Banking and Finance Law Daily FHFA issues final rule on indemnification payments
Wednesday, October 3, 2018

FHFA issues final rule on indemnification payments

By Charles A. Menke, J.D.

The Federal Housing Finance Agency has issued a final rule establishing standards for identifying whether an indemnification payment by a regulated entity to an affiliated party in connection with an administrative proceeding or civil action instituted by the FHFA is prohibited or permissible. The final rule, which takes effect Nov. 5, 2018, applies to all regulated entities, each Federal Home Loan Bank, Fannie Mae, Freddie Mac, and the Federal Home Loan Bank System's Office of Finance (OF). The final rule does not, however, apply to any regulated entity operating in conservatorship or receivership, or to a limited-life regulated entity.

The final rule generally adopts the indemnification provisions of the Federal Deposit Insurance Corporation’s counterpart regulation, as set forth in a previous FHFA proposal. Similar to the FDIC’s regulation, and consistent with the FHFA Director’s statutory discretion, the final rule creates a presumption that indemnification payments for costs, expenses, fees, and penalties by a regulated entity or the OF to affiliated parties are impermissible in connection with an FHFA-initiated administrative proceeding or civil action. The final rule also sets forth criteria and standards constituting the factors that the Director has determined are to be used to prohibit or limit indemnification payments. An institution is required to ensure that no indemnification payments are made unless the criteria and standards are met.

Companies: Fannie Mae; Freddie Mac

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