Post-Employment Restriction for Senior Examiners, 51073-51076 [E9-23807]

Agencies

• FEDERAL HOUSING FINANCE AGENCY

[Federal Register Volume 74, Number 191 (Monday, October 5, 2009)]
[Rules and Regulations]
[Pages 51073-51076]
From the Federal Register Online via the Government Printing Office [www.gpo.gov]
[FR Doc No: E9-23807]


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FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1212

RIN 2590-AA19


Post-Employment Restriction for Senior Examiners

AGENCY: Federal Housing Finance Agency.

ACTION: Final rule.

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SUMMARY: The Federal Housing Finance Agency (FHFA) is issuing a final 
regulation that sets forth a one-year post-employment restriction for 
senior examiners of FHFA pursuant to the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992, which provides that each 
examiner of FHFA shall be subject to the same disclosures, 
prohibitions, obligations, and penalties applicable to examiners 
employed by the Federal Reserve Banks.

DATES: The final regulation is effective November 4, 2009.

FOR FURTHER INFORMATION CONTACT: Janice A. Kullman, Assistant General 
Counsel, telephone (202) 414-8970 (not a toll-free number), Federal 
Housing Finance Agency, Fourth Floor, 1700 G Street, NW., Washington, 
DC 20552. The telephone number for the Telecommunications Device for 
the Deaf is (800) 877-8339.

SUPPLEMENTARY INFORMATION:

I. Background

    The Housing and Economic Recovery Act of 2008 (HERA), Public Law 
No. 110-289, 122 Stat. 2654 (2008), amended the Federal Housing 
Enterprises Financial Safety and Soundness Act of 1992 (12 U.S.C. 4501 
et seq.) (Safety and Soundness Act) to establish FHFA as an independent 
agency of the Federal Government.\1\ FHFA was established to oversee 
the prudential operations of the Federal National Mortgage Association 
and the Federal Home Loan Mortgage Corporation (collectively, the 
Enterprises), and the Federal Home Loan Banks (Banks) (collectively, 
the regulated entities), and to ensure that they operate in a safe and 
sound manner including being capitalized adequately; foster liquid, 
efficient, competitive and resilient national housing finance markets; 
comply with the Safety and Soundness Act and rules, regulation, 
guidelines and orders issued under the Safety and Soundness Act, and 
the respective authorizing statutes of the regulated entities; and 
carry out their missions through activities authorized and consistent 
with the Safety and Soundness Act and their authorizing statutes; and, 
that the activities and operations of the regulated entities are 
consistent with the public interest. FHFA also has regulatory authority 
over the Office of Finance under 12 U.S.C 4511.
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    \1\ See Division A, titled the ``Federal Housing Finance 
Regulatory Reform Act of 2008,'' Title I, Section 1101 of HERA.
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II. Proposed Rulemaking

    Section 6303(b) of the Intelligence Reform and Terrorism Prevention 
Act of 2004, Public Law No. 108-458 (Dec. 17, 2004), in amending 
section 10 of the Federal Deposit Insurance Act, established a post-
employment restriction for senior examiners of the Office of the 
Comptroller of the Currency, Federal Reserve System, Federal Deposit 
Insurance Corporation, and Office of Thrift Supervision.\2\ In 
response, the Board of Governors of the Federal Reserve System (Federal 
Reserve) and the other financial regulators issued regulations on 
November 17, 2005, to reflect the new post-employment restriction.
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    \2\ 12 U.S.C. 1820(k).
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    The Safety and Soundness Act provides that each examiner of FHFA 
``shall be subject to the same disclosures, prohibitions, obligations 
and penalties as are applicable to examiners employed by the Federal 
Reserve Banks.'' 12 U.S.C. 4517(e). In light of that provision, FHFA 
published a proposed Post-Employment Restriction for Senior Examiners 
regulation for public comment in the Federal Register, 74 FR 27470 
(June 10, 2009). The proposed regulation set forth

[[Page 51074]]

a post-employment restriction that is essentially the same as the 
restriction in the post-employment regulation of the Federal Reserve at 
12 CFR part 264a. The Federal Reserve relies on section 8 of the 
Federal Deposit Insurance Act (12 U.S.C. 1818) for the penalty 
enforcement section of its regulation. The proposed regulation relied 
on similar provisions in section 1376 and 1377 of the Safety and 
Soundness Act (12 U.S.C. 4636 and 4636a, respectively). Specifically, 
the regulation, as proposed, prohibited a senior examiner from 
knowingly accepting compensation as an employee, officer, director, or 
consultant of a regulated entity or the Office of Finance for one year 
after leaving the employment of FHFA if he or she has examined the 
regulated entity or the Office of Finance for two or more months during 
the last 12 months of employment at FHFA.

III. Final Rulemaking

    In response to the request for public comment, FHFA received one 
comment from a member of the public. The comment recommended that that 
the one-year post-employment restriction period be expanded to five 
years. It also recommended that the post-employment restriction be 
expanded to include employment in any related industry, not just the 
regulated entity that the senior examiner inspects, supervises, or 
examines.
    FHFA has considered this comment and has determined not to expand 
the post-employment restriction as recommended. Expansion of the 
restriction would make the FHFA post-employment restriction 
inconsistent with that of the Federal Reserve. Further, FHFA believes 
that the recommended expansion of the restriction is not needed to 
ensure public trust in the impartiality and objectivity of FHFA's 
actions. Therefore, the proposed regulation is adopted as a final 
regulation without change.

IV. Section-by-Section Analysis

    The following is a section-by-section analysis of the regulation.

Subpart A

    Subpart A is reserved. FHFA intends to cross-reference the 
Supplemental Standards of Ethical Conduct for Employees of the Federal 
Housing Finance Agency when such standards are published.

Subpart B--Post-Employment Restriction for Senior Examiners

Section 1212.1 Purpose and Scope
    Section 1212.1 provides that the purpose of subpart B is to set 
forth special post-employment restrictions for senior examiners. These 
restrictions are in addition to the post-employment restriction for 
FHFA employees under section 12 U.S.C. 4523, which is restated in 5 CFR 
part 9001. The post-employment restriction applicable to FHFA employees 
under 12 U.S.C. 4523 provides that officers and employees of FHFA who 
are compensated at a certain salary level are not permitted to accept 
compensation from the Federal National Mortgage Association and the 
Federal Home Loan Mortgage Corporation for a period of two years after 
leaving FHFA.
Section 1212.2 Definitions
    This section sets forth definitions applicable to subpart B.
    Consultant is defined as a person who works directly on matters 
for, or on behalf of, a regulated entity, or the Office of Finance.
    Director means the Director of FHFA or his or her designee.
    Employee is defined as an officer or employee of FHFA, including a 
special Government employee.
    Federal Home Loan Bank or Bank is defined as a Bank established 
under the Federal Home Loan Bank Act; the term ``Federal Home Loan 
Banks'' means, collectively, all the Federal Home Loan Banks.
    Office of Finance is defined as the Office of Finance of the 
Federal Home Loan Bank System.
    Regulated entity is defined as the Federal National Mortgage 
Association and any affiliate thereof, the Federal Home Loan Mortgage 
Corporation and any affiliate thereof, or any Federal Home Loan Bank; 
the term ``regulated entities'' means, collectively, the Federal 
National Mortgage Association and any affiliate thereof, the Federal 
Home Loan Mortgage Corporation and any affiliate thereof, and the 
Federal Home Loan Banks.
    Safety and Soundness Act is defined as the Federal Housing 
Enterprises Financial Safety and Soundness Act of 1992, as amended by 
the Federal Housing Finance Regulatory Reform Act of 2008, Division A 
of the Housing and Economic Recovery Act of 2008, Public Law No. 110-
289, 122 Stat. 2654 (2008).
    Senior examiner is defined as an FHFA employee who has been:
     Authorized by FHFA to conduct examinations or inspections 
on behalf of FHFA;
     Assigned continuing, broad and lead responsibility for 
examining a regulated entity or the Office of Finance; and
     Assigned responsibilities for examining, inspecting, and 
supervising the regulated entity or the Office of Finance that--
    [cir] Represents a substantial portion of the employee's assigned 
responsibilities; and
    [cir] Requires the employee to interact routinely with officers or 
employees of the regulated entity or the Office of Finance.
    To be considered a ``senior examiner,'' an employee must meet each 
of the criteria listed above. Thus, an examiner who spends a 
substantial portion of his or her time conducting or leading a targeted 
examination, but who does not have broad and lead responsibility for 
the overall examination program with respect to a regulated entity or 
the Office of Finance is not a ``senior examiner'' with respect to that 
regulated entity or the Office of Finance. An examiner who divides his 
or her time across a portfolio of regulatory entities, each of which 
does not represent a substantial portion of the examiner's 
responsibilities, also is not a ``senior examiner.'' Such an examiner 
is not likely to develop the type and degree of relationship with any 
one regulated entity or the Office of Finance that the post-employment 
restriction is designed to address. FHFA believes that an examiner has 
continuing responsibility for a regulated entity or the Office of 
Finance only when the examiner's responsibilities for the regulated 
entity or the Office of Finance are expected to continue for a period 
of time that enables the examiner to develop a meaningful, dedicated, 
and sustained relationship with the regulated entity or the Office of 
Finance. FHFA believes that such a period of time is at least two 
months.
    To help examiners comply with the post-employment restrictions, the 
designated agency ethics official (DAEO) or the alternate DAEO will 
notify examiners in writing if they are subject to either the one-year 
post-employment restriction or the two-year post-employment restriction 
under 12 U.S.C. 4523, or both. The DAEO or alternate DAEO will also 
provide examiners information about how to conform to one or both of 
the restrictions.
    The examiner-in-charge (EIC) of a Bank or the Office of Finance 
will be subject to the one-year post-employment restriction from 
working at the Bank or Office of Finance for which he or she served as 
EIC, but not necessarily other

[[Page 51075]]

Banks which he or she may examine. In addition, the portfolio managers, 
who each generally oversee four Banks, will be subject to the one-year 
post-employment restriction for each Bank they oversee. These two 
groups of employees are responsible for establishing the scope of 
annual exams and assigning the composite rating for the Banks and 
therefore meet the definition of senior examiner. There may be rare 
instances of other examiners who meet the definition, but an examiner 
supervising one aspect of safety and soundness for all the Banks does 
not fall into the definition of the term ``senior examiner.'' Such a 
subject matter examiner does not have substantial enough contacts with 
any one particular bank to warrant a post employment restriction. FHFA 
estimates that approximately 15 examiners who serve as EICs and 
portfolio managers for the Banks and the Office of Finance are ``senior 
examiners'' for the purposes of this regulation.
    Examiners who examine the Enterprises are subject to the two-year 
post employment restriction set forth in 12 U.S.C. 4523 if they earn a 
certain salary, as is every FHFA employee. This two-year post-
employment restriction subsumes the one-year post-employment 
restriction with respect to accepting employment at the Enterprises 
because any examiner who is a ``senior examiner'' is already precluded 
from accepting employment from an Enterprise because of his or her 
salary level. While there are currently approximately 30 examiners 
whose salary is below the threshold that triggers the two-year post-
employment restriction, those examiners do not have broad and lead 
responsibility for examining a regulated entity or the Office of 
Finance and therefore do not meet the definition of ``senior 
examiner.'' FHFA believes that any examiner of an Enterprise who is a 
``senior examiner'' is also subject to the two-year post-employment 
restriction under 12 U.S.C. 4523.
Section 1212.3 Post-employment restriction for senior examiners
    Section 1212.3 prohibits a senior examiner from knowingly accepting 
compensation as an employee, officer, director, or consultant of a 
regulated entity or the Office of Finance for one year after leaving 
the employment of FHFA if he or she has examined the regulated entity 
or the Office of Finance for two or more months during the last 12 
months of employment at FHFA.
    A person is a consultant for purposes of the one-year post-
employment restriction if such person ``directly works on matters for, 
or on behalf of'' the relevant regulated entity or the Office of 
Finance. This provision means that a former senior examiner who joins a 
consulting or other firm or is self-employed as a consultant may not, 
during the one-year post-employment period, participate in any work 
that the firm is conducting for a regulated entity or the Office of 
Finance that the former senior examiner is prohibited from doing 
directly. The former senior examiner does not, however, violate the 
post-employment restrictions by joining a firm that performs work for 
such a regulated entity or the Office of Finance as long as the former 
senior examiner does not personally participate in any such work.
    The post-employment restriction does not apply to any officer or 
employee of FHFA or any former officer or employee of FHFA who ceased 
to be an officer or employee of FHFA before the effective date of 
subpart B of this part.
Section 1212.4 Waiver
    Section 1212.4 allows the Director, at the written request of a 
former senior examiner, to waive in writing, application of the one-
year post-employment restriction, on a case-by-case basis, if the 
Director determines that granting the waiver does not affect the 
integrity of the supervisory program of FHFA. FHFA expects that waivers 
will be granted only in special circumstances.
Section 1212.5 Penalties
    Section 1212.5 requires FHFA to seek one or both of the following 
penalties against a former senior examiner who violates the one-year 
post-employment restriction:
    (1) An order removing the individual from his or her position at, 
or prohibiting the individual from further participation in the affairs 
of, the regulated entity or the Office of Finance for a period of up to 
five years, and prohibiting the individual from participating in the 
conduct of the affairs of any regulated entity or the Office of Finance 
for a period of up to five years; or (2) a civil money penalty of not 
more than $250,000.
    The former senior examiner against whom FHFA seeks to impose these 
penalties has the procedural rights set forth in 12 U.S.C. 4636 and 
4636a, as applicable, and any implementing regulations issued by FHFA.

Regulatory Impacts

Paperwork Reduction Act

    The regulation does not contain any information collection 
requirement that requires the approval of the Office of Management and 
Budget under the Paperwork Reduction Act (44 U.S.C. 3501 et seq.).

Regulatory Flexibility Act

    The Regulatory Flexibility Act (5 U.S.C. 601 et seq.) requires that 
a regulation that has a significant economic impact on a substantial 
number of small entities, small businesses, or small organizations must 
include an initial regulatory flexibility analysis describing the 
regulation's impact on small entities. Such an analysis need not be 
undertaken if the agency has certified that the regulation does not 
have a significant economic impact on a substantial number of small 
entities. 5 U.S.C. 605(b). FHFA has considered the impact of the 
regulation under the Regulatory Flexibility Act. FHFA certifies that 
the regulation is not likely to have a significant economic impact on a 
substantial number of small business entities because the regulation is 
applicable only to employees and officers and former employees and 
officers of FHFA, who are not small entities for purposes of the 
Regulatory Flexibility Act.

List of Subjects in 12 CFR Part 1212

    Administrative practice and procedure, Conflicts of interest, 
Ethics.

0
Accordingly, for the reasons stated in the preamble, under the 
authority of 12 U.S.C. 4526 and 4517(e), FHFA amends 12 CFR Chapter XII 
by adding part 1212 to Subchapter A to read as follows:

PART 1212--POST-EMPLOYMENT RESTRICTION FOR SENIOR EXAMINERS

Subpart A--[Reserved]
Subpart B--Post-Employment Restriction for Senior Examiners
Sec.
1212.1 Purpose and scope.
1212.2 Definitions.
1212.3 Post-employment restriction for senior examiners.
1212.4 Waiver.
1212.5 Penalties.

    Authority:  12 U.S.C. 4526, 12 U.S.C. 4517(e).

Subpart A--[Reserved]

Subpart B--Post-Employment Restriction for Senior Examiners


Sec.  1212.1  Purpose and scope.

    This subpart sets forth a one-year post-employment restriction 
applicable to senior examiners of the Federal Housing Finance Agency 
(FHFA). This restriction is in addition to the post-employment 
restriction applicable to

[[Page 51076]]

employees of FHFA under 12 U.S.C. 4523.


Sec.  1212.2  Definitions.

    For purposes of subpart B of this part, the term:
    Consultant means a person who works directly on matters for, or on 
behalf of, a regulated entity or the Office of Finance.
    Director means the Director of FHFA or his or her designee.
    Employee means an officer or employee of FHFA, including a special 
Government employee.
    Federal Home Loan Bank or Bank means a Bank established under the 
Federal Home Loan Bank Act; the term ``Federal Home Loan Banks'' means, 
collectively, all the Federal Home Loan Banks.
    Office of Finance means the Office of Finance of the Federal Home 
Loan Bank System, or any successor thereto.
    Regulated entity means the Federal National Mortgage Association 
and any affiliate thereof, the Federal Home Loan Mortgage Corporation 
and any affiliate thereof, any Federal Home Loan Bank; the term 
``regulated entities'' means, collectively, the Federal National 
Mortgage Association and any affiliate thereof, the Federal Home Loan 
Mortgage Corporation and any affiliate thereof, and the Federal Home 
Loan Banks.
    Safety and Soundness Act means the Federal Housing Enterprises 
Financial Safety and Soundness Act of 1992, as amended by the Federal 
Housing Finance Regulatory Reform Act of 2008, Division A of the 
Housing and Economic Recovery Act of 2008, Public Law No. 110-289, 122 
Stat. 2654 (2008).
    Senior examiner means an employee of FHFA who has been:
    (1) Authorized by FHFA to conduct examinations or inspections on 
behalf of FHFA;
    (2) Assigned continuing, broad and lead responsibility for 
examining a regulated entity or the Office of Finance; and
    (3) Assigned responsibilities for examining, inspecting and 
supervising the regulated entity or the Office of Finance that--
    (i) Represents a substantial portion of the employee's assigned 
responsibilities; and
    (ii) Requires the employee to interact routinely with officers or 
employees of the regulated entity or the Office of Finance.


Sec.  1212.3  Post-employment restriction for senior examiners.

    (a) Prohibition. An employee of FHFA who serves as the senior 
examiner of a regulated entity or the Office of Finance for two or more 
months during the last 12 months of his or her employment with FHFA may 
not, within one year after leaving the employment of FHFA, knowingly 
accept compensation as an employee, officer, director, or consultant 
from a regulated entity or the Office of Finance unless the Director 
grants a waiver pursuant to Sec.  1212.4.
    (b) Effective date. The post-employment restriction in paragraph 
(a) of this section shall not apply to any officer or employee of FHFA 
or any former officer or employee of FHFA who ceased to be an officer 
or employee of FHFA before November 4, 2009.


Sec.  1212.4  Waiver.

    At the written request of a senior examiner or former senior 
examiner, the Director may waive the post-employment restriction in 
Sec.  1212.3 if he or she certifies, in writing, and on a case-by-case 
basis, that granting a waiver of such restriction does not affect the 
integrity of the supervisory program of FHFA.


Sec.  1212.5  Penalties.

    (a) General. A senior examiner who, after leaving the employment of 
FHFA, violates the restriction set forth in Sec.  1212.3 shall be 
subject to one or both of the following penalties--
    (1) An order:
    (i) Removing the individual from office at the regulated entity or 
the Office of Finance or prohibiting the individual from further 
participation in the affairs of the relevant regulated entity or the 
Office of Finance for a period of up to five years; and
    (ii) Prohibiting the individual from participating in the affairs 
of any regulated entity or the Office of Finance for a period of up to 
five years; and/or
    (2) A civil money penalty of not more than $250,000.
    (b) Other penalties. The penalties set forth in paragraph (a) of 
this section are not exclusive, and a senior examiner who violates the 
restrictions in Sec.  1212.3 also may be subject to other 
administrative, civil, or criminal remedies or penalties as provided in 
law.
    (c) Procedural rights. The procedures applicable to actions under 
paragraph (a) of this section are those provided in the Safety and 
Soundness Act under section 1376, in connection with the imposition of 
a civil money penalty; under section 1377, in connection with a removal 
and prohibition order (12 U.S.C. 4636 and 4636a, respectively); and 
under any regulations issued by FHFA implementing such procedures.

    Dated: September 26, 2009.
Edward J. DeMarco,
Acting Director.
[FR Doc. E9-23807 Filed 10-2-09; 8:45 am]
BILLING CODE 8070-01-P