Banking and Finance Law Daily FHFA adopts final rule expanding strategic business plan requirements
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Thursday, October 18, 2018

FHFA adopts final rule expanding strategic business plan requirements

By Charles A. Menke, J.D.

The Federal Housing Finance Agency has adopted a final rule amending its regulation on the Responsibilities of Boards of Directors, Corporate Practices, and Corporate Governance for its regulated entities. The final rule, which takes effect Dec. 18, 2018, requires Fannie Mae and Freddie Mac (the Enterprises) to adhere to the same strategic business plan requirements currently imposed on the Federal Home Loan Banks. The final rule also makes a number of adjustments and conforming changes to the existing regulation.

As amended, the regulation requires that the board of directors of each regulated entity have in effect at all times a strategic business plan that describes its strategy for achieving its mission and public purposes. The amended regulation also extends to the boards of the Enterprises the existing provision requiring the board of each Federal Home Loan Bank to review the strategic business plan at least annually, re-adopt it at least once every three years, and establish reporting requirements for and monitor implementation of the strategic business plan. The final rule further adds a new provision regarding current and emerging risks, repeals two outdated provisions of the existing regulation, and makes a conforming change to the Office of Finance Board of Directors regulation.

Based on comments received by the FHFA in response to its initial proposal (see Banking and Finance Law Daily, April 5, 2018), the agency made a number of revisions to the proposal aimed at achieving an appropriate balance between a high-level view and granular detail. However, the FHFA declined to make several other revisions suggested by various commenters, emphasizing that the final rule, as adopted: (1) preserves the distinct division of roles between a regulated entity’s board and management; (2) does not prescribe board functions, such as engaging in market research, and does not prohibit a regulated entity’s board from delegating functions, other than its ultimate oversight function, to senior management; (3) does not apply to diversity and inclusion strategic plans, and does not prohibit a regulated entity from incorporating its diversity and inclusion strategic plan into its strategic business plan; (4) should not preclude a regulated entity’s board from exercising its duty of care to plan for emerging risks associated with significant activities at the outset of a multi-year strategic planning process; and (5) addresses matters of corporate practice and governance at the regulated entities consistent with the FHFA’s regulatory authority under the Safety and Soundness Act.

Companies: Fannie Mae; Freddie Mac

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