FHFA issues notice of potential changes to Suspended Counterparty Program

SCP, which is designed to prohibit GSEs and federal home loan banks from doing business with suspected frauds, would be widened to include civil misconduct

The Federal Housing Finance Agency (FHFA) on Friday issued a notice of proposed rulemaking that would amend its Suspended Counterparty Program (SCP) to include additional forms of misconduct as a basis for keeping regulated entities from doing business with organizations found to have committed fraud.

“The SCP regulation requires any of FHFA’s regulated entities to submit a report to FHFA if the regulated entity becomes aware that an individual or institution with which it does business has been found to have committed certain forms of misconduct within the past three years,” the agency explained. “It also authorizes FHFA to issue orders directing the Agency’s regulated entities to cease or refrain from doing business with certain counterparties, subject to terms as provided in the orders.”

The new rule “would authorize the suspension of business between the regulated entities and counterparties who are found to have committed misconduct in the context of civil enforcement actions or who are found to have committed criminal or civil misconduct in connection with the management or ownership of real property,” FHFA said in the announcement.

It would also authorize FHFA to “immediately and without first issuing a proposed suspension order, suspend business between the regulated entities and counterparties where the misconduct has resulted in debarment, suspension, or limited denial of participation imposed by a federal agency.”

Insulating the government-sponsored enterprises (GSEs) and other regulated entities including the eleven Federal Home Loan Banks from bad actors is the key reason this rule is being proposed, according to FHFA Director Sandra Thompson.

“Amending the Suspended Counterparty Program will help strengthen FHFA’s ability to protect its regulated entities from business risks presented by individuals or institutions who engage in misconduct,” Thompson said in the announcement of the proposed rule. “The proposed rule will strengthen FHFA’s ability to ensure the regulated entities remain safe and sound so they continue to serve as reliable sources of liquidity.”

FHFA established the SCP in June 2012 during the Obama administration. Requirements and procedures governing the SCP were codified by an interim final rule in October 2013 and were amended in a follow-up rule in June 2016.

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