12 C.F.R. PART 1710—CORPORATE GOVERNANCE
Title 12 - Banks and Banking
Authority: 12 U.S.C. 4513(a) and 4513(b)(1).
Source: 67 FR 38370, June 4, 2002, unless otherwise noted.
OFHEO is responsible under the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, 12 U.S.C. 4501 et seq., for ensuring the safety and soundness of the Enterprises. In furtherance of that responsibility, this part sets forth minimum standards with respect to the corporate governance practices and procedures of the Enterprises. For purposes of this part, the term: (a) Act means the Federal Housing Enterprises Financial Safety and Soundness Act of 1992, Title XIII of the Housing and Community Development Act of 1992, Pub. L. 102–550, section 1301, Oct. 28, 1992, 106 Stat. 3672, 3941 through 4012 (1993) (12 U.S.C. 4501 et seq.). (b) Board member means a member of the board of directors. (c) Board of directors means the board of directors of an Enterprise. (d) Chartering acts mean the Federal National Mortgage Association Charter Act and the Federal Home Loan Mortgage Corporation Act, which are codified at 12 U.S.C. 1716 through 1723i and 12 U.S.C. 1451 through 1459, respectively. (e) Compensation means any payment of money or the provision of any other thing of current or potential value in connection with employment. The term “compensation” includes all direct and indirect payments of benefits, both cash and non-cash, including, but not limited to, payments and benefits derived from compensation or benefit agreements, fee arrangements, perquisites, stock option plans, post employment benefits, or other compensatory arrangements. (f) Director means the Director of OFHEO or his or her designee. (g) Employee means a salaried individual, other than an executive officer, who works part-time, full-time, or temporarily for an Enterprise. (h) Enterprise means the Federal National Mortgage Association or the Federal Home Loan Mortgage Corporation; and the term “Enterprises” means, collectively, the Federal National Mortgage Association and the Federal Home Loan Mortgage Corporation. (i) Executive officer means any senior executive officer and any senior vice president of an Enterprise and any individual with similar responsibilities, without regard to title, who is in charge of a principal business unit, division, or function of an Enterprise, or who reports directly to the chairperson, vice chairperson, chief operating officer, or president of an Enterprise. (j) NYSE means the New York Stock Exchange. (k) OFHEO means the Office of Federal Housing Enterprise Oversight. (l) Senior executive officer means the chairperson of the board of directors, chief executive officer, chief financial officer, chief operating officer, president, vice chairperson, any executive vice president of an Enterprise, and any individual, without regard to title, who has similar responsibilities. (a) General. The corporate governance practices and procedures of each Enterprise shall comply with applicable chartering acts and other Federal law, rules, and regulations, and shall be consistent with the safe and sound operations of the Enterprise. (b) Election and designation of body of law. (1) To the extent not inconsistent with paragraph (a) of this section, each Enterprise shall follow the corporate governance practices and procedures of the law of the jurisdiction in which the principal office of the Enterprise is located, as amended; Delaware General Corporation Law, Del. Code Ann. tit. 8, as amended; or the Revised Model Business Corporation Act, as amended. (2) Each Enterprise shall designate in its bylaws the body of law elected for its corporate governance practices and procedures pursuant to this paragraph within 90 calendar days from August 5, 2002. (a) Membership—(1) Limits on service of board members—(i) General requirement. No board member of an Enterprise may serve on the board of directors for more than 10 years or past the age of 72, whichever comes first; provided, however, a board member may serve his or her full term if he or she has served less than 10 years or is 72 years on the date of his or her election or appointment to the board. (ii) Waiver. Upon written request of an Enterprise, the Director may waive, in his or her sole discretion and for good cause, the limits on the service of a board member under paragraph (a)(1)(i) of this section. (2) Independence of board members. A majority of seated members of the board of directors of an Enterprise shall be independent board members, as defined under rules set forth by the NYSE, as amended from time to time. (b) Meetings, quorum and proxies, information, and annual review—(1) Frequency of meetings. The board of directors of an Enterprise shall meet at least eight times a year and no less than once a calendar quarter to carry out its obligations and duties under applicable laws, rules, regulations, and guidelines. (2) Non-management board member meetings. Non-management directors of an Enterprise shall meet at regularly scheduled executive sessions without management participation. (3) Quorum of board of directors; proxies not permissible. For the transaction of business, a quorum of the board of directors of an Enterprise is at least a majority of the seated board of directors and a board member may not vote by proxy. (4) Information. Management of an Enterprise shall provide a board member of the Enterprise with such adequate and appropriate information that a reasonable board member would find important to the fulfillment of his or her fiduciary duties and obligations. (5) Annual review. At least annually, the board of directors of an Enterprise shall review, with appropriate professional assistance, the requirements of laws, rules, regulations, and guidelines that are applicable to its activities and duties. [70 FR 17310, Apr. 6, 2005] (a) General. The board of directors may rely, in directing the Enterprise, on reports from committees of the board of directors, provided, however, that no committee of the board of directors shall have the authority of the board of directors to amend the bylaws and no committee shall operate to relieve the board of directors or any board member of a responsibility imposed by applicable law, rule, or regulation. (b) Frequency of meetings. A committee of the board of directors of an Enterprise shall meet with sufficient frequency to carry out its obligations and duties under applicable laws, rules, regulations, and guidelines. (c) Required committees. An Enterprise shall provide for the establishment of, however styled, the following committees of the board of directors, which committees shall be in compliance with the charter, independence, composition, expertise, duties, responsibilities, and other requirements set forth under section 301 of the Sarbanes-Oxley Act of 2002, Pub. L. 107–204 (Jul. 30, 2002) (SOA), as amended from time to time, with respect to the audit committee, and under rules issued by the NYSE, as amended from time to time— (1) Audit committee; (2) Compensation committee; and (3) Nominating/corporate governance committee. [67 FR 38370, June 4, 2002. Redesignated and amended at 70 FR 17310, 17311, Apr. 6, 2005] (a) General. Compensation of board members, executive officers, and employees of an Enterprise shall not be in excess of that which is reasonable and appropriate, shall be commensurate with the duties and responsibilities of such persons, shall be consistent with the long-term goals of the Enterprise, shall not focus solely on earnings performance, but shall take into account risk management, operational stability and legal and regulatory compliance as well, and shall be undertaken in a manner that complies with applicable laws, rules, and regulations. (b) Reimbursement. If an Enterprise is required to prepare an accounting restatement due to the material noncompliance of the Enterprise, as a result of misconduct, with any financial reporting requirement under the securities laws, the chief executive officer and chief financial officer of the Enterprise shall reimburse the Enterprise as provided under section 304 of the SOA, as amended from time to time. This provision does not otherwise limit the authority of OFHEO to employ remedies available to it under its enforcement authorities. [67 FR 38370, June 4, 2002. Redesignated and amended at 70 FR 17310, 17311, Apr. 6, 2005] (a) General. An Enterprise shall establish and administer a written code of conduct and ethics that is reasonably designed to assure the ability of board members, executive officers, and employees of the Enterprise to discharge their duties and responsibilities, on behalf of the Enterprise, in an objective and impartial manner, and that includes standards required under section 406 of the SOA, as amended from time to time, and other applicable laws, rules, and regulations. (b) Review. Not less than once every three years, an Enterprise shall review the adequacy of its code of conduct and ethics for consistency with practices appropriate to the Enterprise and make any appropriate revisions to such code. [70 FR 17311, Apr. 6, 2005] (a) Purpose. The purpose of this section, and of this subpart, is to set forth minimum standards of the conduct and responsibilities of the board of directors in furtherance of the safe and sound operations of each Enterprise. The provisions of this section neither provide shareholders of an Enterprise with additional rights nor impose liability on any board member under State law. (b) Conduct and responsibilities. The board of directors of an Enterprise is responsible for directing the conduct and affairs of the Enterprise in furtherance of the safe and sound operation of the Enterprise and shall remain reasonably informed of the condition, activities, and operations of the Enterprise. The responsibilities of the board of directors include having in place adequate policies and procedures to assure its oversight of, among other matters, the following: (1) Corporate strategy, major plans of action, risk policy, programs for legal and regulatory compliance and corporate performance, including but not limited to prudent plans for growth and allocation of adequate resources to manage operations risk; (2) Hiring and retention of qualified senior executive officers and succession planning for such senior executive officers; (3) Compensation programs of the Enterprise; (4) Integrity of accounting and financial reporting systems of the Enterprise, including independent audits and systems of internal control; (5) Process and adequacy of reporting, disclosures, and communications to shareholders, investors, and potential investors; (6) Extensions of credit to board members and executive officers; and (7) Responsiveness of executive officers in providing accurate and timely reports to Federal regulators and in addressing the supervisory concerns of Federal regulators in a timely and appropriate manner. (c) Guidance. The board of directors should refer to the body of law elected under §1710.10 and to publications and other pronouncements of OFHEO for additional guidance on conduct and responsibilities of the board of directors. [67 FR 38370, June 4, 2002, as amended at 70 FR 17311, Apr. 6, 2005] An Enterprise may not directly or indirectly, including through any subsidiary, extend or maintain credit, arrange for the extension of credit, or renew an extension of credit, in the form of a personal loan to or for any board member or executive officer of the Enterprise as provided by section 402 of the SOA, as amended from time to time. [70 FR 17311, Apr. 6, 2005] The chief executive officer and the chief financial officer of an Enterprise shall review each quarterly report and annual report issued by the Enterprise and such reports shall include certifications by such officers as required by section 302 of the SOA, as amended from time to time. [70 FR 17311, Apr. 6, 2005] An Enterprise may not accept audit services from an external auditing firm if the lead or coordinating audit partner who has primary responsibility for the external audit of the Enterprise, or the external audit partner who has responsibility for reviewing the external audit has performed audit services for the Enterprise in each of the five previous fiscal years. [70 FR 17312, Apr. 6, 2005] (a) Compliance program. (1) An Enterprise shall establish and maintain a compliance program that is reasonably designed to assure that the Enterprise complies with applicable laws, rules, regulations, and internal controls. (2) The compliance program shall be headed by a compliance officer, however styled, who reports directly to the chief executive officer of the Enterprise. The compliance officer shall report regularly to the board of directors or an appropriate committee of the board of directors on compliance with and the adequacy of current compliance policies and procedures of the Enterprise, and shall recommend any adjustments to such policies and procedures that he or she considers necessary and appropriate. (b) Risk management program. (1) An Enterprise shall establish and maintain a risk management program that is reasonably designed to manage the risks of the operations of the Enterprise. (2) The risk management program shall be headed by a risk management officer, however styled, who reports directly to the chief executive officer of the Enterprise. The risk management officer shall report regularly to the board of directors or an appropriate committee of the board of directors on compliance with and the adequacy of current risk management policies and procedures of the Enterprise, and shall recommend any adjustments to such policies and procedures that he or she considers necessary and appropriate. (c) Compliance with other laws. (1) If an Enterprise deregisters or has not registered its common stock with the U.S. Securities and Exchange Commission (Commission) under the Securities Exchange Act of 1934, the Enterprise shall comply or continue to comply with sections 301, 302, 304, 402, and 406 of the SOA, as amended from time to time, subject to such requirements as provided by §1710.30 of this part. (2) An Enterprise that has its common stock registered with the Commission shall maintain such registered status, unless it provides 60 days prior written notice to the Director stating its intent to deregister and its understanding that it will remain subject to the requirements of sections 301, 302, 304, 402, and 406 of the SOA, as amended from time to time, subject to such requirements as provided by §1710.30 of this part. [70 FR 17312, Apr. 6, 2005] (a) Safety and soundness authority. OFHEO has the authority, under the Act, to prohibit or restrict reimbursement or indemnification of any current or former board member or any current or former executive officer by an Enterprise or by any affiliate of an Enterprise in furtherance of the safe and sound operations of the Enterprise. (b) Policies and procedures. Each Enterprise shall have in place policies and procedures consistent with this part for indemnification, including the approval or denial by the board of directors of indemnification of current and former board members and current or former executive officers. Such policies and procedures should address, among other matters, standards relating to indemnification, investigation by the board of directors, and review by independent counsel. In connection with standards of Federal or state law (including the Revised Model Corporation Act) or NYSE rules that are made applicable to an Enterprise by §§1710.10, 1710.11, 1710.12, 1710.17, and 1710.19 of this part, the Director, in his or her sole discretion, may modify the standards contained in this part in accordance with 5 U.S.C. 553 and upon written notice to the Enterprise. [70 FR 17312, Apr. 6, 2005]
Title 12: Banks and Banking
PART 1710—CORPORATE GOVERNANCE
Section Contents
§ 1710.1 Purpose.
§ 1710.2 Definitions.
§§ 1710.3-1710.9 [Reserved]
§ 1710.10 Law applicable to corporate governance.
§ 1710.11 Board of directors.
§ 1710.12 Committees of board of directors.
§ 1710.13 Compensation of board members, executive officers, and employees.
§ 1710.14 Code of conduct and ethics.
§ 1710.15 Conduct and responsibilities of board of directors.
§ 1710.16 Prohibition of extensions of credit to board members and executive officers.
§ 1710.17 Certification of disclosures by chief executive officer and chief financial officer.
§ 1710.18 Change of audit partner.
§ 1710.19 Compliance and risk management programs; compliance with other laws.
§ 1710.20 Indemnification.
§ 1710.30 Modification of certain provisions.
Subpart A—General
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§ 1710.1 Purpose.
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§ 1710.2 Definitions.
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§§ 1710.3-1710.9 [Reserved]
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Subpart B—Corporate Practices and Procedures
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§ 1710.10 Law applicable to corporate governance.
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§ 1710.11 Board of directors.
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§ 1710.12 Committees of board of directors.
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§ 1710.13 Compensation of board members, executive officers, and employees.
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§ 1710.14 Code of conduct and ethics.
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§ 1710.15 Conduct and responsibilities of board of directors.
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§ 1710.16 Prohibition of extensions of credit to board members and executive officers.
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§ 1710.17 Certification of disclosures by chief executive officer and chief financial officer.
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§ 1710.18 Change of audit partner.
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§ 1710.19 Compliance and risk management programs; compliance with other laws.
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Subpart C—Indemnification
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§ 1710.20 Indemnification.
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Subpart D—Modification of Certain Provisions
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§ 1710.30 Modification of certain provisions.
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