PART 1273—OFFICE OF FINANCE Authority: 12 U.S.C. 1431, 1440, 4511(b), 4513, 4514(a), 4526(a). Source: 75 FR 23161, May 3, 2010, unless otherwise noted. § 1273.1 Definitions. For purposes of this part: Audit Committee Chair Chief Executive Officer CEO Independent Director [75 FR 23161, May 3, 2010, as amended at 78 FR 2328, Jan. 13, 2013; 81 FR 76298, Nov. 2, 2016] § 1273.2 Authority of the OF. (a) General. (b) Agent. (c) Assessments. § 1273.3 Functions of the OF. (a) Joint debt issuance. (b) Preparation of combined financial reports. (c) Fiscal agent. (d) Financing Corporation and Resolution Funding Corporation. [75 FR 23161, May 3, 2010, as amended at 81 FR 76298, Nov. 2, 2016] § 1273.4 FHFA oversight. (a) Oversight and enforcement actions. (b) Examinations. (c) Combined financial reports. § 1273.5 Funding of the OF. (a) Generally. (b) Funding policies. (i) Available for expenses of the OF and the OF board of directors, according to their approved budgets; and (ii) Subject to withdrawal by check, wire transfer or draft signed by the Chief Executive Officer or other persons designated by the OF board of directors. (2) Each Bank's respective pro rata (c) Alternative funding method. (d) Prompt reimbursement. (e) Indemnification expenses. (f) Operating funds segregated. § 1273.6 Debt management duties of the OF. (a) Issuing and servicing of consolidated obligations. (b) Combined financial reports requirements. (1) The scope, form, and content of the disclosure generally shall be consistent with the requirements of the Securities and Exchange Commission Regulations S-K and S-X (17 CFR parts 229 and 210). (2) Information about each Bank shall be presented as a segment of the Bank System as if generally accepted accounting principles regarding business segment disclosure applied to the combined annual and quarterly financial reports of the Bank System, and shall be presented using consistent accounting policies and procedures as provided in § 1273.9(b) of this part. (3) The standards set forth in paragraphs (b)(1) and (b)(2) of this section are subject to the exceptions set forth in Appendix A to this part. (4) The combined Bank System annual financial reports shall be filed with FHFA and distributed to each Bank and Bank member within 90 days after the end of the fiscal year. The combined Bank System quarterly financial reports shall be filed with FHFA and distributed to each Bank and Bank member within 45 days after the end of the of the first three fiscal quarters of each year. (5) The Audit Committee shall ensure that the combined Bank System annual or quarterly financial reports comply with the standards of this part. (6) The OF and the OF board of directors, including the Audit Committee, shall comply promptly with any directive of FHFA regarding the preparation, filing, amendment, or distribution of the combined Bank System annual or quarterly financial reports. (7) Nothing in this section shall create or be deemed to create any rights in any third party. (c) Capital markets data. (d) NRSROs. (e) Research. (f) Monitor Banks' credit exposure. [75 FR 23161, May 3, 2010, as amended at 81 FR 76298, Nov. 2, 2016] § 1273.7 Structure of the OF board of directors. (a) Membership. (1) Each of the Bank presidents, ex officio, (2) Five Independent Directors who— (i) Each shall be a citizen of the United States; (ii) As a group, shall have substantial experience in financial and accounting matters; and (iii) Shall not have any material relationship with a Bank, or the OF (directly or as a partner, shareholder, or officer of an organization), as determined under criteria set forth in a policy adopted by the OF board of directors. At a minimum, such policy shall provide that an Independent Director may not: (A) Be an officer, director, or employee of any Bank or member of a Bank, or have been an officer, director, or employee of a Bank or member of a Bank during the previous three years; (B) Be an officer or employee of the OF, or have been an officer or employee of the OF during the previous three years; or (C) Be affiliated with any consolidated obligations selling or dealer group under contract with OF, or hold shares or any other financial interest in any entity that is part of a consolidated obligations seller or dealer group in an amount greater than the lesser of $250,000 or 0.01% of the market capitalization of the seller or dealer group, or in an amount that exceeds $1,000,000 for all entities that are part of any consolidated obligations seller dealer group, combined. For purposes of this paragraph (a)(2)(iii)(C), a holding company of an entity that is part of a consolidated obligations seller or dealer group shall be deemed to be part of the consolidated obligations selling or dealer group if the assets of the holding company's subsidiaries that are part of a consolidated obligation seller or dealer group constitute 35% or more of the consolidated assets of the holding company. (b) Terms. (2) The OF board of directors shall fill any vacancy among the Independent Directors occurring prior to the scheduled end of a term by majority vote, subject to FHFA's review of, and non-objection to, the new Independent Director. The OF board of directors shall provide FHFA with the same biographic and background information about the new Independent Director required under paragraph (c) of this section, and FHFA shall have the same rights of non-objection to the Independent Director (and to appoint a different Independent Director) as set forth in paragraph (c) of this section. A person shall be elected (or otherwise appointed by FHFA) under this paragraph (b)(2) to serve only for the remainder of the term associated with the vacant directorship. (c) Election of Independent Directors. (d) Election of Chair and Vice-Chair. (2) The OF board of directors shall promptly inform FHFA of the election of a Chair or Vice Chair. If FHFA objects to any Chair or Vice Chair elected by the OF board of directors, FHFA shall provide written notice of its objection within 20 business days of the date that FHFA first receives the notice of the election of the Chair and or Vice Chair, and the OF board of directors must then promptly elect a new Chair or Vice Chair, as appropriate. (e) By-laws and Committees. (2) In addition to the Audit Committee required under § 1273.9, the OF board of directors may establish other committees, including an Executive Committee. The duties and powers of such committee, including any powers delegated by the OF board of directors, shall be specified in the by-laws of the board of directors or the charter of the committee. (f) Compensation. (2) The OF shall pay reasonable compensation and expenses to the Independent Directors in accordance with the requirements for payment of compensation and expenses to Bank directors as set forth in part 1261 of this chapter. (g) Corporate Governance and Indemnification General. (2) Election and designation of body of law. (A) The law of the jurisdiction in which the principal office of the OF is located; (B) The Delaware General Corporation Law (Del. Code Ann. Title 8); or (C) The Revised Model Business Corporation Act. (ii) The OF board of directors shall designate in its by-laws the body of law elected pursuant to this paragraph (g)(2). (3) Indemnification. (h) Delegation. (i) Outside staff and consultants. [81 FR 76298, Nov. 2, 2016] § 1273.8 General duties of the OF board of directors. (a) General. (1) Carry out his or her duties as director in good faith, in a manner such director believes to be in the best interests of the OF and the Bank System, and with such care, including reasonable inquiry, as an ordinarily prudent person in a like position would use under similar circumstances; (2) Administer the affairs of the OF fairly and impartially and without discrimination in favor of or against any Bank; (3) At the time of appointment or election, or within a reasonable time thereafter, have a working familiarity with basic finance and accounting practices, including the ability to read and understand the Banks' combined balance sheets and income statements and the relevant financial statements of the OF and to ask substantive questions of management and the internal and external auditors with regard to both the combined financial statements of the Bank System and the operations and financial statements of the OF, as appropriate; and (4) Direct the operations of the OF in conformity with the requirements set forth in the Bank Act, Safety and Soundness Act, and this chapter. (b) Meetings and quorum. (c) Duties regarding COs. (1) Govern the frequency and timing of issuance, issue size, minimum denomination, CO concessions, underwriter qualifications, currency of issuance, interest-rate change or conversion features, call features, principal indexing features, selection and retention of outside counsel, selection of clearing organizations, and the selection and compensation of underwriters for consolidated obligations, which shall be in accordance with the requirements and limitations set forth in paragraph (c)(4) of this section; (2) Prohibit the issuance of COs intended to be privately placed with or sold without the participation of an underwriter to retail investors, or issued with a concession structure designed to facilitate the placement of the COs in retail accounts, unless the OF has given notice to the board of directors of each Bank describing a policy permitting such issuances, soliciting comments from each Bank's board of directors, and considering the comments received before adopting a policy permitting such issuance activities; (3) Require all broker-dealers or underwriters under contract to the OF to have and maintain adequate suitability sales practices and policies, which shall be acceptable to, and subject to review by, the OF; (4) Require that COs shall be issued efficiently and at the lowest all-in funding costs over time, consistent with— (i) Prudent risk-management practices, prudential debt parameters, short and long-term market conditions, and the Banks' role as GSEs; (ii) Maintaining reliable access to the short-term and long-term capital markets; and (iii) Positioning the issuance of debt to take advantage of current and future capital market opportunities. (d) Other duties. (1) Set policies for management and operation of the OF; (2) Approve a strategic business plan for the OF in accordance with the provisions of § 1239.14 of this chapter, as appropriate; (3) Select, employ, determine the compensation for, and assign the duties and functions of a Chief Executive Officer of the OF who shall— (i) Be head of the OF and direct the implementation of the OF board of directors' policies; (ii) Serve as a member of the Directorate of the FICO, pursuant to section 21(b)(1)(A) of the Bank Act (12 U.S.C. 1441(b)(1)(A)); and (iii) Serve as a member of the Directorate of the REFCORP, pursuant to section 21B(c)(1)(A) of the Bank Act (12 U.S.C. 1441b(c)(1)(A)). (4) Review and approve all contracts of the OF, except for contracts for which exclusive authority is provided to the Audit Committee by paragraphs (b)(5) and (b)(6) of § 1273.9; and (5) Assume any other responsibilities that may from time to time be assigned to it by FHFA. (e) No rights created. [75 FR 23161, May 3, 2010, as amended at 81 FR 76299, Nov. 2, 2016; 83 FR 52954, Oct. 19, 2018] § 1273.9 Audit Committee. (a) Composition. (b) Responsibilities. (2) For purposes of the combined financial reports, the Audit Committee shall ensure that the Banks adopt consistent accounting policies and procedures to the extent necessary for information submitted by the Banks to the OF to be combined to create accurate and meaningful combined financial reports. (3) The Audit Committee, in consultation with FHFA, may establish common accounting policies and procedures for the information submitted by the Banks to the OF for the combined financial reports where the Committee determines such information provided by the several Banks is inconsistent and that consistent policies and procedures regarding that information are necessary to create accurate and meaningful combined financial reports. (4) To the extent possible the Audit Committee shall operate consistent with the requirements pertaining to audit committee reports set forth in Item 407(d)(3) of Regulation S-K promulgated by the Securities and Exchange Commission. (5) The Audit Committee shall oversee internal audit activities, including the selection, evaluation, compensation, and, where appropriate, replacement of the internal auditor. The internal auditor shall report directly to the Audit Committee on substantive matters, and is ultimately accountable to the Audit Committee and the board of directors. (6) The Audit Committee shall have the exclusive authority to employ and contract for the services of an independent, external auditor for the Banks' annual and quarterly combined financial statements and of an independent, external auditor for OF. (7) The Audit Committee shall direct senior management to maintain the reliability and integrity of the accounting policies and financial reporting of the OF. (8) The Audit Committee shall review the basis for the OF's financial statements and the external auditor's opinion rendered with respect to such financial statements. (9) The Audit Committee shall ensure that senior management has established and is maintaining an adequate internal control system within the OF by: (i) Reviewing the OF's internal control system and the resolution of identified material weaknesses and reportable conditions in the internal control system, including the prevention or detection of management override or compromise of the internal control system; and (ii) Reviewing the programs and policies of the OF designed to ensure compliance with applicable laws, regulations, and policies and monitoring the results of these compliance efforts. (10) The Audit Committee shall review the policies and procedures established by senior management to assess and monitor implementation of the OF strategic business plan and the operating goals and objectives contained therein. (11) The Audit Committee shall provide an independent, direct channel of communication between the OF's board of directors and the internal and external auditors. (12) The Audit Committee shall conduct or authorize investigations into any matters within the Audit Committee's scope of responsibilities. (13) The Audit Committee shall report periodically its findings to the OF's board of directors. (14) The Audit Committee shall prepare written minutes of each Audit Committee meeting. (c) Charter. (i) Review, and assess the adequacy of and, where appropriate, amend the Audit Committee charter on an annual basis; and (ii) Re-adopt and re-approve, respectively, the Audit Committee charter not less often than every three years. (2) The charter of the Audit Committee shall be subject to review and approval by FHFA. (d) No delegation. [75 FR 23161, May 3, 2010, as amended at 81 FR 76299, Nov. 2, 2016] Appendix A to Part 1273—Exceptions to the General Disclosure Standards A. Related-party transactions. B. Biographical information. C. Compensation. D. Submission of matters to a vote of stockholders. E. Exhibits. F. Per share information. G. Beneficial ownership. [75 FR 23161, May 3, 2010, as amended at 81 FR 76299, Nov. 2, 2016]