[Federal Register: August 14, 2007 (Volume 72, Number 156)]
[Proposed Rules]
[Page 45390-45391]
From the Federal Register Online via GPO Access [wais.access.gpo.gov]
[DOCID:fr14au07-23]
[[Page 45390]]
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FARM CREDIT ADMINISTRATION
12 CFR Part 620
RIN 3052-AC37
Disclosure to Shareholders--Annual Report to Shareholders
AGENCY: Farm Credit Administration.
ACTION: Proposed rule.
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SUMMARY: The Farm Credit Administration (FCA, Agency, we), proposes to
amend Sec. 620.4 of our regulations to allow Farm Credit System
(System) institutions 90 calendar days to prepare and distribute annual
reports to shareholders, while retaining the 75 calendar day
requirement for electronic reporting and distribution to the FCA.
DATES: You may send comments on or before September 13, 2007.
ADDRESSES: We offer a variety of methods to receive your comments. For
accuracy and efficiency reasons, commenters are encouraged to submit
comments by e-mail or through the Agency's Web site or the Federal
eRulemaking Portal. As faxes are difficult for us to process and
achieve compliance with section 508 of the Rehabilitation Act, please
consider another means to submit your comment if possible. Regardless
of the method you use, please do not submit your comment multiple times
via different methods. You may submit comments by any of the following
methods:
E-mail: Send us an e-mail at reg-comm@fca.gov.
Agency Web site: http://www.fca.gov. Select ``Legal
Info,'' then ``Pending Regulations and Notices.''
Federal eRulemaking Portal: http://www.regulations.gov.
Follow the instructions for submitting comments.
Mail: Gary K. Van Meter, Deputy Director, Office of
Regulatory Policy, Farm Credit Administration, 1501 Farm Credit Drive,
McLean, VA 22102-5090.
Fax: (703) 883-4477. Posting and processing of faxes may
be delayed. Please consider another means to comment, if possible.
You may review copies of all comments we receive at our office in
McLean, Virginia, or from our Web site at http://www.fca.gov. Once you
are in the Web site, select ``Legal Info,'' and then select ``Public
Comments.'' We will show your comments as submitted, but for technical
reasons we may omit items such as logos and special characters.
Identifying information you provide, such as phone numbers and
addresses, will be publicly available. However, we will attempt to
remove electronic-mail addresses to help reduce Internet spam.
FOR FURTHER INFORMATION CONTACT: Christopher D. Wilson, Policy Analyst,
Office of Regulatory Policy, Farm Credit Administration, McLean, VA
22102-5090, (703) 883-4414, TTY (703) 883-4434; or Bob Taylor, Attorney
Advisor, Office of General Counsel, Farm Credit Administration, McLean,
VA 22102-5090, (703) 883-4020, TTY (703) 883-4020; or Jane Virga,
Senior Attorney, Office of General Counsel, Farm Credit Administration,
McLean, VA 22102-5090, (703) 883-4020, TTY (703) 883-4020.
SUPPLEMENTARY INFORMATION:
I. Objectives
Our objectives in this proposed rule are to:
Extend the time for System institutions to prepare and
distribute their annual reports to shareholders from 75 calendar days
to 90 calendar days; and
Promote high quality and timely reporting and disclosure
by System institutions to shareholders and the FCA.
II. Background
A. Annual Report Distribution Under FCA Regulations
Part 620, Disclosure to Shareholders, establishes the requirements
for financial reports for Farm Credit banks and associations. In
pertinent part, Sec. 620.4 establishes the time requirements for
System institutions to prepare and provide to their shareholders an
annual report.
On March 14, 2006, the FCA proposed to amend our regulations at
part 620. Among other things, we proposed to amend Sec. 620.4(a) so
that all annual reports would be filed within 75 calendar days of the
end of an institution's fiscal year. At that time, institutions had a
90-day deadline. The FCA stated that significant technological advances
had occurred in the last 10 years that both increased the market's
demand for more timely information and improved the ability of
institutions to capture, process, and disseminate this information.
Additionally, the FCA stated that accelerating the time to report the
financial condition of a System institution to shareholders, investors,
and the general public would improve information flow and facilitate
shareholder and investor decisionmaking. Finally, the FCA stated that
the proposed timeframes were a reasonable compromise between industry
practices and the unique cooperative structure of the System.
Our amendments to part 620 were published as a final rule on
December 20, 2006, and became effective on February 16, 2007. However,
the final rule provided that compliance with all provisions of the rule
must be achieved by the start of the fiscal year immediately following
the effective date of the rule. Thus, the 2007 annual report would be
the first annual report distributed under the accelerated filing
guidelines.
B. System's Concerns
During the past few months, System institutions have raised
concerns regarding the new 75-day filing requirement. System
institutions have stated that they believed the 75-day requirement
adopted in December 2006 only applied to the electronic filing of the
report with FCA, similar to the accelerated electronic filings of
reports of public companies with the Securities and Exchange
Commission.
System institutions have also raised concerns regarding the report
sent to shareholders. Typically, System institutions send hard copy
annual reports to their shareholders and electronic reports to the FCA.
Based on the System's current processes and requirements for
preparation and distribution of their annual reports, they have
indicated that they would not be able to comply with the 75-calendar-
day accelerated distribution requirement to their shareholders and
still meet the objectives of providing them timely, accurate, and high
quality disclosures. Specifically, System institutions have
collectively stated that it will be extremely onerous for them to
comply with the 75-calendar-day accelerated distribution requirement
for the annual report to shareholders because of the prohibitive costs
and time needed for: (1) The external audit process; (2) the audit
committee review; and (3) printing and distribution of the report. Due
to the perceived ambiguity of the prior rulemaking and the difficulties
involved in producing high quality annual reports to shareholders,
System institutions have requested that FCA require the annual report
be sent to shareholders within 90 days rather than 75 days.
C. FCA Response
FCA has reviewed the System's concerns and is proposing an
amendment to Sec. 620.4(a). The amended rule would allow System
institutions 90 calendar days after the end of a fiscal year to provide
their annual reports to shareholders, while retaining the 75-calendar-
day requirement to send an electronic copy of the report to us.
To ensure accelerated disclosure, the FCA would require that each
System
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institution: (1) Publish a copy of its annual report on its Web site
when it sends the report to us electronically, and (2) provide prior
written notification to its shareholders and other interested persons
that the institution will publish its annual report on the
institution's Web site when the report is sent electronically to the
FCA. A System institution must develop procedures to ensure that prior
written notification to the shareholders is prominent and conspicuous
so that there is effective shareholder notice that the annual report
will be published on its Web site and that shareholders will be
provided a copy of such report within 90 calendar days of the end of
its fiscal year. The notification can be at the time a loan is made to
the shareholder, when the annual meeting information notice is sent to
each shareholder, by a postcard to all shareholders, or at any other
time before the annual report is published. After effective notice is
provided to a shareholder, further notification to that shareholder is
not required.
In addition, the reports filed with the FCA and posted on the
institutions' Web sites would be available for public inspection as
required by Sec. 620.2(b). This would allow shareholders and other
interested persons to have access to the annual report at that time. We
believe that this bifurcated approach resolves any ambiguity from the
prior rulemaking and fully addresses the System's logistical issues of
providing an attractive, high quality annual report to shareholders,
while meeting the goal of accelerated filing and disclosure.
Additionally, the copy of the annual report sent to the FCA
electronically and the annual report provided to the shareholders must
be substantively identical. The FCA realizes that the annual report
sent electronically to the FCA may lack photographs or other ``glossy''
pictures, graphs, or covers. The FCA also realizes that System
institutions may want to simplify the format of the annual reports sent
to shareholders and not use photographs or other elaborate graphics.
D. Methods of Accelerated Reporting
To achieve accelerated reporting to both the FCA and shareholders,
System institutions can provide electronic annual reports to their
shareholders, as they do to the FCA. Under E-SIGN,\1\ electronic
reports have the same legal effect as paper reports. Part 609 of the
FCA regulations summarizes the pertinent provisions of E-SIGN.
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\1\ E-SIGN stands for the ``Electronic Signatures in Global and
National Commerce Act'' (Pub. L. 106-229) which became effective
October 1, 2000. Electronic contracts, signatures, and
recordkeeping, in most instances, have the legal effect of their
paper counterparts.
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In order to provide electronic notices to a customer, both the
System institution and the customer must agree to electronic reporting.
E-SIGN establishes different technological and other standards for a
System institution conducting E-commerce with a ``business'' or a
``consumer''.\2\ Some System loans qualify as consumer transactions,
while others are business transactions. Thus, System institutions must
determine whether a loan qualifies as a consumer transaction or a
business transaction to comply with E-SIGN.
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\2\ A ``consumer'' is an individual who obtains, through a
transaction, products or services that are used primarily for
personal, family, or household purposes.
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In order to effectively use electronic disclosures, if they so
choose, System institutions must begin planning now on how to achieve
compliance with E-SIGN and the FCA's regulations. A System institution
cannot decide to send electronic disclosures to a shareholder without
the shareholder's consent, nor can an institution institute electronic
disclosures to all shareholders on the basis of a majority vote of the
shareholders. We intend to provide further guidance on electronic
disclosures in an informational memorandum or similar communication.
For additional background information on the delivery of electronic
communications, see our informational memoranda dated October 23, 2001
regarding electronic communications on our Web site.
E. Technical Amendment
We are also proposing a technical amendment to Sec. 620.2(c). We
are proposing to omit the second sentence of that paragraph to avoid
duplication with Sec. 620.2(d).
III. 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 proposed rule
will not have a significant economic impact on a substantial number of
small entities. Each of the banks in the 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, System institutions are not ``small entities'' as defined in
the Regulatory Flexibility Act.
List of Subjects in 12 CFR Part 620
Accounting, Agriculture, Banks, banking, Reporting and
recordkeeping requirements, Rural areas.
For the reasons stated in the preamble, part 620 of Chapter VI,
title 12 of the Code of Federal Regulations is proposed to be amended
as follows:
PART 620--DISCLOSURE TO SHAREHOLDERS
1. The authority citation for part 620 continues to read as
follows:
Authority: Secs. 4.19, 5.9, 5.17, 5.19, 8.11 of the Farm Credit
Act (12 U.S.C. 2207, 2243, 2252, 2254, 2279aa-11); sec. 424 of Pub.
L. 100-233, 100 Stat. 1568, 1656.
Subpart A--General
Sec. 620.2 [Amended]
2. Amend Sec. 620.2(c) by removing the second sentence.
Subpart B--Annual Report to Shareholders
3. Revise Sec. 620.4(a) to read as follows:
Sec. 620.4 Preparing and providing the annual report.
(a) Each institution of the Farm Credit System must:
(1) Prepare and send to the Farm Credit Administration an
electronic copy of its annual report within 75 calendar days of the end
of its fiscal year;
(2) Publish a copy of its annual report on its Web site when it
sends the report electronically to the Farm Credit Administration;
(3) Provide prior written notification to its shareholders and
other interested persons that the institution will publish its annual
report on the institution's Web site when the report is sent
electronically to the Farm Credit Administration; and,
(4) Within 90 calendar days of the end of its fiscal year, prepare
and provide to its shareholders an annual report substantively
identical to the copy of the report sent to the Farm Credit
Administration under paragraph (a)(1) of this section.
* * * * *
Dated: August 8, 2007.
Roland E. Smith,
Secretary, Farm Credit Administration Board.
[FR Doc. E7-15842 Filed 8-13-07; 8:45 am]
BILLING CODE 6705-01-P