Minority and Women Inclusion Amendments, 34388-34397 [2017-15075]

Agencies

• FEDERAL HOUSING FINANCE AGENCY

[Federal Register Volume 82, Number 141 (Tuesday, July 25, 2017)]
[Rules and Regulations]
[Pages 34388-34397]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-15075]


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FEDERAL HOUSING FINANCE AGENCY

12 CFR Part 1223

RIN 2590-AA78


Minority and Women Inclusion Amendments

AGENCY: Federal Housing Finance Agency.

ACTION: Final rule.

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SUMMARY: The Housing and Economic Recovery Act of 2008 (HERA) amended 
the Federal Housing Enterprises Financial Safety and Soundness Act of 
1992 (Safety and Soundness Act) to require the Federal National 
Mortgage Association (Fannie Mae), the Federal Home Loan Mortgage 
Corporation (Freddie Mac) (together, the Enterprises), and the Federal 
Home Loan Banks (Banks or Bank System) and the Bank System's Office of 
Finance (collectively, the regulated entities) to promote diversity and 
ensure the inclusion of minorities and women in all business and 
activities at all levels, including management, employment, and 
contracting. The Federal Housing Finance Agency (FHFA) is issuing this 
final rule amending its regulations on minority and women inclusion 
(MWI) to clarify the scope of the regulated entities' obligation. The 
final rule requires the regulated entities to: Adopt strategic plans to 
promote the inclusion of minorities-, women-, and disabled individuals, 
and the businesses they own (MWDOB); amend their policies on equal 
employment opportunity (EEO) to include sexual orientation, gender 
identity, and status as a parent; and enhance the usefulness of 
information the regulated entities report to FHFA on their efforts to 
advance diversity and inclusion (D&I).

DATES: This rule is effective August 24, 2017.

FOR FURTHER INFORMATION CONTACT: Sharron P.A. Levine, Director, Office 
of Minority and Women Inclusion, Sharron.Levine@fhfa.gov, (202) 649-
3496; or James Jordan, Assistant General Counsel, 
James.Jordan@fhfa.gov, (202) 649-3075 (not toll-free numbers), Federal 
Housing Finance Agency, 400 Seventh Street SW., Washington, DC 20219. 
The telephone number for the Telecommunications Device for the Hearing 
Impaired is (800) 877-8339.

SUPPLEMENTARY INFORMATION: 

I. Background

A. Statutory Background

    Section 1116 of HERA\1\ amended section 1319A of the Safety and 
Soundness Act to require, in part, that each regulated entity establish 
an Office of Minority and Women Inclusion (OMWI), responsible for 
carrying out all matters relating to diversity in the management, 
employment, and business activities of the entity. Section 1116 of HERA 
mandates that each regulated entity \2\ implement standards for 
promoting diversity in all its business and activities, and submit an 
annual report to FHFA detailing related actions taken during the 
preceding year. Additionally, 12 U.S.C. 1833e(b),\3\ and Executive 
Order (E.O.)11478,\4\ require the regulated entities to promote EEO.
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    \1\ Public Law 110-289, 122 Stat. 2654, enacted July 30, 2008.
    \2\ For readability, where the preamble refers to a ``regulated 
entity'' or the ``regulated entities'' the provisions apply equally 
to the Office of Finance, unless such application would conflict 
with a statute or regulation that specifically distinguishes the 
treatment of the Office of Finance from the regulated entities.
    \3\ See Public Law 101-73, title XII, sec. 1216, Aug. 9, 1989, 
103 Stat. 529; Public Law 102-233, title III, sec. 302(a), Dec. 12, 
1991; Public Law 110-289, div. A, title II, sec. 1216(g), July 30, 
2008, 122 Stat. 2793; Public Law 111-203, title III, sec. 367(9), 
July 21, 2010, 124 Stat. 1557.
    \4\ E.O. 11478--Equal Employment Opportunity in the Federal 
Government, August 8, 1969, as amended.
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B. Regulatory History

    The following FHFA rulemaking activities implement section 1116 of 
HERA, 12 U.S.C. 1833e, and E.O. 11478, as amended.
1. 2010 Minority and Women Inclusion Rulemaking (MWI Rule)
    FHFA adopted a final rule in December 2010, establishing the 
minimum requirements for the regulated entities' diversity programs and 
reporting requirements.\5\ The regulations, located at 12 CFR part 
1223,\6\ require each regulated entity to submit a detailed annual 
report to FHFA's Director summarizing their D&I activities during the 
preceding reporting year. Part 1223 also provides that, pursuant to 12 
U.S.C. 4517, FHFA's Director may conduct examinations of a regulated 
entity's compliance.
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    \5\ See 75 FR 81395 (December 28, 2010).
    \6\ These regulations were formerly located at 12 CFR part 1207. 
On March 24, 2017, FHFA's Minority Outreach Program (MWOP) 
rulemaking redesignated the MWI regulation as part 1223 of title 12 
of the CFR and the new MWOP regulation as part 1207, in order to 
organize all FHFA regulations related to FHFA's Organization & 
Operations in subchapter A, and those regulations related to 
Regulated Entities in subchapter B.
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2. 2015 Board Diversity Amendments to the MWI Rule
    In 2015, FHFA amended the MWI Rule to require the Banks and the 
Office of Finance to report annually on demographic information related 
to their boards of directors.\7\
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    \7\ See 80 FR 25209 (May 4, 2015).
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3. 2016 Strategic Planning Proposed Amendments to the MWI Rule (2016 
Notice of Proposed Rulemaking or ``2016 NPRM'' or ``the Proposed 
Amendments'') \8\
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    \8\ See 80 FR 74731 (October 27, 2015).
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    FHFA published the 2016 NPRM in the Federal Register on October 27, 
2016, to amend the MWI rule. The Proposed Amendments require the 
regulated entities to adopt strategies for promoting diversity and 
ensuring inclusion. The Proposed Amendments specifically would: (i) 
Encourage the regulated entities to provide subcontracting (tier 2) 
opportunities for MWDOBs; (ii) require the regulated entities to amend 
their EEO policies by adding sexual orientation, gender identity, and 
status as a parent to the list of protected classes; (iii) affirm that 
the regulated entities may expand the scope of their outreach and 
inclusion programs beyond the requirements of part 1223 (to include, 
for example, veterans, and lesbian, gay, bisexual, or transgender 
(LGBT) outreach); (iv) require the regulated entities to provide 
additional information on their MWI efforts; and (v) add, revise, or 
remove several definitions in order to clarify the existing and new 
reporting requirements.
    The public comment period for the Proposed Amendments closed on 
December 27, 2016. FHFA received 31 comments (including comments from 
Fannie Mae, Freddie Mac, the Bank System and their Presidents and Chief 
Executive Officers, the Equal Employment Opportunity Commission (EEOC), 
trade associations, non-profit organizations, potential vendors, and 
individual members of the public). Twenty commenters expressed support 
for the proposed amendments, three expressly opposed them, and the

[[Page 34389]]

remaining eight indicated limited support on specific issues. After 
considering all comments (discussed below), with limited revision, FHFA 
is adopting the Proposed Amendments in this final rule.

II. Discussion of Comments on Major Issues

A. Comments on FHFA's Authority

    A member of the public commented that the 2016 NPRM exceeded FHFA's 
authority under HERA. FHFA notes that Section 1116 of HERA plainly 
states that the regulated entities' OMWI ``carry out . . . all matters 
of the entity relating to diversity . . . in accordance with such 
standards and requirements as the Director shall establish.'' 12 U.S.C. 
4520(a) (emphasis added).
    The same commenter argued that FHFA should postpone implementation 
of the final rule in light of PHH Corp. v. Consumer Financial 
Protection Bureau (CFPB) \9\ which held that an independent agency 
headed by a single Director is unconstitutional. The commenter noted 
that FHFA shares the same governance structure as CFPB, and that any 
action taken by the FHFA Director would be subject to challenge and 
nullification. FHFA notes that PHH did not directly address the 
constitutionality of the Safety and Soundness Act and FHFA was not a 
party in PHH. FHFA and its Director, therefore, must continue to 
execute the duties the Safety and Soundness Act assigns them, including 
with respect to minority and women inclusion. Moreover, on February 16, 
2017, the U.S. Court of Appeals for the D.C. Circuit vacated the ruling 
in PHH and ordered a rehearing. The argument that FHFA should delay an 
action because of the prospect that it will be challenged, therefore, 
is not persuasive. The same condition applies to all agencies and their 
actions. To postpone under the commenter's rationale would be an 
abdication of the FHFA Director's statutory responsibility. FHFA has 
chosen not to implement the recommendation.
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    \9\ PHH Corp. v. Consumer Financial Protection Bureau, United 
States Court of Appeals, D.C. Cir., Case No. 15-cv-01177.
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B. Subpart B--FHFA Regulations on Minority and Women Outreach

    A member of the public questioned why, pursuant to section 1116(f) 
of HERA, FHFA had yet to promulgate a self-directed minority outreach 
program rule. The commenter characterized the absence of a rule 
governing FHFA's ``obligations under the law'' as ``disingenuous'' 
because FHFA promulgated rules at 12 CFR part 1223 that governed 
oversight of the MWI programs of its regulated entities.
    FHFA notes that it published its own MWOP final rule in the Federal 
Register on March 24, 2017.\10\
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    \10\ See 82 FR 14992 (March 24, 2017).
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C. Responsibilities of Boards of Directors

    The 2016 NPRM states that a regulated entity's OMWI is responsible 
for leading efforts to promote D&I, but that a regulated entity's board 
of directors is ultimately responsible for achieving the requirements 
of part 1223. The regulated entities commented that FHFA should specify 
that the board's responsibility is to oversee D&I programs, and that 
the board is not required to manage actively the resources allocated to 
the OMWI function.
    In response, FHFA notes that the Prudential Management and 
Operations Standards established pursuant to 12 U.S.C. 4513b(a) and 
found in the Appendix to 12 CFR part 1236 includes the following broad 
description of board responsibilities:

    The board of directors is responsible for overseeing [emphasis 
added] management of the regulated entity, which includes ensuring 
that management includes personnel who are appropriately trained and 
competent to oversee the operation of the regulated entity as it 
relates to the functions and requirements addressed by each 
Standard, and that management implements the policies set forth by 
the board.

    FHFA's regulations at 12 CFR part 1239 also address board 
responsibilities. While FHFA's regulations permit a board to delegate 
the execution of operational functions to officers and employees of the 
regulated entity, the ultimate responsibility for the entity's 
oversight is non-delegable. Therefore, a board's level of 
responsibility for satisfying the final rule is no different from its 
other oversight responsibilities. For that reason, FHFA declines to 
modify the Proposed Amendments.

D. Racially-Based Quotas

    Commenters expressed concern that the Proposed Amendments would 
require the regulated entities to achieve quotas with respect to hiring 
and promoting employees, as well as awarding contracts to MWDOBs. One 
commenter asserted that most racially-based regulatory quotas are 
unconstitutional, unless ``the government'' narrowly tailors a 
regulation ``to address the inequality of past discrimination''--which 
the commenter asserted the Proposed Amendments failed to do. 
Conversely, another commenter specifically requested that FHFA 
implement targeted percentage goals to benefit minority-owned firms.
    The proposed D&I strategic plan requirement, and its inclusion of 
goals and objectives is consistent with FHFA's other regulatory 
requirements for engaging in strategic planning. See 12 CFR 1239.31. 
The Proposed Amendments were designed by FHFA to emphasize the 
importance of measuring performance. Goals and quotas differ in 
critical respects: Goals are designed to achieve strategic 
organizational outcomes that contribute to attaining a long-term 
vision; quotas are non-negotiable, mandatory and specific, and may not 
be tethered to an organizational vision or mission. Goals are supported 
by programs, policies, and processes; quotas instead require that the 
organization's focus be on attaining a hard number. As FHFA explained 
in the preamble to the 2010 MWI rulemaking, defined goals allow an 
organization to foster D&I over time by benchmarking and evaluating 
data.\11\ Quotas do not foster an inclusive corporate culture. Neither 
the existing MWI rule, the 2016 NPR, nor the final rule contemplates 
quotas.
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    \11\ See 75 FR 81397 (December 28, 2010).
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E. Business Certifications

    A member of the public commented that the racial categories FHFA 
identifies for reporting purposes are ``ripe with fraud and abuse'' 
because no authoritative resource exists to verify race, and self-
reported data is ``unreliable.'' Similarly, the Banks expressed 
concerns about--(i) their ability to independently verify the accuracy 
of the demographic and diversity ownership status data they are 
required to include in their annual reports to FHFA, and (ii) the 
proposed requirement to provide information on the number and dollar 
amounts of contracts between their prime contractors (tier 1) and 
diverse subcontractors (tier 2).
    FHFA notes that many state, federal, and municipal agencies, as 
well as non-profit organizations (e.g., the National Bankers 
Association), have programs that validate and certify diverse ownership 
or control of businesses. The Federal Reserve also publishes a 
quarterly listing of minority-owned banks that participate in the 
minority bank deposit programs of the U.S. Treasury Department and the 
Federal Deposit Insurance Corporation (FDIC). The FDIC publishes a 
similar list. A regulated entity could rely on those lists

[[Page 34390]]

to confirm the minority ownership status of any federally insured 
depository institution. The lists are available at: https://www.federalreserve.gov/Releases/mob/ (Federal Reserve) and https://www.fdic.gov/regulations/resources/minority/mdi.html (FDIC).
    As stated in the preamble to the 2010 MWI rulemaking, FHFA 
recognizes that, while FHFA prefers reliance on certifications from 
qualified, independent third parties, prohibiting self-certifications 
could impose an undue burden on small and/or new businesses. Therefore, 
the final rule continues to encourage third-party certifications, but 
also continues to allow for self-certification.
    With respect to the regulated entities' administrative concerns, 
most regulated entities have systems in place to analyze contract data 
and information on diverse prime contractor (tier 1) ownership status 
and some also are able to provide the ownership designation of 
subcontractors (tier 2). In many instances, these systems may be used 
to verify and validate that the vendors' third-party certifications are 
current. Therefore, FHFA chose to retain the subcontractor (tier 2) 
reporting requirements.

F. Scope of Requirements

    Commenters requested that FHFA clarify which categories of business 
were subject to D&I outreach requirements. The commenters recommended 
defining ``diversity spend'' to spell out what data should be captured 
for reporting purposes. FHFA declined that recommendation because any 
attempt to distill the concept of ``diversity spend'' down to an 
exhaustive list would frustrate the purpose of HERA 1116, which is 
intentionally open-ended (``to the maximum extent possible . . . . in 
all businesses and activities of the regulated entity at all levels'') 
to account for the wide range of opportunities on which the respective 
regulated entities might capitalize.
    Others commented on challenges meeting the outreach and material 
clause requirements for vendors that prefer to use their own 
boilerplate contracts for goods and services. In response to the 
commenters' concerns about the administrative burden of the requirement 
for material contracts, the final rule increases the threshold for 
materiality from $10,000 to $25,000 (See discussion infra).

G. Request To Expand Scope of Outreach Requirements To Include the LGBT 
Community

    Commenters requested that FHFA expand the scope of the contracting 
provisions of the MWI rule to include the LGBT community. The existing 
MWI rule captures the LGBT community in its EEO provisions, but this 
final rule does not change the scope of the 2016 NPRM's supplier 
diversity provisions because there is no statutory support for such a 
change.
    Commenters also requested that the MWI rule be expanded to include 
veterans and veteran-owned businesses for supplier diversity purposes, 
affordable housing program grants and lending, and other initiatives.
    The preamble to the 2016 NPRM affirmed that, even absent a specific 
statutory mandate, each regulated entity may expand beyond the 
requirements of section 1116 of HERA and the regulations at 12 CFR part 
1223 to include veteran- and LGBT-owned businesses. FHFA, through this 
final rule, continues to encourage the regulated entities to include 
other aspects of D&I in their outreach programs.

H. Direct Spend

    The proposed amendments encourage the regulated entities to expand 
contracting opportunities for minorities, women, individuals with 
disabilities, and MWDOBs through subcontracting arrangements. This 
would be achieved by a majority-owned prime contractor (tier 1) using a 
diverse subcontractor (tier 2) to supply goods and/or services that 
directly benefit the regulated entity. The regulated entities' annual 
reports would include information on the number and size of prime 
contracts under which the prime contractor (tier 1) extends work to 
MWDOBs (tier 2).
    A few commenters requested that FHFA clarify whether the regulated 
entities would be authorized to report on both direct and ``indirect'' 
(tier 2) spending. Other commenters expressed concern over the proposed 
requirement to report on the total number and size of subcontractor 
(tier 2) transactions, noting that requests to obtain data from the 
primary contractors (tier 1), allocated by MWDOBs, could prove to be 
``extremely difficult'' because the regulated entities have no 
mechanism by which to require primary contractors (tier 1) to collect 
this information from their subcontractors (tier 2) or to disclose such 
information.
    While the comments above may appear unrelated, they both stem from 
questions about direct and indirect spend. ``Direct spend'' on 
subcontract (tier 2) can be defined as payments to a subcontractor 
(tier 2) that can be tracked to a specific contract or purchase order 
between a regulated entity and a primary contractor (tier 1). 
``Indirect spend'' is a primary contractor's (tier 1) payment to a 
subcontractor (tier 2) that is not directly tied to any specific 
customer, e.g., a primary contractor's (tier 1) payments to a 
subcontractor (tier 2) to maintain the primary contractor's place of 
business (i.e., overhead costs). Indirect spend on subcontractors (tier 
2), is not covered by the final rule, and should not be reported as 
``diversity spend.''
    In response to commenters' concerns about obtaining data from 
primary contractors, FHFA believes that some commenters did not 
understand that the proposed subcontractor (tier 2) reporting 
requirement is predicated upon the subcontract relating to the 
contractual arrangement between the regulated entity and the prime 
contractor (tier 1). FHFA's proposed definition of ``subcontractor 
(tier 2)'' clearly provides that the contract between the prime 
contractor (tier 1) and a supplier to the prime contractor (tier 1) 
must be to provide goods and/or services ``for the benefit of the 
regulated entity.'' In instances where a prime contractor (tier 1) has 
a business relationship with a subcontractor (tier 2) that mixes 
services that benefit a regulated entity with services that do not, 
there should be a process to identify what portion of payment allocated 
to a subcontractor (tier 2) directly relates to a benefit enjoyed by 
the regulated entity. This is an important component of a contract, 
particularly if the prime contractor's (tier 1) use of a diverse 
subcontractor(s) (tier 2) was a factor in the evaluation and awarding 
of the contract.

I. Public Disclosure of MWI Reports

    Commenters requested that FHFA disclose the annual MWI reports to 
the public. The reports and data FHFA obtains from the regulated 
entities are related to examinations and examination, operation, or 
condition reports. FHFA considers the collected information to be non-
public, and subject to non-disclosure laws and regulations, including 
FHFA's Availability of Non-Public Information rule,\12\ the examination 
privilege, and Freedom of Information Act exemption (b)(8). However, 
FHFA will continue to permit each regulated entity to disclose publicly 
its own data and information about its D&I programs (i.e., the data 
underlying FHFA supervisory

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information) at the regulated entity's discretion.
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    \12\ 12 CFR psrt 1214.
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J. Religious Accommodations

    The EEOC recommended that FHFA amend the MWI rule to require the 
regulated entities to develop policies and procedures that address 
reasonable accommodations for employees to observe their sincerely held 
religious beliefs. FHFA revised the rule, accordingly.

K. Filing Date for MWI Report

    Commenters requested that FHFA change the filing deadline for the 
annual MWI report from March 1 to April 30 to give the regulated 
entities more time to satisfy additional reporting requirements and 
obtain approvals from the regulated entities' boards of directors. The 
commenters also noted that the current deadline competes with several 
other filing deadlines which constrain the resources of the regulated 
entities.
    FHFA recognizes the resource constraints and changed the filing 
date to no later than March 31 of each year, beginning in 2018. A March 
31 filing date ensures that FHFA will continue to receive the annual 
reports by no later than the end of the first quarter of the following 
year.

L. Effective Date of Final Rule

    Commenters requested that FHFA delay the effective date of the 
final rule for one year to allow the regulated entities more time to 
make regulatory and technological changes.
    FHFA believes that delaying the effective date of the final rule 
would also delay its positive effect. If necessary, each regulated 
entity can comply with the final rule by factoring the final rule 
requirements into an existing strategic planning process or by 
establishing a dedicated strategic planning effort to meet the new 
requirements.

III. Section-by-Section Analysis

Section 1223.1 Definitions

    FHFA proposed to add, revise, or remove several definitions in 
Sec.  1223.1 to clarify the existing and new regulatory requirements 
under part 1223.
Applicant
    FHFA proposed adding the definition, ``Applicant'', to improve the 
consistency and comparability of applicant data the regulated entities 
are required to report to FHFA.
    Commenters expressed concern about how to decide if an applicant is 
qualified and determine if an applicant has removed her- or himself 
from consideration.
    FHFA's view is that best practices dictate that prospective 
employers already have a process in place for determining if applicants 
are qualified and eligible for hire; therefore, FHFA made no change to 
the definition.
D&I Strategic Planning
    Commenters noted that the definition, ``D&I Strategic Planning'', 
unintentionally omitted a reference to businesses owned by minorities, 
women, and individuals with disabilities. FHFA revised the definition 
in the final rule, accordingly.
Disabled-Owned Business, Minority-Owned Business, and Women-Owned 
Business
    The Proposed Amendments revised the definitions, ``Disabled-owned 
Business'', ``Minority-owned Business'', and ``Women-owned Business'', 
to clarify that ownership can be direct or indirect, with the 
expectation that the regulated entities would disregard the business 
structure of such an entity, provided it is legal and the majority of 
the ultimate ownership benefits are held by or accrue to disabled, 
minority, or women owners, respectively.
    The revised definition, ``Disabled-owned Business'', contains three 
conditions for determining eligibility, the first of which addresses 
eligibility as a qualified service-disabled, veteran-owned small 
business concern as defined in 13 CFR 125.8 through 125.13. The second 
and third conditions address eligibility based on the percentage of 
ownership or control of the disabled owner or owners.
    Commenters requested that FHFA clarify whether, in addition to 
satisfaction of the first condition, satisfaction of the second and 
third conditions are necessary to qualify as a ``Disabled-owned 
Business.'' FHFA notes that satisfaction of the first condition alone 
is sufficient to qualify. If a business does not meet the requirements 
of the first condition, then the remaining two conditions must be met.
    A commenter requested that FHFA change the eligibility requirements 
in the proposed definitions, ``Disabled-owned Business'', ``Minority-
owned Business'', and ``Women-owned Business'', from ``more than fifty 
percent (50%)'' to ``fifty-one percent (51%) or more'', which is the 
threshold used by the Small Business Administration and the FDIC to 
determine diverse business ownership, and the requirement for 
certification of diverse ownership by an independent third party. The 
regulated entity noted that since independent, third-party 
certification was one of its prerequisites for diverse vendors, it was 
already effectively implementing the fifty-one percent threshold.
    FHFA acknowledges that, although industry practice generally uses 
fifty-one percent as the benchmark for establishing diverse ownership 
and control, section 1116(b) of HERA, incorporates by reference section 
21A(r)(4) of the Federal Home Loan Bank Act (12 U.S.C. 1441a(r)(4)), 
which defines minority-owned and women-owned businesses as those having 
more than fifty percent (50%) of the ownership or control held by one 
or more minority individuals and women, respectively. The final rule 
retains those definitions, which are broader, and as a result, create 
greater access to opportunities for MWDOBs.
Diversity Spend With Non-Diverse-Owned Businesses
    FHFA proposed adding the definition, ``Diversity Spend with Non-
diverse-owned Businesses'', to describe payments to a non-diverse-owned 
firm for professional services provided by a partner, member, or other 
equity owner who is a minority, woman, or individual with a disability.
    One commenter recommended not adopting the proposed definition 
stating that this type of arrangement does not actually benefit the 
specific diverse equity owner. Another commenter requested that FHFA 
count all annual spend specifically allocable to services performed by 
a diverse employee of a non-diverse-owned business regardless of that 
person's ownership status. Conversely, another commenter recommended 
eliminating all references to the allocation of payments to a diverse 
owner due to potential challenges obtaining the information (e.g., 
confidentiality agreements, diverse ownership verification).
    FHFA proposed this definition to account for a contracting vehicle 
the regulated entities already have employed to provide opportunities 
for minorities, women, and individuals with disabilities. Although a 
departure from the previous focus on MWDOBs as prime contractors, this 
category of diversity spend recognizes the efforts non-diverse-owned 
businesses have made to promote D&I in their own organizations. Rather 
than penalize such companies for being non-diverse-owned, FHFA's 
definition seeks to encourage more D&I at those firms.

[[Page 34392]]

Minority
    Commenters recommended revising the definition, ``Minority'', to 
include non-U.S. citizens. FHFA notes that the existing regulation 
requires the regulated entities to submit their EEO-1 Employer 
Information Report (EEO-1 Form) in conjunction with their annual MWI 
reports. The EEO-1 Form contains information pertaining to minority 
(defined as one of six categories) employees who are not exclusively 
citizens and, therefore, the data the regulated entities submit on 
their workforce demographics using these categories, already account 
for non-citizen, minority employees.
Minority-Serving Financial Institution
    The 2016 NPRM would have added a new definition, ``Minority-serving 
financial institution'', that is similar to the FDIC's Policy Statement 
Regarding Minority Depository Institutions.\13\ The Banks commented 
that the new definition would require the Banks to become ``experts in 
analyzing the challenges of nondepository minority-serving financial 
institutions.'' In light of the Banks' comments, FHFA clarified the 
scope of its reporting expectations (discussed below) and removed the 
definition of ``minority-serving financial institution.''
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    \13\ FDIC Policy Statement Regarding Minority Depository 
Institutions, April 9, 2002, https://www.fdic.gov/regulations/resources/minority/policy.html.
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Prime Contractor (Tier 1)
    Commenters requested that FHFA change the term ``Prime Contractor 
(tier 1)'' to ``Primary Contracting Entity'' or ``Primary Vendor'' 
asserting that ``Prime Contractor (tier 1)'' is used exclusively in the 
construction industry. Certain Banks also use ``tier 1'' and ``tier 2'' 
to categorize vendor risk and so requested that FHFA omit them from the 
definitions. FHFA disagrees with these assertions.
    ``Prime Contractor'' is widely used across government and the 
private sector to designate the main contractor that enters into a 
contract and performs the work to satisfy its obligations. Although 
used in construction, the term is not exclusive to that industry. Tiers 
are commonly used not only to designate levels of risk associated with 
risk management and exposure but also to reflect the commercial 
distance (i.e., level of direct access and accountability) of a 
contractor (obligor) to its counterparty (obligee). For example, tier 1 
supplier obligors provide their products and services directly to the 
obligee, while tier 2 (and lower) suppliers provide their products and 
services to the supplier at the next highest level in the chain.
Promotion
    FHFA proposed adding the definition, ``Promotion'', to improve the 
consistency and comparability of reported data. One commenter requested 
that FHFA revise the definition to address different conditions under 
which promotions occur (not only for good performance), such as when an 
employee's responsibilities have been increased.
    The proposed definition of promotion notes ``[A] promotion is 
typically associated with an increase in an employee's pay due to 
additional or enhanced job responsibilities.'' A plain reading of the 
proposed definition contemplates promotions beyond those merely for 
good performance.

Section 1223.2 Policy, Purpose, and Scope

    FHFA proposed revisions to Sec.  1223.2(c) to clarify that the rule 
requires policy development and applies to all contracts. FHFA received 
no comments on Sec.  1223.2(c).

Section 1223.3 Limitations

    FHFA proposed an increase to the material clause threshold from 
$10,000 to $25,000 to alleviate administrative burdens associated with 
routine purchases of lower-value goods (e.g., materials and supplies 
for day-to-day operations). All applicable comments supported the 
proposed increase, but recommended that FHFA extend the threshold to 
apply to contracts for services as well as goods. FHFA declined that 
recommendation.
    The preamble to the 2010 MWI rulemaking indicated that FHFA 
understood the practical difficulties in applying a rule to cover 
contracts for services, contracts for goods, and contracts for all 
other subjects, but that FHFA sought to strike a balance between 
managing those difficulties and honoring the all-encompassing scope of 
section 1116 by establishing a threshold for contracts for goods for 
more than $10,000. The final rule maintains that balance, while 
providing the regulated entities greater flexibility to administer 
small contracts for goods without having to report the associated data.
    FHFA also proposed adding paragraphs (c) and (d) to existing Sec.  
1223.3 to require each regulated entity to submit to FHFA within 90 
days after the effective date of the final rule, a list of the types of 
contracts it considers exempt under Sec.  1223.3(b), and any 
thresholds, exceptions, and limitations it establishes for implementing 
Sec.  1223.21(c)(2). Proposed Sec.  1223.3(d) would then require a 
regulated entity to notify FHFA within 30 days after any additional 
changes to the list. Commenters recommended that FHFA eliminate the 
initial reporting and supplemental notification requirements and 
replace them with a requirement to include a list of any thresholds, 
exceptions, and limitations as part of the annual report.
    FHFA responds by noting that the ability to identify and exempt 
certain types of contracts from the material clause and demographic 
data reporting requirements was not addressed or contemplated in 
section 1116 of HERA. As a result, FHFA must ensure consistency in the 
approach the regulated entities take to implement these requirements. 
The 90-day requirement is a one-time occurrence that will ensure a 
consistent understanding and implementation of the exemption 
flexibilities in light of the newly revised regulatory requirements 
under 12 CFR part 1223. The 30-day requirement also allows FHFA to 
assess quickly the exemption. Therefore, FHFA declines to eliminate the 
notification requirements in paragraphs (c) and (d) of Sec.  1222.3.

Section 1223.20 Office of Minority and Women Inclusion

    FHFA proposed revisions to paragraphs (b) and (c) of Sec.  1223.20 
to clarify that a regulated entity's board of directors--not the 
regulated entity's OMWI or its designee--is ultimately accountable for 
the D&I mandate. FHFA addressed the comments received in response to 
the proposed amendment earlier in the preamble, under the section 
titled, Responsibilities of Boards of Directors. FHFA also proposed 
amending the regulation to require the regulated entity to ensure that 
any officer designated to direct and oversee the D&I programs has the 
necessary knowledge, skills, competencies, and abilities (talent) to 
implement effectively the minimum standards and requirements of part 
1223. FHFA acknowledges that the regulated entities have full 
discretion to determine the talent required to fulfill such 
requirements.

Section 1223.21 Promoting Diversity and Ensuring Inclusion in All 
Business and Activities

    FHFA proposed amending Sec.  1223.21(a) to add sexual orientation, 
gender identity, and status as a parent to the list of bases covered 
under each regulated entity's equal opportunity statement, as required 
by 12 U.S.C.

[[Page 34393]]

1833e, and in conformance with E.O. 11478, as amended. FHFA received 
several related comments from private citizens, a trade association, 
the regulated entities, and the EEOC, most of which were supportive but 
some of which advocated broadening the scope of protected classes 
beyond those specifically required by federal law. The commenters also 
requested that FHFA clarify that the addition of the new protected 
classes does not create new or different affirmative requirements on 
the part of the regulated entity to proactively inquire as to a 
potential employment candidate or third-party vendor's qualification 
for, or inclusion in, one of the protected classes described in the 
equal employment notice. The commenters also requested that FHFA 
clarify that the publication of additional categories in a regulated 
entity's equal opportunity in employment and contracting notice does 
not create additional responsibilities of inquiry or reporting.
    As previously noted, the regulated entities' responsibilities under 
Sec.  1223.21(a) are to provide equal opportunity in employment, 
prohibit employment discrimination, and promote EEO through a 
continuing affirmative program. The addition of sexual orientation, 
gender identity, and status as a parent to the regulated entities' 
policies on equal opportunity is required by statute and, as a result, 
they do not have the discretion to choose which bases to implement, as 
some commenters requested. The regulated entities' D&I responsibilities 
extend specifically to minorities, women, and individuals with 
disabilities and they are not required to include additional proposed 
bases (i.e., sexual orientation, gender identity, or status as a 
parent) in their outreach programs. Although FHFA has affirmed that 
each regulated entity may expand the scope of its D&I program to these 
three groups and beyond, there is no requirement to do so or to inquire 
proactively about qualifications for, or inclusion in, one of the new 
protected classes described in the equal employment notice.
    FHFA also proposed revising Sec.  1223.21(b)(3), which would 
require a regulated entity to develop processes to give consideration 
to diversity when reviewing and considering contract proposals and 
hiring service providers.
    A commenter noted that the words ``service providers'' were omitted 
from the text of the proposed paragraph. The final rule addresses the 
omission. Another commenter requested that FHFA provide a clearer 
explanation of how minority-owned firms will be given consideration in 
contract proposals. In response, FHFA notes that the practices or 
processes for ``giving consideration'' to the diversity of the 
applicant will vary from one regulated entity to another and could 
include, for example, developing procedures that require the inclusion 
of diverse firms in the solicitation and bid process for every contract 
proposal it pursues. If diverse firms are not available, absent from 
the market, or do not have the necessary skills or qualifications, the 
regulated entity could implement an exception process to verify and 
validate that it engaged in market research to identify qualified 
diverse firms. Consideration also could be given to firms that plan to 
subcontract portions of its prime contractual obligations to diverse 
firms. Processes could involve assessing the impact (i.e., financial, 
community) bids by diverse vendors would likely have on an economically 
disadvantaged area or evaluating a firm's diversity programs and 
practices.
    Proposed Sec.  1223.21(b)(4) requires each regulated entity to 
develop policies and procedures for addressing complaints of 
discrimination. The final rule retains the requirement.
    FHFA proposed revising Sec.  1223.21(b)(8), which would require 
each regulated entity to establish a process for developing a D&I 
strategic plan that proactively focuses on promoting the advancement of 
D&I. Paragraphs (d) and (e) would address when the plan must be adopted 
and how often it must be reviewed, who should adopt strategies for 
promoting D&I, and what the plan should include (i.e., vision/mission 
statement, measurable goals and objectives, and requirement to create 
action plans.)
    Commenters recommended that FHFA eliminate the option to develop a 
stand-alone D&I strategic plan, noting that a separate plan could be 
perceived as an afterthought, thereby diminishing it within the 
regulated entity's overriding structure. The commenter noted that a 
clear, integrated plan would help the regulated entities grow and 
advance an executable D&I culture.
    Although the commenters made important points about the value of 
integrating D&I into the existing strategic planning process, FHFA has 
chosen not to eliminate the option to develop a stand-alone plan 
because the option will provide the regulated entities flexibility in 
initiating the strategic D&I planning process. FHFA also believes that 
most regulated entities will eventually integrate D&I into their 
comprehensive strategic planning process, after they have developed 
their initial plans.
    The final rule revises the wording of proposed Sec.  1223.21(b)(8) 
to clarify that it addresses a requirement to develop policies and 
procedures and not the requirement to develop a strategic plan. FHFA 
also revised Sec.  1223.21(d) to clarify when the board of directors of 
each regulated entity is required to adopt its first D&I strategic plan 
(by no later than six months after the date this Final Rule is 
published in the Federal Register).

Section 1223.23 Annual Reports--Format and Contents

    FHFA proposed several revisions to Sec.  1223.23, which provides 
the regulated entities guidance for preparing their annual MWI reports. 
For example, FHFA proposed to amend Sec.  1223.23(b)(9), which would 
require the regulated entities to report the number of minorities, 
women, and individuals with disabilities who are involved in 
management.
    Commenters noted that the proposed requirement to report the 
minority, gender, and disability classification data of individuals 
responsible for ``supervising employees and/or managing the functions 
of departments'' was ambiguous. They noted that the concept of 
``managing'' a function can be construed in different ways and varies 
from regulated entity to regulated entity. The commenters recommended 
that FHFA limit the scope of the metric to the number of employees 
supervising other employees. FHFA opted to retain the current 
definition, which is consistent with the EEO-1 Form category 
``Officials and Managers''--those who supervise people and/or develop/
manage policies, strategy, and programs.
    FHFA also proposed an amendment to Sec.  1223.23(b)(9)(ii) that 
would require the regulated entities to describe the strategies, 
initiatives, and activities they executed during the preceding year to 
promote diverse individuals to management roles. In light of several 
related comments, FHFA notes that the proposed requirement does not 
``signal'' FHFA's expectation that a regulated entity must promote a 
diverse individual(s) without merit or to the exclusion of others under 
consideration for a promotion, nor does it mandate that the regulated 
entity report that diverse individuals are promoted to supervisory 
roles each year.
    Proposed Sec.  1223.23(b)(12)(i) requires the regulated entities to 
include within their annual reports a provision addressing their 
strategies and initiatives to advance diversity and inclusion. As noted 
previously with respect to the proposed definition of

[[Page 34394]]

``minority-serving financial institution,'' FHFA revised Sec.  
1223.23(b)(12)(i) in light of commenters' concerns regarding the 
required assessments of certain aspects of the business operations of 
other institutions and the challenges those institutions may face in 
conducting their business operations. The revised Sec.  
1223.23(b)(12)(ii) clarifies that a regulated entity should assess 
whether access issues of its MWDOB counterparties' borrowers and other 
customers may affect the MWDOBs' level of activity with the regulated 
entity. Section 1223.23(b)(12)(i) has been redrafted to reference a 
regulated entity communicating with MWDOBs with which it does business 
to help identify opportunities to improve the MWDOBs' business with the 
regulated entity by enhancing MWDOB customer access.\14\ FHFA 
emphasizes that the focus of the amendment is on reporting efforts, and 
not a command that the regulated entities select MWDOBs. The objective 
of 12 CFR part 1223 is to ensure that the regulated entities are 
implementing programs that provide opportunities for minorities, women, 
individuals with disabilities to compete for jobs, contracts, and 
business, and to have access to opportunities to provide services for 
the regulated entities. The use of the word ``selecting'' as a metric 
for evaluating financial transactions will help the regulated entity 
and FHFA better understand the effectiveness of the strategic 
initiatives taken to promote D&I. FHFA emphasizes that the diversity 
considerations addressed in the final regulation do not restrict a 
regulated entity's ability to select financial transaction participants 
and contractual counterparties.
---------------------------------------------------------------------------

    \14\ Regulated entities may also find it useful, for this 
purpose, to conduct broader outreach with market participants and 
organizations to learn more about minority and women borrowers' 
issues with access to credit.
---------------------------------------------------------------------------

    For the reasons described above, FHFA has folded the proposed Sec.  
1223.23(b)(12)(iii) references to affordable housing and community 
investment into Sec.  1223.23(b)(12)(i), which is focused on outreach 
to MWDOB counterparties, though regulated entities may also report on 
other areas (e.g., the composition of Advisory Councils).
    FHFA proposed amendments to Sec.  1223.23(b)(16) and (17) that 
would require each regulated entity to report the number and dollar 
amounts of prime contracts (tier 1) and subcontracts (tier 2) that 
prime contractors had with minorities, women, individuals with 
disabilities, and MWDOBs. Comments on these paragraphs are addressed 
under the heading, Direct Spend.

IV. Consideration of Differences Between the Banks and the Enterprises

    Section 1313(f) of the Safety and Soundness Act, as amended by 
section 1201 of HERA, requires the Director, when promulgating 
regulations relating to the Banks, to consider the differences between 
the Banks and the Enterprises with respect to the Banks' cooperative 
ownership structure; mission of providing liquidity to members; 
affordable housing and community development mission; capital 
structure; and joint and several liability. In preparing this final 
rule, the Director has considered the differences between the Banks and 
the Enterprises as they relate to the above factors and has determined 
that the final rule would not adversely affect the Banks taking into 
account all of the above factors.

V. Regulatory Impacts

Paperwork Reduction Act

    The final 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 
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 will 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 final 
rule under the Regulatory Flexibility Act and certifies that the final 
rule is not likely to have a significant economic impact on a 
substantial number of small business entities because the regulation is 
only applicable to the regulated entities, which are not small entities 
for purposes of the Regulatory Flexibility Act.

List of Subjects in 12 CFR Part 1223

    Disability, Disabled-owned businesses, Discrimination, Diversity, 
Equal employment opportunity, Government contracts, Minority 
businesses, Regulated entities, Women-owned businesses.

Authority and Issuance

    For the reasons stated in the preamble, under the authority of 12 
U.S.C. 4526, FHFA hereby amends part 1223 of title 12 of the Code of 
Federal Regulations as follows:

PART 1223--MINORITY AND WOMEN INCLUSION

0
1. The authority citation for part 1223 continues to read as follows:

    Authority:  12 U.S.C. 4520 and 4526; 12 U.S.C. 1833e; E.O. 
11478.


0
2. Amend Sec.  1223.1 as follows:
0
a. Adding a definition for ``Applicant'' in alphabetical order;
0
b. Removing the definition of ``Director'';
0
c. Revising the definition of ``Disabled-owned business'';
0
d. Adding definitions for ``D&I strategic planning'' and ``Diversity 
spend with non-diverse-owned businesses'' in alphabetical order;
0
e. Removing the definition of ``FHFA'';
0
f. Revising the definition of ``Minority-owned business'';
0
g. Removing the definition of ``Office of Finance'';
0
h. Adding definitions for ``Prime contractor (tier 1)'' and 
``Promotion'' in alphabetical order;
0
i. Removing the definition of ``Regulated entity'';
0
j. Adding a definition for ``Subcontractor (tier 2)'' in alphabetical 
order; and
0
k. Revising the definition of ``Women-owned business''.
    The revisions and additions read as follows:


Sec.  1223.1   Definitions.

    Applicant means an individual who submits an expression of interest 
in employment in conjunction with all of the following:
    (1) The regulated entity acted to fill a particular position;
    (2) The individual followed the regulated entity's standard process 
for submitting an application;
    (3) The individual's expression of interest indicates that the 
individual possesses the basic qualifications for the position; and
    (4) The individual has not removed him or herself from 
consideration or otherwise indicated that he or she is no longer 
interested in the position.
* * * * *
    Disabled-owned business means a business, and includes, but is not 
limited to, financial institutions, firms engaged in mortgage banking, 
investment banking, financial services, asset management, investment 
consultants or advisors, underwriters, accountants, brokers, broker-
dealers, and providers of legal services--

[[Page 34395]]

    (1) Qualified as a Service-Disabled Veteran-Owned Small Business 
Concern as defined in 13 CFR 125.8 through 125.13; or
    (2) More than fifty percent (50%) of the ownership or control of 
which is held, directly or indirectly, by one or more persons with a 
disability; and
    (3) More than fifty percent (50%) of the net profit or loss of 
which accrues to one or more persons with a disability.
    D&I strategic planning is the process of analyzing the business and 
activities of a regulated entity to develop strategies for promoting 
diversity and ensuring the inclusion of minorities, women, individuals 
with disabilities, and MWDOBs in all activities and at every level of 
the organization, including management, employment, and contracting. A 
D&I strategic plan serves as the primary means to communicate the board 
of directors' long-term D&I vision for the organization, to establish 
measurable goals and objectives for achieving the vision, and to ensure 
accountability for achieving those goals and objectives.
    Diversity spend with non-diverse-owned businesses means the dollar 
amount(s) paid by a regulated entity to a prime contractor that is not 
a minority-, women-, or disabled-owned business for professional 
services (i.e., the amount paid for work performed, as may be adjusted, 
in connection with providing legal, accounting, or other professional 
or consulting services) provided by or allocated to a partner, member, 
or other equity owner who is a minority, woman, or an individual with a 
disability.
* * * * *
    Minority-owned business means a business, and includes, but is not 
limited to, financial institutions, firms engaged in mortgage banking, 
investment banking, financial services, and asset management, 
investment consultants or advisors, underwriters, accountants, brokers, 
broker-dealers, and providers of legal services--
    (1) More than fifty percent (50%) of the ownership or control of 
which is held, directly or indirectly, by one or more minority 
individuals; and
    (2) More than fifty percent (50%) of the net profit or loss of 
which accrues to one or more minority individuals.
    Prime contractor (tier 1) means a supplier that enters into a 
contract with a regulated entity to provide goods and/or services 
directly to that regulated entity.
    Promotion means the advancement of an employee within a regulated 
entity and may be the result of an employee's proactive pursuit of a 
higher job ranking or a reward for good performance. A promotion is 
typically associated with an increase in an employee's pay due to 
additional or enhanced job responsibilities.
* * * * *
    Subcontractor (tier 2) means a supplier that enters into a contract 
with a prime contractor (tier 1) of a regulated entity to provide goods 
and/or services to that prime contractor (tier 1) for the benefit of 
the regulated entity.
    Women-owned business means a business and includes, but is not 
limited to, financial institutions, firms engaged in mortgage banking, 
investment banking, financial services, and asset management, 
investment consultants or advisors, underwriters, accountants, brokers, 
broker-dealers, and providers of legal services--
    (1) More than fifty percent (50%) of the ownership or control of 
which is held, directly or indirectly, by one or more women; and
    (2) More than fifty percent (50%) of the net profit or loss of 
which accrues to one or more women.

0
3. Amend Sec.  1223.2 as follows:
0
a. Remove from paragraphs (a) and (b) the phrase ``and the Office of 
Finance'';
0
b. Add in paragraph (b) a comma immediately following the phrase ``to 
the maximum extent possible''; and
0
c. Revise paragraph (c) to read as follows:


Sec.  1223.2   Policy, purpose, and scope.

* * * * *
    (c) Scope. This part applies to each regulated entity's 
development, implementation, and adherence to diversity, inclusion, and 
non-discrimination policies, practices, and principles, including 
opportunities to award contracts for goods and/or services.

0
4. Amend Sec.  1223.3 as follows:
0
a. Remove the phrase in paragraph (a) ``or the Office of Finance''; and
0
b. Revise paragraph (b) and add new paragraphs (c) and (d) to read as 
follows:


Sec.  1223.3   Limitations.

* * * * *
    (b) The contract clause required by Sec.  1223.21(b)(6) and the 
itemized data reporting on numbers of contracts and amounts involved 
required under Sec. Sec.  1223.22 and 1223.23(b)(13) through (22) apply 
only to contracts for services in any amount and to contracts for goods 
that equal or exceed $25,000 in annual value, whether in a single 
contract, multiple contracts, a series of contracts or renewals of 
contracts, with a single vendor.
    (c) Within ninety (90) days after August 24, 2017 each regulated 
entity shall submit to FHFA a list of the types of contracts it 
considers exempt under Sec.  1223.3(b) and any thresholds, exceptions, 
and limitations the regulated entity establishes for the implementation 
of Sec.  1223.21(c)(2). The submission shall address the criteria 
identified in Sec.  1223.21(b)(9).
    (d) Each regulated entity shall notify FHFA within thirty (30) days 
after any change in the types of contracts it considers exempt under 
Sec.  1223.3(b) or any change in the thresholds, exceptions, and 
limitations the regulated entity establishes for the implementation of 
Sec.  1223.21(c)(2).

Subpart C--Minority and Women Inclusion and Diversity at Regulated 
Entities

0
5. Revise the heading of Subpart C to read as set forth above.

0
6. Amend Sec.  1223.20 as follows:
0
a. Remove the phrases ``and the Office of Finance'' and ``or the Office 
of Finance'' wherever they appear in paragraph (a); and
0
b. Revise paragraphs (b) and (c) to read as follows:


Sec.  1223.20   Office of Minority and Women Inclusion.

* * * * *
    (b) Adequate resources. The board of directors of each regulated 
entity will ensure that the Office of Minority and Women Inclusion, or 
office designated to lead the regulated entity in performing the 
responsibilities of this part, is provided relevant resources 
including, but not limited to, human, technological, and financial 
resources sufficient to fulfill the requirements of this part. The 
regulated entity will also ensure that any officer(s) designated to 
direct and oversee its D&I programs has the necessary knowledge, 
skills, competencies, and abilities to effectively implement the 
minimum standards and requirements found in this part.
    (c) Responsibilities. Each Office of Minority and Women Inclusion, 
or the office designated to perform the responsibilities of this part, 
is responsible for leading the regulated entity's board-approved 
strategies, for fulfilling the requirements of this part, 12 U.S.C. 
1833e(b) and 4520, and such standards and requirements as the Director 
may issue hereunder.

0
7. Amend Sec.  1223.21 as follows:
0
a. Revise the section heading;
0
b. Remove the phrases ``and the Office of Finance'', ``and Office of 
Finance'', ``or the Office of Finance'', and ``and the Office of 
Finance's'' wherever they appear;

[[Page 34396]]

0
c. Revise the first sentence of paragraph (a);
0
d. Revise the last sentence of paragraph (b) introductory text;
0
e. Revise paragraph (b)(2);
0
f. Redesignate paragraphs (b)(6) through (9) as paragraphs (b)(9) 
through (12);
0
g. Redesignate paragraphs (b)(3), (4), and (5) as paragraphs (b)(4), 
(5), and (7), respectively;
0
h. Add new paragraphs (b)(3), (6), and (8);
0
i. Revise newly redesignated paragraphs (b)(4), (5), (10), and (11); 
and
0
j. Add paragraphs (d) and (e).
    The revisions and additions read as follows:


Sec.  1223.21  Promoting diversity and ensuring inclusion in all 
business and activities.

    (a) Equal opportunity notice. Each regulated entity shall publish a 
statement, endorsed by its Chief Executive Officer and approved by its 
Board of Directors, confirming its commitment to the principles of 
equal opportunity in employment and in contracting, at a minimum, 
regardless of race, color, religion, sex, national origin, disability 
status, genetic information, age, sexual orientation, gender identity, 
or status as a parent. * * *
    (b) * * * The policies and procedures of each regulated entity, at 
a minimum, shall:
* * * * *
    (2) Describe its practices and principles for prohibiting 
discrimination in employment and contracting;
    (3) Describe its processes for giving consideration to MWDOBs when 
reviewing and evaluating contract proposals and hiring service 
providers as required under Sec.  1223.2(c);
    (4) Establish a process for receiving and attempting to resolve 
complaints of discrimination in employment and in contracting. 
Publication will include, at a minimum, making the procedure 
conspicuously accessible to employees and applicants through print, 
electronic, or alternative media formats, as necessary, and through the 
regulated entity's Web site;
    (5) Establish a process for accepting, reviewing, and granting or 
denying requests for reasonable accommodations of disabilities from 
employees or applicants for employment;
    (6) Establish a process for accepting, reviewing, and granting or 
denying requests for reasonable accommodations for religious beliefs or 
practices from employees or applicants for employment;
* * * * *
    (8) Establish a process for developing a stand-alone D&I strategic 
plan or incorporating into its existing strategic plan a D&I plan that 
proactively focuses on promoting the advancement of D&I. The stand-
alone D&I strategic plan and the incorporated D&I plan are hereinafter 
referred to as the D&I strategic plan;
* * * * *
    (10) Identify the types of contracts the regulated entity considers 
exempt under Sec.  1223.3(b) and any thresholds, exceptions, and 
limitations the regulated entity establishes for implementing paragraph 
(c)(2) of this section. The policies and procedures must describe the 
following:
    (i) The rationale and need for the thresholds, exceptions, or 
limitations;
    (ii) The criteria used to implement the thresholds, exceptions, or 
limitations; and
    (iii) Any negative or adverse impact the implementation of the 
thresholds, exceptions, or limitations would likely have on contracting 
opportunities for minorities, women, individuals with disabilities, and 
MWDOBs;
    (11) Be published and made accessible to employees, applicants for 
employment, contractors, potential contractors, and members of the 
public through print, electronic, or alternative media formats, as 
necessary, and through the regulated entity's Web site; and
* * * * *
    (d) D&I strategic planning. By no later than January 25, 2018 the 
board of directors of each regulated entity shall adopt a D&I strategic 
plan for promoting D&I of minorities, women, individuals with 
disabilities, and MWDOBs. The board of directors of each regulated 
entity shall review the D&I strategic plan at least annually and shall 
readopt the plan, including any interim amendments, at least every 
three years.
    (e) Contents of the D&I strategic plan. The D&I strategic plan 
shall include the following:
    (1) A vision and/or mission statement that addresses the importance 
of promoting diversity and ensuring the inclusion of minorities, women, 
and individuals with disabilities in order to fulfill Sec.  1223.2;
    (2) Measurable strategic goals and objectives for accomplishing the 
agreed-upon priorities and intended outcomes developed to advance 
diversity and ensure the inclusion of minorities, women, and 
individuals with disabilities at the regulated entity in accordance 
with Sec.  1223.2; and
    (3) A requirement to create and implement action plans to achieve 
the strategic goals and objectives and management reporting 
requirements for monitoring the implementation of those goals and 
objectives.

0
8. Amend Sec.  1223.22 as follows:
0
a. Revise the section heading and paragraph (a);
0
b. Remove the phrases ``and the Office of Finance'', and ``or the 
Office of Finance'' wherever they appear in paragraphs (b) and (d); and
0
c. Revise paragraph (c).
    The revisions read as follows:


Sec.  1223.22  Regulated entity reports.

    (a) General. Each regulated entity, through its Office of Minority 
and Women Inclusion or other office designated to perform the 
responsibilities of this part, shall report in writing, in such format 
as the Director may require, to the Director describing its efforts to 
promote diversity and ensure the inclusion and utilization of 
minorities, women, individuals with disabilities, and MWDOBs at all 
levels, in management and employment, in all business and activities, 
and in all contracts for services and those contracts for goods above 
the material clause threshold in Sec.  1223.3(b) and the results of 
such efforts.
* * * * *
    (c) Frequency of reports. Each regulated entity shall submit an 
annual report on or before March 31 of each year, reporting on the 
period of January 1 through December 31 of the preceding year, and such 
other reports as the Director may require. If the date for submission 
falls on a Saturday, Sunday, or Federal holiday, the report is due no 
later than the next business day that is not a Saturday, Sunday, or 
Federal holiday.
* * * * *

0
9. Amend Sec.  1223.23 as follows:
0
a. Remove the phrases ``and the Office of Finance'', ``or the Office of 
Finance'', and ``or the Office of Finance's'' from all paragraphs 
wherever they appear, with the exception of paragraphs (b)(9) and (10).
0
b. Revise paragraph (b) introductory text;
0
c. In paragraphs (b)(3) and (7), remove the phrase ``individuals 
applying'' and adding in its place ``applicants'';
0
d. Redesignate paragraphs (b)(9), (10), (11), (12), (13), and (b)(14) 
through (20) as paragraphs (b)(10), (11), (13), (14), (15), and (b)(19) 
through (25), respectively;
0
e. Add new paragraphs (b)(9), (12), (16), (17), and (18); and
0
f. Revise newly redesignated paragraphs (b)(14), (15), (19), and (23).

[[Page 34397]]

    The revisions and additions read as follows:


Sec.  1223.23   Annual reports--format and content.

* * * * *
    (b) Contents. The annual report shall contain the information 
provided in the regulated entity's annual summary pursuant to Sec.  
1223.22(d) and shall include:
* * * * *
    (9) Data showing for the reporting year by minority, gender, and 
disability classification--
    (i) The number of individuals responsible for supervising employees 
and/or managing the functions or departments of the regulated entity; 
and
    (ii) A description of the strategies, initiatives, and activities 
executed during the preceding year to promote diverse individuals to 
supervisory and management roles;
* * * * *
    (12) A provision addressing the strategies, initiatives, and 
activities that the regulated entity has undertaken during the prior 
year to:
    (i) Communicate with minority serving organizations to help 
identify ways in which it might be able to improve MWDOB business with 
the regulated entity by enhancing MWDOB customer access, including in 
affordable housing and community investment programs;
    (ii) Evaluate the regulated entity's processes for identifying, 
considering, and selecting MWDOBs to participate in financial 
transactions, which evaluation shall include an assessment of the 
regulated entity's internal policies and practices that may have 
presented unique challenges to MWDOBs' participation in financial 
transactions of the regulated entity.
* * * * *
    (14) Cumulative data separately showing the total number of 
contracts in place at the beginning of the reporting year as well as 
those entered into during the reporting year;
    (15) Cumulative data separately showing the total amount paid for 
contracts in place at the beginning of the reporting year as well as 
those entered into during the reporting year;
    (16) Cumulative data separately showing the total number of 
contracts entered into during the reporting year that were--
    (i) Considered exempt under Sec.  1223.3(b);
    (ii) Prime contracts (tier 1) entered into with minorities, women, 
individuals with disabilities, or MWDOBs;
    (iii) Subcontractor (tier 2) contracts that prime contractors (tier 
1) entered into with minorities, women, individuals with disabilities, 
or MWDOBs;
    (17) Cumulative data separately showing the total amount paid for 
contracts entered into during the reporting year that were--
    (i) Considered exempt under Sec.  1223.3(b);
    (ii) To prime contractors (tier 1) that are minorities, women, 
individuals with disabilities, or MWDOBs in place at the beginning of 
the reporting year as well as those entered into during the reporting 
year;
    (iii) To subcontractors (tier 2) that are minorities, women, 
individuals with disabilities, or MWDOBs in place at the beginning of 
the reporting year;
    (18) Cumulative data separately showing the total diversity spend 
with non-diverse-owned businesses during the reporting year;
    (19) The annual total of amounts paid to prime contractors (tier 1) 
and subcontractors (tier 2) and the percentage of which was paid 
separately through prime contracts and subcontracts to minorities, 
women, individuals with disabilities, or MWDOBs during the reporting 
year;
* * * * *
    (23) A comparison of the data reported under paragraphs (b)(13) 
through (19) of this section with the same information reported for the 
previous year;
* * * * *


Sec.  1223.24   [Amended]

0
10. Amend Sec.  1223.24 by removing the phrase ``or the Office of 
Finance's''.

0
11. Add Sec.  1223.25 to subpart C to read as follows:


Sec.  1223.25   Office of Finance.

    All sections of this part and the standards issued under it shall 
apply to the Office of Finance, as defined in Sec.  1201.1 of this 
chapter, in the same manner in which it applies to the regulated 
entities, unless the Office of Finance is otherwise specifically 
addressed or excluded.

    Dated: July 12, 2017.
Melvin L. Watt,
Director, Federal Housing Finance Agency.
[FR Doc. 2017-15075 Filed 7-24-17; 8:45 am]
 BILLING CODE 8070-01-P