Federal Housing Finance Agency Pt. 1237 8. A regulated entity should have the risk of related counterparties that are appro- management systems to generate, at an ap- priate to its business model. propriate frequency, the information needed 6. A regulated entity should have policies, to manage risk. Such systems should include procedures, and systems for evaluating cred- systems for market, credit, operational, and it risk that will enable it to make informed liquidity risk analysis, asset and liability credit decisions. management, regulatory reporting, and per- 7. A regulated entity should have policies, formance measurement. procedures, and systems for evaluating cred- 9. A regulated entity should have a com- it risk that will enable it to ensure that prehensive set of risk limits and monitoring claims are legally enforceable. procedures to ensure that risk exposures re- 8. A regulated entity should have policies main within established risk limits, and a and procedures for addressing problem cred- mechanism for reporting violations and its. breaches of risk limits to senior manage- 9. A regulated entity should have an ongo- ment and the board of directors. ing credit review program that includes 10. A regulated entity should ensure that it stress testing and scenario analysis. has sufficient controls around risk measure- ment models to ensure the completeness, ac- Applicable Laws, Regulations, and Policies curacy, and timeliness of risk information. 10. A regulated entity should manage cred- 11. A regulated entity should have ade- it and counterparty risk in a way that com- quate and well-tested disaster recovery and plies with applicable laws, regulations, and business resumption plans for all major sys- supervisory guidance (e.g., advisory bul- tems and have remote facilitates to limit the letins). impact of disruptive events. STANDARD 10—MAINTENANCE OF ADEQUATE Applicable Laws, Regulations, and Policies RECORDS 12. A regulated entity should comply with 1. A regulated entity should maintain fi- all applicable laws, regulations, and super- nancial records in compliance with Gen- visory guidance (e.g., advisory bulletins) gov- erally Accepted Accounting Principles erning the management of risk. (GAAP), FHFA guidelines, and applicable STANDARD 9—MANAGEMENT OF CREDIT AND laws and regulations. COUNTERPARTY RISK 2. A regulated entity should ensure that as- sets are safeguarded and financial and oper- Responsibilities of the Board of Directors and ational information is timely and reliable. Senior Management 3. A regulated entity should have a records retention program consistent with laws and 1. Regarding the management of credit and corporate policies, including accounting counterparty risk, the board of directors and policies, as well as personnel that are appro- senior management are responsible for en- priately trained and competent to oversee suring that the regulated entity has appro- and implement the records management priate policies, procedures, and systems that plan. cover all aspects of credit administration, 4. A regulated entity, with oversight from including credit pricing, underwriting, credit the board of directors, should conduct a re- limits, collateral standards, and collateral view and approval of the records retention valuation procedures. This should also in- program and records retention schedule for clude derivatives and the use of clearing all types of records at least once every two houses. They are also responsible for ensur- years. ing personnel are appropriately trained, competent, and equipped with the necessary 5. A regulated entity should ensure that re- tools, procedures and systems to assess risk. porting errors are detected and corrected in a timely manner. 2. Senior management should provide the board of directors with regular briefings and 6. A regulated entity should comply with reports on credit exposures. all applicable laws, regulations, and super- visory guidance (e.g., advisory bulletins) gov- Policies, Procedures, Controls, and Systems erning the maintenance of adequate records. 3. A regulated entity should have policies [77 FR 33959, June 8, 2012, as amended at 80 that limit concentrations of credit risk and FR 72336, Nov. 19, 2015] systems to identify concentrations of credit risk. PART 1237—CONSERVATORSHIP 4. A regulated entity should establish pru- dential limits to restrict exposures to a sin- AND RECEIVERSHIP gle counterparty that are appropriate to its business model. Sec. 5. A regulated entity should establish pru- 1237.1 Purpose and applicability. dential limits to restrict exposures to groups 1237.2 Definitions. 275 VerDate Sep<11>2014 15:11 Aug 27, 2021 Jkt 253044 PO 00000 Frm 00285 Fmt 8010 Sfmt 8010 Y:\SGML\253044.XXX 253044 spaschal on DSKJM0X7X2PROD with CFR § 1237.1 12 CFR Ch. XII (1–1–21 Edition) Subpart A—Powers (3) The Federal Home Loan Bank Act. 1237.3 Powers of the Agency as conservator or receiver. Capital distribution has, with respect 1237.4 Receivership following conservator- to a Bank, the definition stated in ship; administrative expenses. § 1229.1 of this chapter, and with respect 1237.5 Contracts entered into before ap- to an Enterprise, the definition stated pointment of a conservator or receiver. in § 1229.13 of this chapter. 1237.6 Authority to enforce contracts. Compensation means any payment of Subpart B—Claims money or the provision of any other thing of current or potential value in 1237.7 Period for determination of claims. connection with employment. 1237.8 Alternate procedures for determina- Conservator means the Agency as ap- tion of claims. pointed by the Director as conservator 1237.9 Priority of expenses and unsecured claims. for a regulated entity. Default; in danger of default: Subpart C—Limited-Life Regulated Entities (1) Default means, with respect to a regulated entity, any official deter- 1237.10 Limited-life regulated entities. 1237.11 Authority of limited-life regulated mination by the Director, pursuant to entities to obtain credit. which a conservator or receiver is ap- pointed for a regulated entity. Subpart D—Other (2) In danger of default means, with 1237.12 Capital distributions while in con- respect to a regulated entity, the defi- servatorship. nition under section 1303(8)(B) of the 1237.13 Payment of Securities Litigation Safety and Soundness Act or applicable Claims while in conservatorship. FHFA regulations. 1237.14 Golden parachute payments [Re- Entity-affiliated party means any served] party meeting the definition of an enti- AUTHORITY: 12 U.S.C. 4513b, 4526, 4617. ty-affiliated party under section SOURCE: 76 FR 35733, June 20, 2011, unless 1303(11) of the Safety and Soundness otherwise noted. Act or applicable FHFA regulations. Equity security of any person shall § 1237.1 Purpose and applicability. mean any and all shares, interests, The provisions of this part shall rights to purchase or otherwise ac- apply to the appointment and oper- quire, warrants, options, participations ations of the Federal Housing Finance or other equivalents of or interests Agency (‘‘Agency’’) as conservator or (however designated) in equity, owner- receiver of a regulated entity. These ship or profits of such person, including provisions implement and supplement any preferred stock, any limited or the procedures and process set forth in general partnership interest and any the Federal Housing Enterprises Finan- limited liability company membership cial Safety and Soundness Act of 1992, interest, and any securities or other as amended, by the Housing and Eco- rights or interests convertible into or nomic Recovery Act of 2008 (HERA), exchangeable for any of the foregoing. Public Law 110–289 for conduct of a Executive officer means, with respect conservatorship or receivership of such to an Enterprise, any person meeting entity. the definition of executive officer under section 1303(12) of the Safety and § 1237.2 Definitions. Soundness Act and applicable FHFA For the purposes of this part the fol- regulations under that section, and, lowing definitions shall apply: with respect to a Bank, an executive Agency means the Federal Housing officer as defined in applicable FHFA Finance Agency (‘‘FHFA’’) established regulations. under 12 U.S.C. 4511, as amended. Golden parachute payment means, Authorizing statutes mean— with respect to a regulated entity, the (1) The Federal National Mortgage definition under 12 CFR part 1231 or Association Charter Act, other applicable FHFA regulations. (2) The Federal Home Loan Mortgage Limited-life regulated entity means an Corporation Act, and entity established by the Agency under 276 VerDate Sep<11>2014 15:11 Aug 27, 2021 Jkt 253044 PO 00000 Frm 00286 Fmt 8010 Sfmt 8010 Y:\SGML\253044.XXX 253044 spaschal on DSKJM0X7X2PROD with CFR Federal Housing Finance Agency § 1237.4 section 1367(i) of the Safety and Sound- (6) Perform all functions of the regu- ness Act with respect to a Federal lated entity in the name of the regu- Home Loan Bank in default or in dan- lated entity that are consistent with ger of default, or with respect to an En- the appointment as conservator or re- terprise in default or in danger of de- ceiver; fault. (7) Preserve and conserve the assets Receiver means the Agency as ap- and property of the regulated entity pointed by the Director to act as re- (including the exclusive authority to ceiver for a regulated entity. investigate and prosecute claims of any Securities litigation claim means any type on behalf of the regulated entity, claim, whether or not reduced to judg- or to delegate to management of the ment, liquidated or unliquidated, fixed, contingent, matured or unmatured, regulated entity the authority to in- disputed or undisputed, legal, equi- vestigate and prosecute claims); and table, secured or unsecured, arising (8) Provide by contract for assistance from rescission of a purchase or sale of in fulfilling any function, activity, ac- an equity security of a regulated entity tion, or duty of the Agency as conser- or for damages arising from the pur- vator or receiver. chase, sale, or retention of such a secu- (b) Agency as receiver.