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Financial Services Law Insights and Observations

FHFA issues guidance to GSEs on insider trading

Federal Issues FHFA GSE Fannie Mae Freddie Mac

Federal Issues

On February 8, the FHFA released AB 2022-01: Insider Trading Risk Management, which provides guidance to Fannie Mae and Freddie Mac (GSEs) on managing insider trading risk and related conflicts of interest. The Bulletin defines illegal insider trading as an individual or entity in possession of material nonpublic information (MNPI), “obtained through their employment or other involvement with a company,” purchasing, selling or otherwise trading their own company’s securities or non-company securities based on MNPI, or “when a person or entity improperly discloses MNPI to a third party.” The Bulletin explains that the GSEs are expected to establish and maintain a compliance program based on risk assessment processes to manage insider trading activities and risks. In order to mitigate these risks, the Bulletin advised the GSEs to “examine the nature of its business and its prior history of insider trading risk events, determine what types of illegal insider trading activities pose the greatest risk, and adopt effective controls to detect and prevent such misconduct.” The Bulletin directs the GSEs to address the following topics: (i) establishing an “effective [corporate] governance framework” for the GSEs; (ii) creating an “effective risk identification and assessment system;” (iii) “identifying, managing, and reporting on insider trading-related controls;” (iv) creating procedures for regular internal surveillance and monitoring of insider trading risks ‘to identify changes or trends in exposures over time;” and (v) developing procedures for effective internal and external disclosures and reporting.