June 17, 2014
Mr. Barry F. Mardock
Office of Regulatory Policy
Farm Credit Administration
1501 Farm Credit Drive
McLean, VA 22102-5090
RE: Standards of Conduct – RIN 3052-AC44 / Federal Register 79 (February 20, 2014) 9649-9661
AgChoice Farm Credit Association (AgChoice), on behalf of its member-owners, appreciates the opportunity to comment on the Farm Credit Administration’s (FCA) proposed rule published in the February 20, 2014 Federal Register addressing requirements for the banks and associations of the Farm Credit System (System) regarding standards of conduct and creating a new requirement that each institution adopt a code of ethics. AgChoice would also like to indicate its general support of the AgFirst Farm Credit Bank and Farm Credit Council’s comments on the proposed regulations.
AgChoice is committed to a culture of high ethical conduct and the avoidance of conflicts of interest, both real and in those situations which might create the appearance of impropriety. AgChoice requires Directors, the Chief Executive Officer and Senior Financial Officials to annually review their respective codes of ethics and to acknowledge their understanding of the code and their obligations under the code. We believe the current process, which focusses on “self-disclosure” has worked well. Directors and employees regard their responsibilities very seriously. The annual certification process serves to emphasize that ethical conduct is an on-going priority of AgChoice and its administration.
We believe that many of the provisions of the proposed rule will not contribute to any enhanced ethical behavior and in fact may create an undue burden on the association, its employees, directors, and ultimately its customer-owners. These burdens will only serve to discourage some of the most qualified director candidates from serving their cooperative and deter talented employees from becoming part of our Farm Credit family. Outside of the loss of these talented individuals, the financial costs of implementing and administering these proposed revisions will impact all of our member owners.
We specifically have concern over the following provisions and requirements.
• The threshold established in definition of “controlled entity and entity controlled by” is too small. As farmers adopt modern business structures as a means of succession and transition strategies many may find that they meet this definition while not having any real control, and little financial interest. The definition utilized by the Federal Reserve in Reg O of 25% better represents what is perceived as a conflict of interest and would align the Farm Credit System with that of other financial institutions.
• Regarding the definition of a “family,” the proposed language creates ambiguity on who should be reported. The requirement to report equivalent relationships is too subjective for regulatory purposes. Those who are required to be reported under this should be readily identifiable.
• Adding “and guidance” to § 612.2135(b) would provide the regulator with the ability to implement mandatory requirements on associations under the guise of ethical standards without the benefit of the regulatory process. This should not be adopted.
• Requiring professionals who are already subject to a Code of Ethics within their discipline to acknowledge receipt and review of the Code of Ethics and to certify that they will abide by them is unnecessary and burdensome. The purpose of their respective codes is to ensure their clients and the public in general of their ethical behavior. No additional benefit is gained by requiring this duplication. In the case where property has been acquired through the foreclosure process, prohibitions against purchase by an agent should only apply to those agents who have been specifically involved in that foreclosure. If this amendment is enacted as proposed, it will impose a great deal of effort on the association to comply, with little to no benefit.
• The changes to § 612.2145(a)(7) whereby the Standards of Conduct Official cannot ratify prohibited conduct after the fact is troubling. Why should an employee or director be considered to be in violation of this provision by FCA if the oversight was brought to the attention of the Standards of Conduct Official by the individual and the transaction was found to otherwise be in compliance with policy procedures and regulations? Provisions like this will only serve as deterrence in open communication between employees, directors and the Standards of Conduct Official.
In attempting to develop regulations related to ethics and specifically conflicts of interest, FCA should take into account that Congress intentionally introduced a conflict of interest into the Farm Credit System when they required that most directors must be customers. This conflict can never be regulated out. FCA should recognize as Congress has, that through the checks and balances offered by the cooperative model, customer-owner directors can ethically govern their associations. By requiring the level of scrutiny proposed by this regulation, it appears that FCA is implying that the customer-owner farmers and ranchers who serve as directors of associations require higher ethical standards than that of commercial bank directors. This does not reflect the view of Congress or the performance of these directors.
AgChoice Farm Credit continues to be committed to maintaining the highest ethical standards of its directors, employees and agents. Many of the proposed changes to the current rules will not enhance this. It is our hope that FCA will consider not only the limited benefit to customer-owners, in light of the cost and efforts required to implement, but also the implication that it imposes on system directors, employees and agents in consideration of other financial institutions. Thank you for this opportunity to provide these comments. Please do not hesitate in contacting me if you have any questions or require any additional information.
Darrell L. Curtis, President and CEO
AgChoice Farm Credit, ACA, FLCA, PCA