Disclosure to Shareholders-Annual Report to Shareholders, 45390-45391 [E7-15842]

Agencies

• Farm Credit Administration

[Federal Register Volume 72, Number 156 (Tuesday, August 14, 2007)]
[Proposed Rules]
[Pages 45390-45391]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E7-15842]



[[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: https://www.fca.gov. Select ``Legal 
Info,'' then ``Pending Regulations and Notices.''
     Federal eRulemaking Portal: https://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 https://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

[[Page 45391]]

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