or, at a minimum, one of the following board members formally designated by action of the board to certify quarterly reports on behalf of individual board members: The chairperson of the board; the chairperson of the audit committee; or a board member designated by the chairperson of the board.
(ii) For all other reports, each member of the board.
* * * * *
Subpart C -- Quarterly Report to Shareholders
3. Section 620.10 is amended by revising paragraph (e)(3) and the concluding text of paragraph (e) to read as follows:
§ 620.10 -- Preparing and distributing the quarterly report.
* * * * *
(e) * * *
(3) Each member of the board or, at a minimum, one of the following board members formally designated by action of the board to certify on behalf of individual board members: The chairperson of the board; the chairperson of the audit committee; or a board member designated by the chairperson of the board.
The name and position title of each person signing the certification shall be typed or printed beneath his or her signature. If any officer or any member of the board is unable to or refuses to sign the certification, the bank shall disclose the individual's name and position title and the reasons such individual is unable or refuses to sign the report. If a majority of the board of directors or its designee is unable to or refuses to sign the certification, the bank must distribute its quarterly report to shareholders of related direct lender associations.
* * * * *
Dated: May 4, 1993.
Curtis M. Anderson,
Secretary, Farm Credit Administration Board.
[FR Doc. 93-11148 Filed 5-11-93; 8:45 am]
BILLING CODE 6705-01-P