[Federal Register Volume 78, Number 102 (Tuesday, May 28, 2013)]
[Rules and Regulations]
[Pages 31822-31835]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2013-12594]
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FARM CREDIT ADMINISTRATION
12 CFR Parts 604, 611, 612, 619, 620, 621, 622, 623, and 630
RIN 3052-AC65
Unincorporated Business Entities
AGENCY: Farm Credit Administration.
ACTION: Final rule.
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SUMMARY: The Farm Credit Administration (FCA, we, us, or our) issues
this final rule to establish a regulatory framework for Farm Credit
System (System) institutions' use of unincorporated business entities
(UBEs) organized under State law for certain business activities. A UBE
includes limited partnerships (LPs), limited liability partnerships
(LLPs), limited liability limited partnerships (LLLPs), limited
liability companies (LLCs), and any other unincorporated business
entities, such as unincorporated business trusts, organized under State
law. The final rule does not apply to UBEs that one or more System
institutions may establish as Rural Business Investment Companies
(RBICs) pursuant to the institutions' authority under the provisions of
title VI of the Farm Security and Rural Investment Act of 2002, as
amended (FSRIA), and United States Department of Agriculture (USDA)
regulations implementing FSRIA. This rule does apply, however, to
System institutions that organize UBEs for the express purpose of
investing in RBICs.
DATES: This regulation will be effective 30 days after publication in
the Federal Register during which either or both Houses of Congress are
in session. We will publish a notice of the effective date in the
Federal Register.
FOR FURTHER INFORMATION CONTACT: Elna Luopa, Senior Corporate Analyst,
Office of Regulatory Policy, Farm Credit Administration, McLean, VA
22102-5090, (703) 883-4414, TTY (703) 883-4056, or Wendy Laguarda,
Assistant General Counsel, Office of General Counsel, Farm Credit
Administration, McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-
4056.
SUPPLEMENTARY INFORMATION:
I. Objectives
The objectives of this final rule are to:
Affirm FCA's authority to regulate and examine the System
institutions' use of UBEs, including the authority to impose any
conditions FCA deems necessary and appropriate on UBE business
activity, and to take enforcement action against System institutions
whose business operations use UBEs;
Prohibit System institutions from using UBEs to engage in
direct lending or any activity that exceeds their authority under the
Farm Credit Act of 1971, as amended (Act) or circumvents the
application of cooperative principles;
Limit the amount of a System institution's equity
investments in UBEs;
Create a process for FCA review and approval of requests
by System institutions to organize or invest in UBEs for certain
business activity;
Establish standards for the proper and adequate disclosure
and reporting of System UBE activity; and
Ensure that the System's use of UBEs remains transparent
and free from conflicts of interest.
II. Background
The System's existing investment \1\ and incidental powers \2\
provide the authorities for System institutions to invest in and form
UBEs for certain business activity.
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\1\ Sections 1.5(15) and 3.1(13)(A) of the Act set forth the
investment authorities for System banks. Sections 2.2(10) and
2.12(18) of the Act set forth the investment authorities for System
associations. FCA regulations in subpart E of part 615 imbue service
corporations, chartered under section 4.25 of the Act, with the same
investment authorities as their organizing System banks and
associations.
\2\ Sections 1.5(3), (15) and (21); 2.2(3), (10) and (20);
2.12(3), (18) and (19); 3.1(3) and (16) of the Act.
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As business models and structures have evolved under State uniform
statutes governing unincorporated, largely limited liability business
structures, System institutions, with FCA approval, have been using
their incidental and investment authorities to organize and invest in
State-chartered UBEs to promote collaborative and expedient
initiatives. Since 2009, System institutions have been organizing UBEs
for the limited purposes of: (1) Making credit bids at a foreclosure
sale or other court-approved auction of property collateralizing a
System institution's loans that are in default; and (2) holding and
managing acquired property to minimize losses, protect the property's
value, and limit potential liability, including taking appropriate
actions to limit the potential for liability under applicable
environmental law and regulations.\3\ On a case-by-case basis, FCA has
approved the System's use of other types of UBEs for certain business
purposes. In view of the many advantages of UBEs for certain business
activity, on September 13, 2012, FCA published a proposed rule to
establish a regulatory framework for their continued use. The proposed
rule, which was published for public comment for 60 days, generated
nine comment letters from the public. After considering the comments,
we now finalize the proposed provisions as discussed below. We note
that because this final rule codifies the guidance contained in FCA
Bookletter BL-057,
[[Page 31823]]
the bookletter is rescinded upon the effective date of the rule.
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\3\ FCA Bookletter BL-057, Use of State-Chartered Business
Entities to Hold Acquired Property (April 2, 2009).
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We believe this final rule provides a more uniform approval and
oversight process for the System's ongoing use of UBEs. The rule
emphasizes that incidental powers can be neither the basis for
broadening or circumventing a System institution's express powers in
carrying on the business of the bank or association nor used to engage
in activities that are impermissible under the Act. The delivery of
System credit, services and other products will still chiefly be
provided by System institutions' direct use of their express powers to
serve their eligible borrowers and customers. Without strong
justifications to form a UBE, including one-member UBEs, System
institutions will continue to conduct all aspects of their business
either directly or through a service corporation authorized under
section 4.25 of the Act.
In recognizing changing business practices through the System's use
of UBEs, we also stress that the preservation of the System's member-
focused principles remains paramount. Therefore, this rule prohibits
System institutions from engaging in any activity through UBEs that
circumvents the application of cooperative principles. Further, by
limiting the use of one-member UBEs, the rule underscores the primarily
collaborative purpose of partnerships and multi-member limited
liability companies among System institutions to foster more efficient
operations and improved services to member-borrowers and other
customers.
Finally, to ensure that the System's use of UBEs remains
transparent to the public, FCA will post on its Web site the name and
business purpose of UBEs organized and controlled by one or more System
institutions that are approved under this rule. Those UBEs subject to
the notice provision will not be posted on our Web site.
III. Discussion of Comment Letters and Section-by-Section Analysis of
Final Rule
We received nine comment letters on the proposed UBE rule. The
letters came from each of the four Farm Credit banks (CoBank, ACB;
AgriBank, FCB; AgFirst Farm Credit Bank and the Farm Credit Bank of
Texas); two System associations, Farm Credit Services of America, ACA
and Farm Credit East, ACA; the Farm Credit Council (Council), acting on
behalf of its membership; the Independent Community Bankers of America
(ICBA); and one other member of the public. These letters contained a
number of constructive comments that resulted in changes to a number of
provisions in the proposed rule. We made no changes to the provisions
in the proposed rule that either received no comments or supportive
ones unless otherwise discussed in this preamble.
General Issues
Four commenters generally support our efforts to set up a
regulatory framework, with one of these commenters noting that the
framework should not create a restrictive, cumbersome process.
In our response to comments on certain provisions of the proposed
rule (see Specific Issues below), we have made some changes that will
further streamline the notice and approval processes.
Of those supporting our effort, one commenter notes that the System
should be permitted to benefit from the more formal and flexible UBE
structures now available, and that their use also helps ensure that
System stockholders are more protected from liability. Another
commenter, while appreciating FCA's recognition of the System's
authority to organize UBEs for appropriate business purposes, believes
that FCA currently has an effective policy framework for UBEs and
questions the purpose of the rulemaking as adding little overall value.
This same commenter also asserts that the rulemaking lacks adherence to
FCA's Policy Statement FCA-PS-59 on Regulatory Philosophy and suggests
that FCA discontinue the rulemaking to save unnecessary effort and
associated costs ultimately born by System customers and shareholders.
FCA's current practice of considering requests to organize and
invest in UBEs on a case-by-case basis is no substitute for the
regulatory framework that this final rule provides. Such a framework
creates a more uniform oversight process for the System's continued use
of UBEs; establishes standards that improve our UBE review and approval
process; reinforces and preserves the System's member-focused
principles; promotes collaboration between and among System
institutions in their organization of UBEs by limiting the use of one-
member UBEs; and brings a greater level of transparency to the System's
use of UBEs.
Further, we see no inconsistencies between this rulemaking and the
FCA Board's Policy Statement FCA-PS-59 on Regulatory Philosophy.\4\ Our
rulemaking promotes the principles set forth in FCA-PS-59 in that it
supports achievement of the System's public mission, enhances the
ability of System institutions to better meet the needs of agriculture
and rural communities, and underscores the importance of cooperative
principles for the farmer-owned Government-sponsored enterprise. The
final rule reinforces FCA's obligations to ensure the System's safety
and soundness by making it clear that FCA has regulatory, supervisory,
oversight, examination, and enforcement authority over the System's use
of UBEs. For all these reasons, we have continued this rulemaking
process on the basis that the benefits of the rule outweigh its
implementation costs.
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\4\ See, FCA Policy Statement FCA-PS-59, Regulatory Philosophy
(July 8, 2011). This policy statement may be viewed at www.fca.gov.
Under Quick Links, click on FCA Handbook, and then click on FCA
Board Policy Statements.
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In its comment letter, the Council recognizes that FCA's goal is to
provide a regulatory framework for UBEs through which System
institutions can obtain approval either by means of an advance notice
to FCA or through an approval process. The Council encourages us to
continue to identify additional circumstances in which the notice
provision can be used and to streamline the approval process through
guidance provided to System institutions via a bookletter.
As the Council requests, we anticipate that we will be adding other
kinds of UBE requests to the notice provision over time, but are unable
to identify such requests beyond those we already have in the final
rule. As the System gains more experience with its use of UBEs, and as
we gain more comfort in such use, we foresee permitting more types of
UBEs to be organized under the notice provision.
The Council also states its concern over our use of the term
``cooperative principles'' in the rule, suggesting instead that we
reference the specific statutory requirements relating to such
principles to avoid disagreement over what the term means.
Because other parties also commented on our use of the term
``cooperative principles,'' we address the Council's comment in the
Specific Issues section below.
In its comments, the ICBA states its belief that System
institutions do not have the appropriate legal authority to form UBEs
regardless of their intended merits, and that FCA has failed to provide
a sound legal basis for permitting System institutions to form UBEs.
The ICBA states that even FCA acknowledges this lack of express legal
authority in the Act, relying instead on the System's investment
authorities as
[[Page 31824]]
the basis for authorizing the creation of UBEs. The ICBA recommends
that FCA seek the necessary authorities from Congress rather than
circumventing the Act by giving it an intentional misreading. The ICBA
also states that FCA's assertion that the formation of UBEs is
appropriate based on Congressional intent for System institutions to
operate collaboratively so as to improve the efficiency of their
products and services, is not a legal basis to allow the System to form
entities not authorized by the Act.
FCA is confident in relying upon the System's incidental powers and
investment authorities as sound legal bases for the System's use of
UBEs. The System's incidental powers enable its institutions to
organize non-corporate affiliates for authorized business operations in
light of currently accepted, commercially reasonable practices used by
other financial institutions. FCA has allowed the formation and use of
UBEs where the use of a service corporation chartered under section
4.25 of the Act was neither commercially reasonable or practical (as in
the case of UBEs formed for acquired property), nor permitted (as in
the case of UBEs formed to offer crop insurance, a service that is
precluded under section 4.25 of the Act). Moreover, the UBE structures
enable the System to deliver certain products and services with
enhanced safety and soundness via entities that address ownership
rights, management, operations, assumption of liability, allocation of
profits and losses, payment of taxes, and the limiting of liability.
The ICBA notes that FCA does not explain why the use of service
corporations, which are permitted under the Act, fails to provide the
flexibility that System institutions need and that, in allowing the
formation of UBEs under a ``fairly benign'' application and approval
process, the FCA will be discouraging the System's future use of
service corporations.
We do not anticipate that System institutions will refrain from
using service corporations as a result of their authority to organize
UBEs. The UBE notice, approval, reporting and disclosure provisions in
this rule are in many ways as comprehensive as the service corporation
review and approval process and System institutions must justify the
need for their use.
The ICBA also asks that we explain why we believe System
institutions are permitted to purchase or own crop insurance agencies
and why we are apparently allowing System institutions to engage in
illegal ``tying'' schemes in which farmers are offered lower interest
rates on loans in exchange for purchasing System provided crop
insurance. The ICBA concludes that the public deserves more
transparency on this issue.
The ICBA's contention that System institutions are not authorized
to provide crop insurance services through a UBE is misguided. The Act
only prohibits System institutions from providing insurance services
through a service corporation structure. In fact, System institutions,
both individually and in coordination with one another, have long been
providing hail and multi-peril crop insurance to its borrowers outside
of the service corporation structure. Such services fulfill a primary
purpose of the System, which is to provide sound, adequate, and
constructive credit and closely related services to American farmers
and ranchers and their cooperatives for efficient farming operations.
As a fundamental need for crop farmers, crop insurance is a closely
related service that System institutions have express authority to
provide under the Act. The use of UBEs for such purpose will facilitate
the provision of these important services to System borrowers and is a
significant reason why service corporations are unable to provide the
flexibility that System institutions need to fulfill the Act's purpose.
We also note that section 4.29 of the Act and Sec. 618.8040 of our
regulations prohibit illegal tying arrangements.
Finally, the ICBA disagrees with our language that Congress
intended the System to provide coordinated services or products to
``rural communities,'' noting its belief that the Act authorizes the
System to provide credit and related services only to those borrowers
specified in the Act. The ICBA therefore concludes that all existing
UBEs should be dissolved and/or rechartered under the guidelines and
constraints of authorized service corporations.
The Act authorizes the System to provide credit and related
services to eligible persons as specified in the Act. However, we note
that by servicing eligible borrowers, which includes providing credit
for rural homes, services closely related to agriculture, and farm-
related businesses, the System does indeed improve the well-being of
rural communities where the overwhelming majority of eligible borrowers
live and work. Therefore, based on the sound legal basis, the benefits,
and the safeguards incorporated into this final rule, we will permit
the continued use of UBEs concurrent with the System's authority to
organize service corporations.
One public commenter thinks the regulation is out of control and
harms business, but offers no further elaboration. Without specific
comments, we are unable to address this individual's concerns. However,
as stated above, this rule provides adequate safeguards for the
regulation and oversight of the System's use of UBEs for limited
business purposes authorized under the Act.
Specific Issues
1. Definitions [Sec. New 611.1151]
We received comments recommending that two definitions be added to
Sec. 611.1151. One commenter suggested that because the rule
establishes a ``necessary or expedient'' standard for use of a UBE, we
should define the term to avoid creating an uncertain and arbitrary
standard.
FCA declines to adopt this recommendation based on the fact that
this standard, used in all banking legislation, is meant to provide
flexibility in a System institution's use of its incidental
authorities. From our perspective, a definition would narrow the term
to the institution's detriment by removing the significant discretion
currently enjoyed by System institutions to decide what is necessary or
expedient to their business.
This same commenter also suggests that we define the ``unusual and
complex'' standard for establishing a UBE to hold and manage acquired
loan collateral consistent with its usage in BL-057.
In the final rule, we adopt part of the commenter's suggestion by
adding a definition of ``unusual and complex collateral'' to Sec.
611.1151 that is consistent with its use in BL-057. This final rule now
defines ``unusual and complex collateral'' to mean acquired property
that may expose the owner to risks beyond those commonly associated
with loans, including, but not limited to, acquired industrial or
manufacturing properties where there is an increased risk of incurring
potential environmental or other liabilities that may accrue to the
owners of such properties.
This same commenter also suggests that we enhance the bookletter
definition to include the concept of increasing the marketability and
potential value of acquired loan collateral through the use of a UBE as
well as easing the sale of acquired property consistent with borrower
rights requirements.
We do not agree that there is a need to enhance the definition
beyond the one provided in BL-057 as the
[[Page 31825]]
commenter suggests. The final rule reflects the limited purposes of
those UBEs formed to hold and manage acquired property: (1) Making
credit bids at a foreclosure sale or other court-approved auction of
property collateralizing System institutions' loans that are in
default; and (2) holding and managing acquired property to minimize
losses, protect the property's value, and limit potential liability,
including taking appropriate actions to limit the potential for
liability under applicable environmental law and regulations. We
believe these limited purposes encompass the goals of not only
protecting, but also enhancing the property's value to ease its
eventual sale.
2. Assessing UBE Investments and Business Activity [New Sec.
611.1152(b)]
One commenter notes that it is understood FCA would want to recover
examination costs associated with a System institution's investments in
UBEs, but states that the proposed rule fails to define a clear
standard or methodology for adding such costs to current regulatory
assessment requirements. The commenter notes that the proposed rule
provision appears to contradict the well-defined regulatory assessment
formula, imposes added costs, and possibly creates an inequity by
subjecting institutions with UBEs to double assessments--that is, one
on the equity investment included in total assets and one on the UBE
itself. The commenter asks that FCA establish a specific formula for
assessing UBEs.
FCA never intended to change the assessment formula set forth in
Sec. 607.3. Consequently, in response to the commenter's concern, we
have modified the language in Sec. 611.1152(b) to cite only to section
5.15 of the Act. The cost of regulating and examining System
institutions' activities involving UBEs will be taken into account
under FCA's current assessment formula.
3. General Restrictions and Prohibitions on the Use of UBEs [New Sec.
611.1153]
a. Authorized Business Activity Must Be Necessary or Expedient, as
Determined by the FCA, to the Business of One or More System
Institutions Owning the UBE. [New Sec. 611.1153(a)(1)]
Two commenters object to the language that would allow FCA to
determine what is necessary or expedient to the institution's business,
stating that such language places FCA in a management role more aptly
reserved for a System institution's board of directors or management
team. The commenters state that FCA's role should be limited to
evaluating a System institution's rationale for forming a UBE and
requesting any other information deemed necessary.
In response to the commenter's objection, we have decided to remove
the language ``as determined by FCA.'' We note, however, that in doing
so, FCA will evaluate an institution's assessment that the UBE is
necessary or expedient to the institution's business in our review
process under the notice or approval provision. To this end, we expect
a board of directors to substantiate its statement that the UBE meets
this criterion in its submission to FCA.
b. Circumvention of Cooperative Principles [new Sec. 611.1153(b)]
We received comments from two commenters and the Council on this
provision, prohibiting System institutions from using UBEs to engage in
activities that would circumvent the application of cooperative
principles. One commenter believes that this limitation could restrict
potential future innovation that might further enhance the System's
ability to effectively serve its mission to agriculture and rural
America. Another commenter states that since FCA retains the right to
approve or otherwise regulate any and all investments by System
institutions in a UBE, the limitation is unnecessary to protect the
System's integrity or its cooperative principles.
We do not agree with the commenters that this restriction
unnecessarily limits a System institution's ability to be innovative.
This rule provides greater flexibility for System institutions to
collaborate on initiatives to better serve agriculture and rural
America through innovative and diverse business structures while
respecting the fact UBEs must operate within the Act and regulation and
cannot have any greater authority than that of System institutions.
Moreover, the prohibitions on UBEs making direct loans or engaging in
any other activities that circumvent cooperative principles ensure that
these primary functions remain within the corporate charters of System
institutions and the stated objectives of the farmer-owned Farm Credit
System as set forth in section 1.1 of the Act.
Another commenter objects to FCA's implication that System
institutions would engage in activities that might circumvent the
requirements of the Act. The commenter believes it would be preferable
for FCA to focus on the statutory requirements relating to cooperative
principles rather than attempt to define the term by regulation. This
same commenter adds that the application of cooperative principles goes
beyond and has little to do with established statutory requirements
and, instead, ``. . . encompasses a way of doing business that is the
responsibility of the membership, directors, and management to
determine how best to implement for their individual institution.'' To
avoid creating confusion with clear legal requirements and dictating
how members should run their cooperatives, the commenter recommends
that we drop the term ``cooperative principles'' and replace it with a
more technically precise term such as ``circumvention of the Act's
requirements.'' Another commenter suggests that the term ``cooperative
principles'' make specific reference to the specific statutory
requirements for the System's cooperative structure by citing to the
Act's provisions on stock ownership, patronage, and borrower and voting
rights.
After considering the foregoing comments, FCA has decided not to
remove this restriction from the final rule. We agree, in part, with
one of the commenters that certain cooperative principles may go beyond
the statutory and regulatory provisions relating to the System's
cooperative structure to also encompass ``a way of doing business''
that is in some measure left to an institution's member-owners. FCA
Board Policy Statement FCA-PS-80 on cooperative operating philosophy
underscores that cooperative principles are an integral part of the
System's cooperative structure under the Act and therefore requires an
institution to conduct its business with this member-focused
perspective in mind.\5\ For this reason, we are removing the ``as
determined by FCA'' language from this provision in the final rule but
point out that in our review process under the notice and approval
provisions, FCA must be satisfied that an institution has adequately
demonstrated that its use of a UBE will not contravene cooperative
principles. Therefore, we expect an institution's board to substantiate
in its statement to FCA that the UBE's service, function, or activity
will not circumvent cooperative principles.
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\5\ See, section 1.1(a) of the Act and FCA Policy Statement FCA-
PS-80, Cooperative Operating Philosophy--Serving the Members of Farm
Credit System Institutions (October 14, 2010). This policy statement
may be viewed at www.fca.gov. Under Quick Links, click on FCA
Handbook, and then click on FCA Board Policy Statements. Sections
611.350, 615.5220, and 615.5230 of our regulations also address
cooperative principles.
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[[Page 31826]]
c. Transparency and the Avoidance of Conflicts of Interest [new Sec.
611.1153(c)]
The ICBA and one other commenter offered suggestions on this
provision requiring that the business between the System institution
and the UBE remain transparent and free from conflicts of interest. One
commenter indicates support of the need to maintain a clear separation
of UBEs from their parent organizations, but is concerned that the term
``commingling'' could be misconstrued and inappropriately applied. The
commenter provides the example of an institution and its UBE sharing
the same physical resources, which might be construed as an improper
``commingling,'' even though their internal controls maintain
appropriate levels of separation. The commenter adds that unless
commingling results in a piercing of the corporate veil or a clear
conflict of interest, the proper sharing of resources should not be
restricted so that existing resources can be fully leveraged.
The restriction in the proposed rule states that business
transactions, accounts, and records of the UBE are not to be commingled
with those of the System institution. We want to clarify that this
restriction does not prevent the use of the same physical resources as
long as the transactions, records and accounts are separately accounted
for and adequate internal controls are in place to ensure such
separation. For these reasons, we see no need to change the language in
the final rule.
The ICBA supports all transparency requirements but believes they
should include all UBEs and allow for the public review of UBE
documents to ensure that laws are being followed.
We note that the System's use of UBEs will be made transparent to
the public under FCA's plan to post on its Web site the name and
business purpose of UBEs organized and controlled by one or more System
institutions that are approved under the rule. We do not agree with the
ICBA's suggestion that the transparency provision should allow for
public review of UBE documents to ensure a UBE's compliance with the
law. It is FCA's responsibility rather than that of the general public
to determine that a System institution has properly established a UBE
and is complying with applicable law and regulation.
d. Prohibition on UBE Subsidiaries [new Sec. 611.1153(f)]
Two parties commented on the prohibition on creating UBE
subsidiaries. One commenter stated that the prohibition removes needed
flexibility to manage acquired property associated with syndicated,
participated, or other loan transactions where it may be more workable
for each investor's pro rata interest in the acquired property to be
held in a separate subsidiary of the parent UBE. According to the
commenter, such an arrangement would avoid difficult negotiations
relating to management agreements and ownership structures. Since
ownership interests in the UBEs would be clear and unambiguous, the
commenter believes that FCA's examination process in looking at this
subsidiary structure would not be difficult. The second commenter
generally supports our limitation on use of multi-layered UBEs but
urges us to consider comments from others in dealing with acquired
property associated with syndicated loans and other complex multi-owner
situations.
We are persuaded by the comments that we should allow some
flexibility in the final rule for those acquired property UBEs
involving both System and non-System lenders. Therefore, we are
permitting an exception to the prohibition on UBE subsidiaries by
allowing System institutions to establish UBEs as subsidiaries of an
acquired property UBE to hold each investor's pro rata interests in
acquired property provided that the loan collateral at issue involves
multi-lender transactions that include System and non-System
institutions. This exception is not available when the acquired
property is owned solely by System institutions. In those instances,
System institutions can effectively work through the partnership or
management agreements to establish their pro rata interests within the
single UBE while still protecting their limited liability.
e. Limit on Amount of Equity Investments in UBEs [new Sec.
611.1153(h)]
We received a comment from the ICBA and one other comment on this
provision, which limits a System institution's aggregate amount of
equity investments in UBEs to one percent of its total loans
outstanding, calculated at the time of each investment. One commenter
remarked that the limit is too small, especially for smaller
institutions, and will result in unnecessary requests for
exemptions.\6\
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\6\ This limit does not apply to a System institution's equity
investment in an acquired property UBE.
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We decline to increase the aggregate limit based on our belief that
small associations should take a more cautious approach in determining
whether to establish a UBE for certain business activity. Moreover,
given the small number of UBEs currently affiliated with System
institutions, we do not believe this limit will result in an
overwhelming number of requests for exceptions.
The ICBA does not agree that FCA should be able to make exceptions
to restrictions listed in the proposed rule, stating that such
exceptions create the appearance that we would favor some institutions
over others. The ICBA suggests that FCA go through a public comment
process to make any additional changes to the methodologies in the
regulations.
As proposed, this final rule allows only two instances where FCA is
able to make exceptions to the restrictions on a case-by-case basis.
The first exception is in this provision Sec. 611.1153(h) at issue. It
allows FCA to set either a higher or lower limit than the one-percent
aggregate equity investment limit based on safety and soundness or
other relevant concerns. The second exception is in Sec. 611.1153(i),
in which System institutions are prohibited from making an equity
investment in a third-party UBE except as FCA may authorize under Sec.
615.5140(e) for de minimis and passive investments.\7\ We do not agree
with the ICBA that these two exceptions create an appearance that we
are favoring some System institutions over others. As an arm's-length
regulator, we must carry out our oversight responsibilities with
impartiality, providing equal access and consideration to all System
institutions. We would determine such exceptions according to these
principles. Our final rule will retain the foregoing exceptions, which
we deem necessary for safety and soundness concerns.
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\7\ Such requests will be considered on a case-by-case basis
outside of this final rule in accordance with the requirements of
Sec. 615.5140(e).
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f. Limitation on Non-System Equity Investments [new Sec. 611.1153(j)]
Four respondents provided comments on this provision, which limits
non-System investment in a System-owned UBE to 20 percent of total
equity. One commenter thought the limit could be an issue for a loan
syndicated to non-System lenders, which, if the loan became distressed,
might force a System institution to buy out a commercial bank's
interest.
At the outset, we note that this 20-percent outside investment
limitation applies only to those UBEs organized to provide limited
services integral to a System institution's daily internal operations,
such as fixed asset, electronic transaction, or trustee
[[Page 31827]]
services. Further, the UBE operating agreement would address the
process for an outside investor to extricate itself from the UBE based
on financial or other reasons.
Another commenter contends that a System UBE should be able to
attract and leverage outside ownership as long as the System
institution controls it and FCA retains full authority over it. This
same commenter suggests increasing outside ownership to 50 percent. A
third commenter asks FCA to reexamine the limitation as well.\8\
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\8\ FCA notes that this restriction does not apply to acquired
property UBEs that often involve System and non-System lenders.
---------------------------------------------------------------------------
Contrary to the suggestions of these commenters, we see no
justification for expanding outside ownership beyond the 20 percent of
total equity that is permitted for those UBEs performing limited
services considered integral to a System institution's daily internal
operations. Were we to increase outside ownership to 50 percent, as one
commenter suggests, the System would no longer be a majority owner.
Given that the outside investor authority for service corporations
(where non-System ownership is also limited to 20 percent of total
equity) has yet to be exercised by System institutions in the 12 years
that they have had this regulatory authority, we see no need to
increase the 20-percent cap in this final rule.
In contrast to the other commenters, the ICBA opposes allowing non-
System persons or entities to invest in a System-controlled UBE,
arguing that the Act does not authorize outside investments in service
corporations or in UBEs. It notes that outside investments violate
cooperative principles, would be unmanageable for FCA to regulate and
examine, pose safety and soundness risks, and raise questions on voting
rights due to the non-member status of third-party investors.
The FCA has permitted this same level of non-System equity
investment in System-owned service corporations under FCA regulations
(see Sec. 611.1135(b)) based on our determination that such a minority
level would not jeopardize the cooperative structure of a System
institution or its associated principles, be unmanageable to regulate
or examine, or negatively affect the safety and soundness of the
institution. Nor do we agree with the ICBA's contention that this
exception would jeopardize cooperative principles or create a safety
and soundness risk. With regard to voting rights for non-System
investors, we note that the partnership or membership agreement would
control how decisions are made within the UBE for the majority and
minority equity holders. We emphasize that the voting rights
established within the UBE will have no effect on the voting rights of
the member/borrowers of the System institution itself. For all the
foregoing reasons, FCA has retained this limited outside investment
authority as proposed.
4. Notice of Equity Investments in UBEs [New Sec. 611.1154]
FCA received 11 comments on various provisions of Sec. 611.1154.
The ICBA opposes the notice provision entirely and believes all
requests for UBE formations should be made through the approval
provision. The ICBA adds that allowing some System institutions to
provide notice only is discriminatory in that it favors the large
institutions, serves no legitimate purpose, and appears to violate
cooperative principles.
FCA does not believe the notice provision favors the large System
institutions, serves no legitimate purpose, or violates cooperative
principles. The eligibility for providing notice of a UBE formation
versus submitting an approval application is based on the type of
business activity, function or service being conducted in the UBE, all
of which has no bearing on the size of a System institution. A number
of System institutions, differing in size, have been using UBEs for
acquired property and to provide hail and multi-peril crop insurance
without jeopardizing cooperative principles or otherwise putting the
institutions at risk. Based on the experience gained by the System in
using UBEs for such purposes, and FCA's consequent experience in
overseeing such UBEs, we see no reason for such UBEs to be subject to
an approval process. The notice provision serves the purpose of
avoiding unnecessary administrative burdens and costs and has therefore
been retained in this final rule.
We summarize the remaining comments under the relevant sections
that follow.
a. Applicability [New Sec. 611.1154(a)]
The proposed rule included a notice provision available only to
System institutions with a Financial Institution Rating System (FIRS)
rating of 1 or 2. Those with lower FIRS ratings would have been
required to request FCA approval of the proposed UBE under Sec.
611.1155. One commenter remarks that requiring prior approval for an
institution to use a UBE to hold and manage acquired property increases
the time and expense needed to manage the assets. The commenter
references a statement in BL-057 that it is generally inappropriate for
FCA to provide prior approval or concurrence regarding decisions on use
of UBEs for acquired property purposes.
We note that System institutions, regardless of FIRS ratings, have
organized UBEs to hold and manage acquired property since the
bookletter's issuance in 2009 without negative consequences. Therefore,
FCA agrees to remove the FIRS rating restriction altogether from the
notice provision based on our more considered belief that such a
restriction is unnecessary to ensure that such UBEs will not put an
institution at further risk. We retain the requirement, however, that
System institutions notify FCA of their intent to form an acquired
property UBE. This notice allows us to keep track of such UBEs and to
ensure that their use will help the institution manage its acquired
property.
b. Notice Requirements [New Sec. 611.1154(b)]
Our proposed rule requires System institutions to provide notice to
FCA 20 business days in advance of making an equity investment in a
UBE. Five commenters said that 20 business days was excessive. These
commenters stated that because decisions to hold acquired property
often occur within a relatively short span of time after commencing a
collection/foreclosure action, requiring at least 20 business days for
an advance notice is inconsistent with the need to reach a quick
resolution. One commenter suggests a standard that is ``as soon as is
reasonably practicable,'' but not less than 5 business days prior to
formation. Other commenters note that the 20 business days advance
notice is too restrictive and that System institutions need to be able
to respond in a timely manner to decisions made by lender groups and
borrowers relating to a collection of large syndicated loans.
FCA has considered the foregoing concerns related to the 20
business days advance notice and, consequently, has adopted a 10
business day advance notice requirement in this final rule. We believe
that a 10 business-day review is a fair compromise between the proposed
20 business-day review and the requested 5-day review, which is not
sufficient for FCA purposes. The notice provision allows us time to
review the documentation provided by the System institution. Should we
find noncompliance issues or safety and soundness concerns, FCA will
notify the institution before the notice period ends that it must delay
the UBE's formation and submit an application for approval under Sec.
611.1155. We are adding this
[[Page 31828]]
requirement to the notice provision as a counterbalance to our removing
the FIRS restriction and decreasing by half the number of business days
required for the notice. This requirement is now found at Sec.
611.1154(d).
c. A Certified Resolution of the System Institution's Board of
Directors [New Sec. 611.1154(b)(3)]
We received several comments on the requirement to submit a
certified board resolution under the notice provision. One commenter
believes that the board resolution requirement is too prescriptive and
inappropriately dictates how boards must conduct their oversight
responsibilities. The commenter adds that it has long been an
acceptable governance standard for the board of directors to adopt a
policy authorizing management to conduct certain activities within
established limits, controls, and reporting requirements. Such a
practice, according to the commenter, would ensure timely and
appropriate use of authorities when management must act quickly. The
commenter suggests that FCA allow System institutions to follow this
business practice and use a policy-based approach.
FCA strongly believes that the System's authority to organize UBEs
rises to the level of board action. As the body that is ultimately held
accountable for an institution's actions and outcomes, we believe that
it is both appropriate and necessary for System boards to approve the
investment in, and business activity of, a UBE. Moreover, we do not
believe that a board policy in this area is an adequate substitute for
this rule. While a policy-based approach may be appropriate for
administering a program, it is not relevant to the formation of a UBE,
which requires FCA's advance review or approval. However, we encourage
System boards to develop policies on the use of UBEs that might include
reporting requirements on UBE activity to the board and other internal
controls ensuring that UBE activity remains in compliance with the
requirements of this rule.
Another commenter is concerned with the level of board involvement
in forming UBEs when they are used to hold and manage acquired
property, stating that requiring certified board resolutions for every
investment in an acquired property UBE is burdensome and may cause
delays in the collection/foreclosure process.
We understand that requiring a certified board resolution each time
an institution organizes a UBE to hold and manage acquired property in
which unusual and complex collateral is involved could become
burdensome and possibly cause disruptions in the collection and
foreclosure process. To ease these concerns, this final rule allows the
board of directors to adopt a blanket certified resolution that would
cover all acquired property UBEs that the institution may form. This
``blanket resolution,'' as we refer to it, must be filed with FCA with
each advance notice of an acquired property UBE. This requirement is
now found at Sec. 611.1154(b)(3). We note that the use of this blanket
resolution is applicable only for the acquired property UBEs. Notices
of hail and multi-peril crop insurance UBEs, and those UBEs added to
the notice provision by FCA in the future, will still require a
separate and timely certified board resolution.
d. A Statement From the Board of Directors [new Sec. 611.1154(b)(5)]
Three commenters remarked that requiring a separate board-adopted
statement is inefficient, ineffective, unnecessary, and bureaucratic
and that FCA should allow the statement to be addressed within the
context of a board adopted policy instead. One commenter believes that
the restrictions and prohibitions required as part of the board
statement in paragraph (b)(5)(vi) unnecessarily restrict potential
future innovation that could further enhance a System institution's
ability to effectively serve its mission to agriculture and rural
America and is simply not necessary to protect the System's integrity
or its cooperative principles.
As with the board resolution, FCA believes that it is both
appropriate and necessary for the board to affirm that the UBE will
operate in accordance with certain requirements and restrictions in the
rule. This statement provides that a UBE cannot be used to make direct
loans, perform any functions, services or engage in any activities that
the System institution itself is not authorized to carry out under the
Act and regulations or to exceed the stated purpose of the UBE as set
forth in its articles of formation. The statement also provides board
support that the UBE is necessary or expedient to the institution's
business and will operate with transparency, free from conflicts of
interest, and in accordance with applicable law.
Also, we are perplexed by the comment that Sec. 611.1154(b)(5)(vi)
unnecessarily restricts System institutions' potential future
innovation. This provision provides that UBEs will not engage in direct
lending or exceed their stated purpose. These directives parallel the
limits on service corporations formed under section 4.25 of the Act. As
previously discussed, this rule gives System institutions yet another
means to conduct certain business activity through expedient and
efficient business structures while retaining the primary functions of
a System institution within its federal charter, subject to all
statutory and regulatory restrictions. The System's desire to innovate
is necessarily restricted by applicable law, regulation, and safety and
soundness concerns.
Although we are retaining the board statement, we clarify in the
final rule that a separate board action is not required for the
statement. By approving and adopting its resolution, the board will
also be approving the board statement included with the certified
resolution.
Finally, we note that the regulation does not require a board
statement for acquired property UBEs that are filed under the notice
provision. Under the notice provision, the board statement is required
only for those UBEs organized to provide hail or multi-peril crop
insurance or other functions, services, or activities that FCA may
allow to be filed under the notice provision in the future (see Sec.
611.1154(b)(5)).
In the final rule, we are moving the board statement requirement
from Sec. 611.1154(b)(5) to Sec. 611.1154(b)(4) so that the certified
board resolution and the board statement appear in sequence. As a
result of this technical change, the requirement for a letter from the
funding bank approving the institution's equity investment in the UBE
is being moved to Sec. 611.1154(b)(5).
e. Funding Bank Approval Letter [new Sec. 611.1154(b)(4)]
In the final rule, we are moving the requirement for the funding
bank's approval of the equity investment to Sec. 611.1154(b)(5).
Moreover, to alleviate the need for the funding bank to approve each
association's equity investment in a UBE organized to hold and manage
unusual or complex collateral associated with loans, we are allowing a
funding bank to provide a blanket approval letter for all such UBEs
that its district associations may invest in or organize.
f. Supplementation or Omission of Information [new Sec. 611.1154(c)
and Sec. 611.1155(b)]
We received one comment that this provision creates ambiguity and
uncertainty as to what information a System institution should provide
in order to establish or invest in UBEs.
The requirements in both the notice and approval provisions clearly
state
[[Page 31829]]
what we expect System institutions to provide. However, because we
cannot anticipate all the reasons for UBE use, this provision gives FCA
the flexibility to ask for additional information on unusual or complex
applications or to permit the omission of certain information on less
complex applications. Therefore, we have retained this provision in the
final rule, which provides needed flexibility affecting the clarity of
the notice or approval process.
5. Approval of Equity Investments in UBEs [new Sec. 611.1155]
a. Request [new Sec. 611.1155(a)]
Two commenters claim that the proposed rule fails to require timely
action or response by FCA on any request. The commenters believe that
FCA should hold itself to a reasonable timeframe to approve or deny any
request, consistent with the 60-day requirement for merger
applications.
Although we decline to add a provision in the final rule requiring
FCA action by a certain time, it is FCA's practice to act within 60
business days of the receipt of a complete approval request whenever
feasible. We note that the 60-day requirement for action on mergers is
a statutory requirement.\9\ There is no statutory time limit on most
approval requests coming before the Agency.
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\9\ This 60-day statutory time limit in section 7.11 of the Act
also applies to termination of a System institution's status as a
member of the System, dissolutions, and transfer of lending
authority. In the latter case, all transfers of lending authority
from banks to federal land bank associations and agricultural credit
associations have occurred.
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b. A Certified Resolution of the System Institution's Board of
Directors [new Sec. 611.1155(a)(4)]
We received the same comments on the requirement for a certified
board resolution under the approval provision as we did under the
notice provision. We refer you to Sec. 611.1154(b)(3) above for a
discussion of these comments. For all the reasons stated in our
discussion of the comments under the Notice provision, we have retained
the requirement for a certified board resolution under this approval
provision.
c. A Statement From the Board of Directors [new Sec. 611.1155 (a)(6)].
Similarly, comments on the board statement, which is required under
both the notice and approval provisions, were summarized under the
notice provision in Sec. 611.1154(b)(5). No new or additional comments
were made on the board statement in this section.
As we explained in our response to the comments on the notice
provision in proposed Sec. 611.1154(b)(5), we are retaining the board
statement requirement but clarify that we are not requiring a separate
board action for the statement. In adopting its resolution, the board
also will be approving the board statement included with the certified
resolution.
In the final rule, we are combining the certified board resolution
and board statement requirements into Sec. 611.1155(a)(4). As a result
of this technical change, the requirement for a letter from the funding
bank approving the institution's equity investment in the UBE is being
moved to Sec. 611.1155(a)(5).
d. Denial of a Request [new Sec. 611.1155(c)]
One commenter believes that FCA should establish clear and
transparent regulatory standards for denial of a bona fide request.
Otherwise, a denial could be arbitrary and capricious and subject to
the personal views of FCA staff.
With respect to establishing standards for denial of a request, we
have not included such standards in the final rule because we are
unable to anticipate all the reasons for denying a request. By law, FCA
is obligated to act in a reasoned, impartial, and equitable manner in
its approval and denial actions. Should a System institution believe
that we failed to do so, our decision may be judicially challenged
based on the arbitrary and capricious standard. Therefore, should we
deny a request, our reasons for denial will be made clear after
careful, impartial and judicious consideration.
6. Ongoing Requirements [new Sec. 611.1156]
One commenter suggests that we replace the word ``interest'' in
Sec. 611.1156(a) with the word ``investment.'' We decline to make the
change because the word ``interest'' is broader in meaning and connotes
not only the institution's equity investment in the UBE, but also
interests such as that of preserving the operations of the UBE's
ongoing business, maintaining good customer relationships, and avoiding
reputational risk.
a. Divestiture [new Sec. 611.1156(b)-(d)]
Three commenters remarked on the divestiture provisions. One
commenter believes that the provisions are redundant and confusing and
suggests that we combine them into one standard. This commenter also is
concerned that FCA's authority to require divestiture without a
suitable cause should be restricted and suggests that FCA establish
standards for a divestiture order. Another commenter, remarking on the
same subject, is concerned that Sec. 611.1156(c) allows FCA to require
divestiture at any time without any triggering event, thus resulting in
a complete loss to the institution. The commenter recommends that we
delete paragraph (c) from the rule.
In response to these comments, we have deleted some and combined
other paragraphs of Sec. 611.1156(b) in this final rule to eliminate
the redundancy in the divestiture provisions. However, we have retained
the provision that allows FCA to direct a System institution to divest
of its investment in a UBE. We note that this provision mirrors the
discretion retained by FCA for those UBEs that we have approved on a
case-by-case basis. Such approvals are subject to a condition giving
FCA the right to order a divestiture without a pre-determined
triggering event. As we are unable to anticipate all the conditions
that might trigger the need for divestiture, we retain this authority
in the final rule.
The ICBA agrees with FCA that a System institution must divest its
ownership interest or withdraw as a member or partner from any UBE if a
non-System entity takes control of the UBE. However, the ICBA comments
that the divestiture should take place within a period not to exceed 6
months with a right to appeal for an extension of not more than 3
months should more time be needed. Finally, the ICBA adds that such a
time limit should apply to divestitures of all UBEs, including those
that have no non-System ownership.
We understand the ICBA's timeliness concerns. However, we decline
to set a specific time limit for divestiture given that investments in
UBEs are generally not liquid or marketable. Moreover, there may be
legal or practical impediments to divesting within a particular
timeframe depending on the nature and ownership structure of the UBE.
Although we are not imposing a time requirement in the regulation, we
expect System institutions to act expeditiously and may specify a time
limit when FCA directs divestiture.
7. Grandfather Provision [new Sec. 611.1158]
a. Scope [new Sec. 611.1158(a)]
We received several comments on the scope of the provision that
allows those existing UBEs that received specific, written approval by
the FCA prior to the effective date of this final rule, as well as
existing acquired property UBEs, to
[[Page 31830]]
be grandfathered under the rule. Two commenters expressed support for
this provision and one commenter asks that FCA confirm that all
existing UBEs are effectively grandfathered and may continue current or
intended business activities.
In response to the request that FCA confirm that all existing UBEs
are grandfathered, we specifically stated in the proposed rule, and
retain the same language in the final rule, that ``those UBE formations
or equity investments that received specific, written approval by FCA
prior to the effective date of this regulation'' are grandfathered as
well as those UBEs organized to acquire and manage unusual or complex
collateral associated with loans. If a System institution is unsure as
to whether a UBE's formation or investment in a UBE meets this
criterion, it should contact FCA for confirmation.
The ICBA, on the other hand, opposes the grandfathering of existing
UBEs, stating that such a practice adds greater risk to the System and
undermines safety and soundness standards.
We do not agree with the ICBA's comments opposing the grandfather
provision. All grandfathered UBEs were subject to a careful review
process, including a review of the System institution's safety and
soundness. To subject them anew to the notice or approval requirements
of the rule would violate the principles of due process. We note that,
although exempt from the notice and approval provisions in the rule,
grandfathered UBEs will remain subject to their conditions of approval
and will be subject to the ongoing and disclosure and reporting
requirements in the rule as set forth in Sec. 611.1158(b)(2).
b. System Institutions' Obligations [new Sec. 611.1158(b)]
Two commenters asked the FCA to adopt a materiality threshold on
the degree of change that would trigger an approval request for a
grandfathered UBE. One commenter believes it is unreasonable to think
that business activity, ownership interests in, or control of any UBE
will remain static over time and that any change or expansion to these
attributes requiring an advance notice to FCA would create a burdensome
and restrictive process. The same commenter states that the 20 business
days advance notice is burdensome, restrictive, and may be impossible
to achieve.
One commenter asks that FCA create a process for System
institutions to invest, divest and/or reinvest in grandfathered UBEs.
In response to these comments, we have modified Sec.
611.1158(b)(3) in the final rule to change the advance notice
requirement from 20 business days to 10 business days consistent with
our change to the advance notice provision in Sec. 611.1154. Also, in
response to the request for more clarity on what changes or expansions
would trigger an advance notice, the final rule provides that an
advance notice is required for any of the following occurrences in a
grandfathered UBE: (1) A change or expansion of the authorized business
activity, service or function of the UBE; (2) an introduction of non-
System ownership to the UBE or an increase in the current level of non-
System ownership in the UBE, to the extent such ownership is authorized
under the final rule; or, (3) a change in control of the UBE as we
define the term ``control'' in the rule. The purpose of the advance
notice is to inform FCA of a change or expansion that meets one or more
of the foregoing criteria now included in this final rule. If FCA
determines, upon review, that the proposed change or expansion is
material, we will notify the System institution before the end of the
advance notice period that it may not proceed with the proposed change
or expansion before submitting a request for approval under Sec.
611.1155. We have added this clarifying language to the final rule in
Sec. 611.1158(b)(4).
In response to the commenter's request that we provide a process in
the rule for System institutions wanting to invest, divest, or reinvest
in grandfathered UBEs, we have modified Sec. 611.1158 to include such
a process in Sec. 611.1158(c). A System institution asking to invest
for the first time in a grandfathered UBE or an institution that had
divested its previous equity investment and wants to reinvest in a
grandfathered UBE must follow either the notice provision in Sec.
611.1154 or the approval provision in Sec. 611.1155, depending on the
UBE's business purpose. Not all requirements will apply under either
the notice or approval provisions to the requesting System institution
because the UBE is already established and is grandfathered under the
rule. Consequently, FCA expects to allow the omission of some
information under our discretion to do so in Sec. Sec. 611.1154(c) and
611.1155(b) of the rule. If a System institution chooses to divest its
equity investment or withdraw as a partner or member in a grandfathered
UBE, it is expected to follow the requirements of the UBE's membership
or partnership agreement. FCA also retains its right to require an
institution to divest its equity interest in a UBE under the provisions
of Sec. 611.1156.
8. Disclosure and Reporting Requirements [Sec. 611.1157]
Because all System institutions organizing or investing in a UBE
under the notice or approval provisions must also comply with the
disclosure and reporting requirements of this section, we have deleted
proposed Sec. 611.1154(d) of the notice provision, which included the
same requirement.
9. Contents of the Annual Report to Shareholders [Sec. 620.5(a)(11)]
FCA is making a technical correction to this section by moving the
annual disclosure requirement on UBEs from Sec. 620.5(a)(11) to Sec.
620.5(a)(12) in this final rule. This change is necessary because the
final rule on Compensation, Retirement Programs, and Related Benefits
included a new disclosure provision in Sec. 620.5(a)(11).
Two commenters believe the disclosure requirements are overly
prescriptive and that System institutions should determine the nature
of the disclosure based on the relative materiality of the UBEs being
disclosed. One commenter saw no value in listing the names of all UBEs
formed to hold acquired property and suggested the disclosure be
limited to the number of UBEs formed for that purpose.
To ensure transparency and meaningful disclosure, FCA retains the
disclosure requirements as proposed. FCA believes that shareholders
should be informed of the extent to which their institutions'
functions, services, or activities are being provided by State-
organized or State-chartered non-System entities (the UBEs), the
identity of these entities, their purpose and scope of activities, and
their relationship to the institution itself. We also believe it is
appropriate to vary the level of required disclosure depending on the
purpose of the UBE rather than the relative materiality of a UBE, as
one commenter suggested. Finally, as member-owned and member-controlled
cooperatives, System boards of directors and executive management have
an obligation to engage and communicate with their member-owners
through financial reports that provide transparent and relevant
information on the results of the institution's business operations
over the previous year.\10\ Such annual disclosures, which inform the
member-owners of the extent of the System institution's activities
[[Page 31831]]
conducted through UBEs, are not overly burdensome or without merit.
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\10\ See section 5.17(a)(8)of the Act; section 514 of the Farm
Credit Banks and Associations Safety and Soundness Act of 1992; and
Sec. Sec. 620.3, 620.5, 630.5, and 630.20 of FCA regulations.
---------------------------------------------------------------------------
IV. Regulatory Flexibility Act
Pursuant to section 605(b) of the Regulatory Flexibility Act (5
U.S.C. 601 et seq.), the FCA hereby certifies that the final rule will
not have a significant economic impact on a substantial number of small
entities. Each of the banks in the Farm Credit System, considered
together with its affiliated associations, has assets and annual income
in excess of the amounts that would qualify them as small entities.
Therefore, Farm Credit System institutions are not ``small entities''
as defined in the Regulatory Flexibility Act.
List of Subjects
12 CFR Part 604
Sunshine Act.
12 CFR Part 611
Agriculture, Banks, banking, Rural areas.
12 CFR Part 612
Agriculture, Banks, banking, Conflict of interests, Crime,
Investigations, Rural areas.
12 CFR Part 619
Agriculture, Banks, banking, Rural areas.
12 CFR Part 620
Accounting, Agriculture, Banks, banking, Reporting and
recordkeeping requirements, Rural areas.
12 CFR Part 621
Accounting, Agriculture, Banks, banking, Penalties, Reporting and
recordkeeping requirements, Rural areas.
12 CFR Part 622
Administrative practice and procedure, Crime, Investigations,
Penalties.
12 CFR Part 623
Administrative practice and procedure.
12 CFR Part 630
Accounting, Agriculture, Banks, banking, Organization and functions
(Government agencies), Reporting and recordkeeping requirements, Rural
areas.
For the reasons stated in the preamble, parts 604, 611, 612, 619,
620, 621, 622, 623, and 630 of chapter VI, title 12 of the Code of
Federal Regulations are amended as follows:
PART 604--FARM CREDIT ADMINISTRATION BOARD MEETINGS
0
1. The authority citation for part 604 continues to read as follows:
Authority: Secs. 5.9, 5.17 of the Farm Credit Act (12 U.S.C.
2243, 2252).
Sec. 604.420 [Amended]
0
2. Section 604.420 is amended by removing the words ``service
organizations'' in paragraph (i)(1) and adding in their place, the
words ``service corporations chartered under the Act''.
PART 611--ORGANIZATION
0
3. The authority citation for part 611 is revised to read as follows:
Authority: Secs. 1.2, 1.3, 1.4, 1.5, 1.12, 1.13, 2.0, 2.1, 2.2,
2.10, 2.11, 2.12, 3.0, 3.1, 3.2, 3.3, 3.7, 3.8, 3.9, 3.21, 4.3A,
4.12, 4.12A, 4.15, 4.20, 4.21, 4.25, 4.26, 4.27, 4.28A, 5.9, 5.17,
5.25, 7.0-7.13, 8.5(e) of the Farm Credit Act (12 U.S.C. 2002, 2011,
2012, 2013, 2020, 2021, 2071, 2072, 2073, 2091, 2092, 2093, 2121,
2122, 2123, 2124, 2128, 2129, 2130, 2142, 2154a, 2183, 2184, 2203,
2208, 2209, 2211, 2212, 2213, 2214, 2243, 2252, 2261, 2279a-2279f-1,
2279aa-5(e)); secs. 411 and 412 of Pub. L. 100-233, 101 Stat. 1568,
1638; sec. 414 of Pub. L. 100-399, 102 Stat. 989, 1004.
Sec. 611.1130 [Amended]
0
4. Section 611.1130 is amended in the first sentence of paragraph (a)
by removing the words ``service organizations organized under the Act''
and adding in their place, the words ``service corporations chartered
under the Act''.
0
5. Revise the heading of subpart I to read as follows:
Subpart I--Service Corporations
Sec. 611.1136 [Amended]
0
6. Section 611.1136 is amended by:
0
a. Revising the section heading;
0
b. Removing the words ``and unincorporated service organizations'' in
paragraph (c);
0
c. Removing the words ``service organization'' or ``service
organizations'' each place they appear and adding in their place, the
words ``service corporation'' or ``service corporations'' respectively.
The revision reads as follows:
Sec. 611.1136 Regulation and examination of service corporations.
* * * * *
0
7. Add a new subpart J, consisting of Sec. Sec. 611.1150-611.1158, to
read as follows:
Subpart J--Unincorporated Business Entities
Sec.
611.1150 Purpose and scope.
611.1151 Definitions.
611.1152 Authority over equity investments in UBEs for business
activity.
611.1153 General restrictions and prohibitions on the use of UBEs.
611.1154 Notice of equity investments in UBEs.
611.1155 Approval of equity investments in UBEs.
611.1156 Ongoing requirements.
611.1157 Disclosure and reporting requirements.
611.1158 Grandfather provision.
Subpart J--Unincorporated Business Entities
Sec. 611.1150 Purpose and scope.
(a) Purpose. This subpart sets forth the parameters for one or more
Farm Credit System (System) institutions to organize or invest in an
Unincorporated Business Entity (UBE) in accordance with the Farm Credit
Act of 1971, as amended (Act).
(b) Scope. Except as authorized under these regulations, no System
institution may manage, control, become a member or partner, or invest
in a State-organized or chartered business entity. This subpart applies
to each System institution that organizes or invests in a UBE,
including a UBE organized for the express purpose of investing in a
Rural Business Investment Company. This subpart does not apply to UBEs
that one or more System institutions have the authority to establish as
Rural Business Investment Companies pursuant to the provisions of title
VI of the Farm Security and Rural Investment Act of 2002, as amended
(FSRIA) and United States Department of Agriculture regulations
implementing FSRIA.
Sec. 611.1151 Definitions.
For purposes of this subpart, the following definitions apply:
Articles of formation means registration certificates, charters,
articles of organization, partnership agreements, membership or trust
agreements, operating, administration or management agreements, fee
agreements or any other documentation on the establishment, ownership,
or operation of a UBE.
Control means that one System institution, directly or indirectly,
owns more than 50 percent of the UBE's equity or serves as the general
partner of an LLLP, or constitutes the sole manager or the managing
member of a UBE. However, under generally accepted accounting
principles (GAAP), the power to control may also exist with a lesser
percentage of ownership, for
[[Page 31832]]
example, if a System institution is the UBE's primary beneficiary,
exercises significant influence over the UBE or establishes control
under other facts and circumstances in accordance with GAAP. Under this
definition, a System institution also will be deemed to have control
over the UBE if it exercises decision-making authority in a principal
capacity of the UBE as defined under GAAP.
Equity investment means a System institution's contribution of
money or assets to the operating capital of a UBE that provides
ownership rights in return.
System institution means each System bank under titles I or III of
the Act, each System association under title II of the Act, and each
service corporation chartered under section 4.25 of the Act.
Third-party UBE means a UBE that is owned or controlled by one or
more non-System persons or entities as the term ``control'' is defined
under GAAP.
UBE means a Limited Partnership (LP), Limited Liability Partnership
(LLP), Limited Liability Limited Partnership (LLLP), Limited Liability
Company (LLC), Business or other Trust Entity (TE), or other business
entity established and maintained under State law that is not
incorporated under any law or chartered under Federal law.
UBE business activity means the services and functions delivered by
a UBE for one or more System institutions.
Unusual and complex collateral means acquired property that may
expose the owner to risks beyond those commonly associated with loans,
including, but not limited to, acquired industrial or manufacturing
properties where there is increased risk of incurring potential
environmental or other liabilities that may accrue to the owners of
such properties.
Sec. 611.1152 Authority over equity investments in UBEs for business
activity.
(a) Regulation, supervisory, oversight, examination and enforcement
authority. FCA has regulatory, supervisory, oversight, examination and
enforcement authority over each System institution's equity investment
in or control of a UBE and the services and functions that a UBE
performs for the System institution. This includes FCA's authority to
require a System institution's dissolution of, disassociation from, or
divestiture of an equity investment in a UBE, or to otherwise condition
the approval of equity investments in UBEs.
(b) Assessing UBE investments and business activity. In accordance
with section 5.15 of the Act, the cost of regulating and examining
System institutions' activities involving UBEs will be taken into
account when assessing a System institution for the cost of
administering the Act.
Sec. 611.1153 General restrictions and prohibitions on the use of
UBEs.
(a) Authorized UBE business activity. All UBE business activity
must be:
(1) Necessary or expedient to the business of one or more System
institutions owning the UBE; and
(2) In no instance greater than the functions and services that one
or more System institutions owning the UBE are authorized to perform
under the Act and as determined by the FCA.
(b) Circumvention of cooperative principles. System institutions
are prohibited from using UBEs to engage in direct lending activities
or any other activity that would circumvent the application of
cooperative principles, including borrower rights as described in
section 4.14A of the Act, or stock ownership, voting rights or
patronage as described in section 4.3A of the Act.
(c) Transparency and the avoidance of conflicts of interest. Each
System institution must ensure that:
(1) The UBE is held out to the public as a separate or subsidiary
entity;
(2) The business transactions, accounts, and records of the UBE are
not commingled with those of the System institution; and
(3) All transactions between the UBE and System institution
directors, officers, employees, and agents are conducted at arm's
length, in the interest of the System institution, and in compliance
with standards of conduct rules in Sec. Sec. 612.2130 through
612.2270.
(d) Limit on one-member UBEs. A UBE owned solely by a single System
institution (including between and among a parent agricultural credit
association and its production credit association and Federal land
credit association subsidiaries and between a parent agricultural
credit bank and its subsidiary Farm Credit Bank) as a one-member UBE is
limited to the following special purposes:
(1) Acquiring and managing the unusual or complex collateral
associated with loans; and
(2) Providing limited services such as electronic transaction,
fixed asset, trustee or other services that are integral to the daily
internal operations of a System institution.
(e) Limit on UBE partnerships. A System institution operating
through a parent-subsidiary structure may not create a UBE partnership
between or among the parent agricultural credit association and its
production credit association and Federal land credit association
subsidiaries or between a parent Agricultural Credit Bank and its Farm
Credit Bank subsidiary.
(f) Prohibition on UBE subsidiaries. Except as provided in this
paragraph, a System institution may not create a subsidiary of a UBE
that it has organized or invested in under this subpart or enable the
UBE itself to create a subsidiary or any other type of affiliated
entity. A System institution may establish a UBE as a subsidiary of a
UBE formed pursuant to paragraph (d)(1) of this section to hold each
investor's pro-rata interest in acquired property provided that the
loan collateral at issue involves a multi-lender transaction that
includes System and non-System lenders.
(g) Limit on potential liability.
(1) Each System institution's equity investment in a UBE must be
established in a manner that will limit potential exposure of the
System institution to no more than the amount of its investment in the
UBE.
(2) A System institution cannot become a general partner of any
partnership other than an LLLP.
(h) Limit on amount of equity investment in UBEs. The aggregate
amount of equity investments that a single System institution is
authorized to hold in UBEs must not exceed one percent of the
institution's total outstanding loans, calculated at the time of each
investment. On a case-by-case basis, FCA may approve an exception to
this limitation that would exceed the one-percent aggregate limit.
Conversely, FCA may impose a percentage limit lower than the one-
percent aggregate limit based on safety or soundness and other relevant
concerns. This one-percent aggregate limit does not apply to equity
investments in one-member UBEs formed for acquired property as
permitted in paragraph (d)(1) of this section. Any equity investment
made in a UBE by a service corporation must be attributed to its System
institution owners based on the ownership percentage of each bank or
association.
(i) Prohibition on relationship with a third-party UBE. A System
institution is prohibited from:
(1) Making any equity investment in a third-party UBE except as may
be authorized on a case-by-case basis under Sec. 615.5140(e) of this
chapter for de minimis and passive investments. Such requests would be
considered outside of this rule.
(2) Serving as the general partner or manager of a third-party UBE;
or
(3) Being designated as the primary beneficiary of a third-party
UBE, either alone or with other System institutions.
[[Page 31833]]
(j) Limitation on non-System equity investments. Non-System persons
or entities may not invest in a UBE that is controlled by a System
institution except that non-System persons or entities may own 20
percent or less of the equity of a System-controlled UBE organized to
deliver services integral to the daily internal operations of a System
institution.
(k) UBEs formed for acquiring and managing collateral. The
provisions of paragraphs (i) and (j) of this section do not apply to
UBEs formed for the purpose of acquiring and managing unusual or
complex collateral associated with multiple-lender loan transactions in
which non-System persons or entities are participants.
Sec. 611.1154 Notice of equity investments in UBEs.
(a) Applicability. This notice provision is applicable only to
System institutions that wish to make an equity investment in UBEs
whose activities are limited to the following purposes:
(1) Acquiring and managing unusual or complex collateral associated
with loans;
(2) Providing hail or multi-peril crop insurance services in
collaboration with another System institution in accordance with Sec.
618.8040 of this chapter; and
(3) Any other UBE business activity that FCA determines to be
appropriate for this notice provision.
(b) Notice requirements. System institutions must provide written
notice to FCA so that the notice is received by FCA no later than 10
business days in advance of making an equity investment in a UBE for
authorized UBE business activity described in paragraph (a) of this
section. The notice must include:
(1) The UBE's articles of formation, including its name and the
State in which it is organized, length of time it will exist, its
partners or members, and its management structure;
(2) The dollar amount of the System institution's equity investment
in the UBE;
(3) A certified resolution of the System institution's board of
directors authorizing the equity investment in, and business activity
of, the UBE and the board's approval to submit the notice to the FCA.
For UBEs organized to acquire and manage unusual or complex collateral
associated with loans as identified in paragraph (a)(1) of this
section, the board of directors may adopt a blanket board resolution to
cover all such UBEs that the System institution will organize.
(4) Except for those UBEs identified in paragraph (a)(1) of this
section, a board statement included with the certified board resolution
affirming that the UBE:
(i) Is needed to achieve operating efficiencies and benefits;
(ii) Is necessary or expedient to the System institution's
business;
(iii) Will operate with transparency;
(iv) Will conduct its business activity in a manner designed to
prevent conflicts of interest between its purpose and operations and
the mission and operations of the System institution(s);
(v) Will otherwise be in compliance with applicable Federal, State,
and local laws; and
(vi) Will not be used by the System institution to make direct
loans; perform any functions or provide any services that the System
institution is not authorized to perform or provide under the Act and
FCA regulations; or to exceed the stated purpose of the UBE as set
forth in its articles of formation.
(5) A letter from the funding bank that it has approved the
institution's equity investment in the UBE. For those UBEs organized to
acquire and manage unusual or complex collateral associated with loans
as identified in paragraph (a)(1) of this section, the funding bank may
provide a blanket approval letter to cover all such UBEs that its
district associations may invest in or organize.
(6) Any additional information the System institution wishes to
submit.
(c) Supplementation or omission of information. FCA may require the
supplementation or allow the omission of any information required under
paragraph (b) of this section.
(d) Other requirements. A System institution may not organize or
invest in those UBEs identified in paragraph (a) of this section if the
FCA notifies the institution before the end of the 10 business day
advance notice period that such investment requires FCA approval under
the provisions of Sec. 611.1155.
Sec. 611.1155 Approval of equity investments in UBEs.
(a) Request. System institutions must receive FCA approval before
organizing or investing in any UBE that does not qualify for the notice
provision set forth in Sec. 611.1154(a). A request for approval under
this section must include the following information:
(1) A detailed statement of the risk characteristics of the
investment, as required by Sec. 615.5140(e) of this chapter and the
initial amount of equity investment;
(2) A detailed statement on the purpose and objectives of the UBE;
the need for the UBE and the operating efficiencies and benefits that
will be achieved by using the UBE;
(3) The proposed articles of formation addressing, at a minimum,
the following:
(i) The UBE's name, the State in which it is organized, the city
and State in which its principal office is to be located, and its
partners or members and management structure;
(ii) Specific business activities that the UBE will conduct;
(iii) General powers of the UBE;
(iv) Ownership, voting, partnership, membership and operating
agreements for the UBE;
(v) Procedures to adopt and amend the partnership, membership or
operating agreement of the UBE;
(vi) The standards and procedures for the application and
distribution of the UBE's earnings; and
(vii) Length of time the UBE will exist.
(4) A certified resolution of the System institution's board of
directors authorizing the equity investment in the UBE and the UBE
business activity and the board's approval to submit the request to the
FCA. The certified board resolution must include a board statement
affirming that the UBE:
(i) Is necessary or expedient to the System institution's business;
(ii) Will operate with transparency;
(iii) Will conduct its business activity in a manner designed to
prevent conflicts of interest between its purpose and operations and
the mission and operations of the System institution(s);
(iv) Will comply with applicable Federal, State, and local laws;
and
(v) Will not be used by the System institution to make direct
loans; perform any functions or provide any services that the System
institution is not authorized to perform or provide under the Act and
FCA regulations; or exceed the purpose of the UBE as stated in its
articles of formation.
(5) A letter from the funding bank that it has approved the
institution's equity investment in the UBE;
(6) Any additional information the System institution wishes to
submit.
(b) Supplementation or omission of information. FCA may require the
supplementation or allow the omission of any information required under
paragraph (a) of this section based on the complex or noncomplex nature
of the proposed UBE.
(c) Denial of a request. The FCA will specify in writing to the
submitting System institutions the reasons for denial of any request to
organize or invest in a UBE.
Sec. 611.1156 Ongoing requirements.
A System institution that organizes or invests in a UBE must also
comply with the following requirements:
[[Page 31834]]
(a) Maintain and ensure FCA's access to all books, papers, records,
agreements, reports and other documents of each UBE necessary to
document and protect the institution's interest in each entity;
(b) Divest, as soon as practicable, the institution's equity or
beneficial interest in, and sever any relationship with a UBE:
(1) That conducts activities beyond those authorized to carry out
its limited purpose or that are contrary to the Act or FCA regulations,
or as otherwise directed to do so by FCA; or
(2) Where non-System persons or entities obtain control as defined
under GAAP. This paragraph does not apply to UBEs formed for the
purpose of acquiring and managing unusual or complex collateral
associated with multiple-lender loan transactions in which non-System
persons or entities are participants.
Sec. 611.1157 Disclosure and reporting requirements.
(a) Annual report to shareholders. In its annual report to
shareholders, as set forth in Sec. 620.5(a)(12) of this chapter, a
System institution must provide information on its UBE investment and
business activity.
(b) Periodic reports as directed. As directed by FCA, a System
institution must submit periodic reports to FCA on any equity
investment in a UBE or UBE status as provided under Sec. 621.12 of
this chapter, and in accordance with Sec. Sec. 621.13 and 621.14 of
this chapter.
(c) Dissolution of a UBE. A System institution must submit a timely
report to FCA on the dissolution of a UBE that it controls.
Sec. 611.1158 Grandfather provision.
(a) Scope. The following equity investments in UBEs are
grandfathered from the Notice and Approval provisions under Sec. Sec.
611.1154 and 611.1155, respectively.
(1) Those UBE formations or equity investments that received
specific, written approval by FCA prior to the effective date of this
regulation; and
(2) Those UBE formations or equity investments that occurred prior
to the effective date of this regulation to acquire or manage unusual
or complex collateral associated with loans.
(b) System institutions' obligations. All System institutions with
grandfathered UBEs:
(1) Remain subject to their conditions of approval;
(2) Are subject to the ongoing requirements of Sec. 611.1156 and
the disclosure and reporting requirements of Sec. 611.1157; and
(3) May not change or expand the authorized business activity,
service, or function of the UBE as approved by FCA, add or increase the
level of non-System ownership in the UBE to the extent such ownership
is authorized under Sec. 611.1153(j), or change control of the UBE as
control is defined in Sec. 611.1151 without giving written notice of
such changes to FCA at least 10 business days in advance of any such
change or expansion.
(4) A System institution may not proceed with any change or
expansion as defined in paragraph (b)(3) of this section if the FCA
notifies the institution before the end of the 10 business day advance
notice period that the proposed change or expansion is material and
must be submitted for FCA approval under the provisions of Sec.
611.1155.
(c) System institution investments or reinvestments in
grandfathered UBEs. System institutions investing for the first time in
grandfathered UBEs or reinvesting after having previously divested
their equity investment must provide notice to FCA or obtain FCA
approval under either the notice provision in Sec. 611.1154 or the
approval provision in Sec. 611.1155 depending on the function,
service, or activity of the grandfathered UBE in which the institution
seeks to invest or reinvest.
PART 612--STANDARDS OF CONDUCT AND REFERRAL OF KNOWN OR SUSPECTED
CRIMINAL VIOLATIONS
0
8. The authority citation for part 612 continues to read as follows:
Authority: Secs. 5.9, 5.17, 5.19 of the Farm Credit Act (12
U.S.C. 2243, 2252, 2254).
0
9. Section 612.2130 is amended by revising paragraphs (p) and (t) to
read as follows:
Sec. 612.2130 Definitions.
* * * * *
(p) Service corporation means each service corporation chartered
under the Act.
* * * * *
(t) System institution and institution mean any bank, association,
or service corporation in the Farm Credit System, including the Farm
Credit Banks, banks for cooperatives, Agricultural Credit Banks,
Federal land bank associations, agricultural credit associations,
Federal land credit associations, production credit associations, the
Federal Farm Credit Banks Funding Corporation, and service corporations
chartered under the Act.
PART 619--DEFINITIONS
0
10. The authority citation for part 619 continues to read as follows:
Authority: Secs. 1.4, 1.5, 1.7, 2.1, 2.2, 2.4, 2.11, 2.12, 3.1,
3.2, 3.21, 4.9, 5.9, 5.17, 5.19, 7.0, 7.1, 7.6, 7.8, and 7.12 of the
Farm Credit Act (12 U.S.C. 2012, 2013, 2015, 2072, 2073, 2075, 2092,
2093, 2122, 2123, 2142, 2160, 2243, 2252, 2254, 2279a, 2279a-1,
2279b, 2279c-1, 2279f); sec. 514 of Pub. L. 102-552, 106 Stat. 4102.
0
11. Add a new Sec. 619.9338 to read as follows:
Sec. 619.9338 Unincorporated business entities.
An Unincorporated Business Entity means a Limited Partnership (LP),
Limited Liability Partnership (LLP), Limited Liability Limited
Partnership (LLLP), Limited Liability Company (LLC), Business or other
Trust Entity (TE), or other business entity established and maintained
under State law that is not incorporated under any law or chartered
under Federal law.
PART 620--DISCLOSURE TO SHAREHOLDERS
0
12. The authority citation for part 620 continues to read as follows:
Authority: Secs. 4.3, 4.3A, 4.19, 5.9, 5.17, 5.19 of the Farm
Credit Act (12 U.S.C. 2154, 2154a, 2207, 2243, 2252, 2254); sec. 424
of Pub. L. 100-233, 101 Stat. 1568, 1656; sec. 514 of Pub. L. 102-
552, 106 Stat. 4102.
Subpart B--Annual Report to Shareholders
0
13. Section 620.5 is amended by:
0
a. Removing the words ``service organization'' in paragraph (a)(3) and
adding in their place, the words ``service corporation chartered under
the Act''; and
0
b. Adding a new paragraph (a)(12) to read as follows:
Sec. 620.5 Contents of the annual report to shareholders.
* * * * *
(a) * * *
(12) For banks and associations, business relationships with
unincorporated business entities (UBEs).
(i) Except as provided in paragraph (a)(12)(ii) of this section,
describe the business relationship with any UBE, as defined in Sec.
611.1151 of this chapter, that was organized by the bank or association
or in which the bank or association has an equity interest. Include in
the description the name of the UBE, the type of business entity, the
purpose for which the UBE was organized, the scope of its activities,
and the level of ownership. If the bank or
[[Page 31835]]
association does not have an equity interest, but manages the
operations of a UBE that is controlled by a System institution,
describe this business relationship and any fees received.
(ii) If the UBE is organized for the purpose of acquiring and
managing unusual or complex collateral associated with loans, the bank
or association need only disclose the name of the UBE, the type of
business entity, and the purpose for which the UBE was organized.
PART 621--ACCOUNTING AND REPORTING REQUIREMENTS
0
14. The authority citation for part 621 continues to read as follows:
Authority: Secs. 5.17, 8.11 of the Farm Credit Act (12 U.S.C.
2252, 2279aa-11); sec. 514 of Pub. L. 102-552.
Sec. 621.1 [Amended]
0
15. Section 621.1 is amended by removing the words ``service
organizations'' and adding in their place, the words ``service
corporations''.
Sec. 621.2 [Amended]
0
16. Section 621.2(e) is amended by removing the words ``service
organization'' and adding in their place, the words ``service
corporation''.
PART 622--RULES OF PRACTICE AND PROCEDURE
0
17. The authority citation for part 622 continues to read as follows:
Authority: Secs. 5.9, 5.10, 5.17, 5.25-5.37 of the Farm Credit
Act (12 U.S.C. 2243, 2244, 2252, 2261-2273); 28 U.S.C. 2461 note;
and 42 U.S.C. 4012a(f).
Sec. 622.2 [Amended]
0
18. Section 622.2(d) is amended by removing the words ``service
organization chartered under part E of title IV of the Act'' and adding
in their place, the words ``service corporation chartered under the
Act''.
PART 623--PRACTICE BEFORE THE FARM CREDIT ADMINISTRATION
0
19. The authority citation for part 623 is revised to read as follows:
Authority: Secs. 5.9, 5.10, 5.17, 5.25-5.37 of the Farm Credit
Act (12 U.S.C. 2243, 2244, 2252, 2261-2273).
Sec. 623.2 [Amended]
0
20. Section 623.2(d) is amended by removing the words ``service
organization chartered under part E of title IV of the Act'' and adding
in their place, the words ``service corporation chartered under the
Act''.
PART 630--DISCLOSURE TO INVESTORS IN SYSTEM-WIDE AND CONSOLIDATED
BANK DEBT OBLIGATIONS OF THE FARM CREDIT SYSTEM
0
21. The authority citation for part 630 continues to read as follows:
Authority: Secs. 4.2, 4.9, 5.9, 5.17, 5.19 of the Farm Credit
Act (12 U.S.C. 2153, 2160, 2243, 2252, 2254); sec. 424 of Pub. L.
100-233, 101 Stat. 1568, 1656; sec. 514 of Pub. L. 102-552, 106
Stat. 4102.
Sec. 630.20 [Amended]
0
22. Section 630.20 is amended by removing the words ``service
organization'' in paragraph (a)(2) and adding in their place, the words
``service corporation''.
Dated: May 21, 2013.
Dale L. Aultman,
Secretary, Farm Credit Administration Board.
[FR Doc. 2013-12594 Filed 5-24-13; 8:45 am]
BILLING CODE 6705-01-P