Regulatory Reform Agenda, 39702-39711 [2017-17673]

Download as PDF 39702 Proposed Rules Federal Register Vol. 82, No. 161 Tuesday, August 22, 2017 This section of the FEDERAL REGISTER contains notices to the public of the proposed issuance of rules and regulations. The purpose of these notices is to give interested persons an opportunity to participate in the rule making prior to the adoption of the final rules. NATIONAL CREDIT UNION ADMINISTRATION 12 CFR Chapter VII Regulatory Reform Agenda National Credit Union Administration (NCUA). ACTION: Request for comment. AGENCY: technical reasons. NCUA will not edit or remove any identifying or contact information from the public comments submitted. You may inspect paper copies of comments in NCUA’s headquarters at 1775 Duke Street, Alexandria, Virginia 22314, by appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, call (703) 518–6546 or send an email to OGCMail@ncua.gov. FOR FURTHER INFORMATION CONTACT: Thomas I. Zells, Staff Attorney, Office of General Counsel, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314 or telephone: (703) 548–2478. SUPPLEMENTARY INFORMATION NCUA has established a Regulatory Reform Task Force (Task Force) to oversee the implementation of the agency’s regulatory reform agenda. This is consistent with the spirit of President Trump’s regulatory reform agenda and Executive Order 13777. Although NCUA, as an independent agency, is not required to comply with Executive Order 13777, the agency chooses to comply with its spirit and has reviewed all of NCUA’s regulations to that end. The substance of the Task Force’s initial report is provided in this notice. NCUA seeks public comment on the report and if any other regulatory changes should be made. DATES: Comments must be received on or before November 20, 2017. ADDRESSES: You may submit comments by any one of the following methods (Please send comments by one method only): • NCUA Web site: https:// www.ncua.gov/about/pages/boardcomments.aspx. • Email: Address to boardcomments@ ncua.gov. Include ‘‘[Your name]— Comments on NCUA Regulatory Reform Agenda’’ in the email subject line. • Fax: (703) 518–6319. Use the subject line described above for email. • Mail: Address to Gerald Poliquin, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314– 3428. • Hand Delivery/Courier: Same as mailing address. Public Inspection: You can view all public comments on NCUA’s Web site at https://www.ncua.gov/about/pages/ board-comments.aspx as submitted, except for those we cannot post for sradovich on DSK3GMQ082PROD with PROPOSALS SUMMARY: VerDate Sep<11>2014 17:08 Aug 21, 2017 Jkt 241001 Table of Contents I. Background a. NCUA’s Regulatory Mission b. The Regulatory Reform Agenda II. This Notice—NCUA’s Implementation of the Regulatory Reform Agenda III. The Task Force Report a. Executive Summary b. Introduction c. General Recommendations d. Regulatory Recommendations and Proposed Timeline IV. Request for Comment I. Background a. NCUA’s Regulatory Mission NCUA, as a prudential safety and soundness regulator, is charged with protecting the safety and soundness of the credit union system and, in turn, the National Credit Union Share Insurance Fund (NCUSIF) and the taxpayer through regulation and supervision. NCUA’s mission is to ‘‘provide, through regulation and supervision, a safe and sound credit union system, which promotes confidence in the national system of cooperative credit.’’ 1 Consistent with that mission, NCUA has statutory responsibility for a wide variety of regulations that protect the credit union system, members, and the NCUSIF. b. The Regulatory Reform Agenda President Trump has established a regulatory reform agenda and issued multiple executive orders designed to alleviate unnecessary regulatory burdens. NCUA is not subject to these executive orders but has nonetheless 1 https://www.ncua.gov/About/Pages/Missionand-Vision.aspx. PO 00000 Frm 00001 Fmt 4702 Sfmt 4702 chosen to comply with them in spirit. Executive Order 13777, entitled ‘‘Enforcing the Regulatory Reform Agenda,’’ directs subject agencies to establish Regulatory Task Forces and to evaluate existing regulations to identify those that should be repealed, replaced, or modified. The Executive Order requires subject agencies to, at a minimum, attempt to identify regulations that: 1. Eliminate jobs, or inhibit job creation; 2. Are outdated, unnecessary, or ineffective; 3. Impose costs that exceed benefits; 4. Create a serious inconsistency or otherwise interfere with regulatory reform initiatives and policies; 5. Are inconsistent with the requirements of section 515 of the Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 3516 note), or the guidance issued pursuant to that provision, in particular those regulations that rely in whole or in part on data, information, or methods that are not publicly available or that are insufficiently transparent to meet the standard for reproducibility; or 6. Derive from or implement Executive Orders or other Presidential directives that have been subsequently rescinded or substantially modified. II. This Notice—NCUA’s Implementation of the Regulatory Reform Agenda In complying with the spirit of Executive Order 13777, NCUA formed its Task Force in March 2017. The Task Force undertook an exhaustive review of NCUA’s regulations and issued its first draft report to Chairman McWatters in May 2017 and submitted it without change to the NCUA Board in June 2017. This report outlines the Task Force’s proposed review and reporting procedures and makes numerous recommendations for the amendment or repeal of regulatory requirements that the Task Force believes are outdated, ineffective, or excessively burdensome. The substance of the report is provided below. The report has been minimally modified from its original form to ensure readability and compliance with Federal Register publication requirements. E:\FR\FM\22AUP1.SGM 22AUP1 Federal Register / Vol. 82, No. 161 / Tuesday, August 22, 2017 / Proposed Rules sradovich on DSK3GMQ082PROD with PROPOSALS III. The Task Force Report a. Executive Summary Executive Order 13777 requires agencies to appoint a Regulatory Reform Officer (RRO) and establish a Regulatory Reform Task Force (Task Force) to oversee the implementation of regulatory reform initiatives and policies to ensure that agencies effectively carry out regulatory reforms, consistent with applicable law. Although NCUA is not required to comply with this Executive Order, the agency is choosing to comply with its spirit. From the end of March to the beginning of May, the Task Force met and reviewed all of NCUA’s Regulations to determine how best to fulfill the aims of the Executive Order and decide what regulations could be eliminated, revised, improved, or clarified. This report contains the Task Force’s initial findings and recommendations. The Task Force has developed a comprehensive four-year agenda for reviewing and revising NCUA’s Regulations. The regulations are broken into three tiers that cover the four-year scope. The Task Force approached this task with Executive Order’s stated policy of ‘‘alleviat[ing] unnecessary regulatory burdens placed on the American people’’ and the strong philosophy of regulatory relief embraced by both the new administration and NCUA’s Chairman in mind. As a result, the Task Force’s recommendations eclipse the depth of changes previously proposed during NCUA’s Economic Growth and Regulatory Paperwork Reduction Act (EGRPRA) and annual one-third regulatory review processes. For comparison purposes, this report also includes NCUA’s 2016 EGRPRA report to Congress and the agency’s regulatory review recommendations from 2014– 2016. These attachments are not included in this Federal Register notice. Instead, they are available on NCUA’s Web site at https://www.ncua.gov/ regulation-supervision/Pages/ rules.aspx. The primary factors for evaluating the tiers were degree of impact and degree of effort, which are described in Section II of this report [section III.c of this Federal Register notice]. ‘‘Impact’’ is focused on the magnitude of the benefit that would result from the change, and how broadly the stakeholder community would be impacted. ‘‘Effort’’ considers how much time and energy would go into making the change. Additional consideration was also given to the need to connect or sequence certain changes together, efforts to change regulations that are already underway, and the VerDate Sep<11>2014 17:08 Aug 21, 2017 Jkt 241001 overall level of resources available to carry out this comprehensive approach. Consistent with the spirit of the Executive Order, the Task Force recommends publishing in the Federal Register, with a 90 day comment period, a summary version of the Section III [III.d] regulations targeted for reform. This summary version would provide both a description of the regulations and the recommended actions. Publication will require an affirmative NCUA Board vote. Going forward, the Task Force shall determine a mechanism for measuring progress in performing the tasks outlined in the Executive Order and report to the Board. The Task Force also recommends that in the second quarter of 2018, after NCUA has received and evaluated public comments on the summary version of Section III [III.d], the Task Force, upon consultation with the Board, provide the Board with a second report and a refined blueprint of the timeline for completing the specific amendments discussed in Tiers 2 and 3 of Section III [III.d] of this report. It is important to note that, while the report and refined blueprint will guide NCUA’s actions moving forward, the process of implementing the amendments suggested in Tier 1 has already begun. b. Introduction Executive Order 13777 states that ‘‘it is the policy of the United States to alleviate unnecessary regulatory burdens placed on the American people.’’ It goes on to require that each Task Force created under this Executive Order ‘‘evaluate existing regulations [ ] and make recommendations to the agency head regarding their repeal, replacement, or modification, consistent with applicable law.’’ Executive Order 13777 requires agencies to appoint a Regulatory Reform Officer (RRO) and establish a Regulatory Reform Task Force (Task Force) to oversee the implementation of regulatory reform initiatives and policies to ensure that agencies effectively carry out regulatory reforms, consistent with applicable law. Although NCUA is not required to comply with this Executive Order, the agency is choosing to comply with its spirit. Because NCUA is an independent agency, it does not have the structure of a cabinet department. Accordingly, the Task Force has tried to cohere the language of the Executive Order to NCUA’s structure, as well as follow the timeline outlined in it. On March 20, 2017, Chairman McWatters appointed General Counsel Michael McKenna as NCUA’s PO 00000 Frm 00002 Fmt 4702 Sfmt 4702 39703 Regulatory Reform Officer and chair of the Regulatory Reform Task Force (Task Force). In addition, Chairman McWatters appointed to the Task Force the following: (1) Larry Fazio, Director, Examination & Insurance; (2) Ralph Monaco, Chief Economist; (3) Scott Hunt, Director, Office of National Examinations & Supervision; (4) Eugene Schied, Deputy Chief Financial Officer; and (5) Bob Foster, Director of Public and Congressional Affairs. General Counsel Michael McKenna added Special Counsel to the General Counsel Ross Kendall and Staff Attorney Tom Zells to the Task Force on March 21, 2017. From the end of March to the beginning of May, the Task Force met and reviewed all of NCUA’s Regulations to determine how best to fulfill the aims of the Executive Order and decide what regulations could be eliminated, revised, improved, or clarified. Section II [III.c] provides five general recommendations for complying with the spirt of the Executive Order. Section III [III.d] outlines those regulations the Task Force believes are ripe for reform. The current recommendations are the views of the Task Force; the Task Force has not yet consulted with the NCUA Board, other NCUA staff or sought the opinion of the credit union industry. Sections IV and V of this document contain the NCUA portion of the final EGRPRA report and NCUA’s annual one-third regulatory reviews from 2014– 2016. The Task Force’s recommendations are generally consistent with that report and the regulatory reviews, but more fully embrace the regulatory relief philosophy of the current administration, the Chairman and Executive Order 13777, and should be used as guiding principles for the NCUA Board’s regulatory reform initiatives moving forward. c. General Recommendations The NCUA Regulatory Reform Task Force recommends a comprehensive approach for eliminating, revising, improving, and clarifying NCUA’s regulations over a four year period. The approach would examine all aspects of NCUA’s regulations and embrace the strong philosophy of regulatory relief promoted by the new administration, NCUA’s Chairman, and Executive Order 13777. The Task Force’s recommendations propose greater and more significant regulatory relief amendments than have been embraced in the past. As such, this report makes recommendations that, while for the most part consistent with those articulated in NCUA’s EGRPRA report E:\FR\FM\22AUP1.SGM 22AUP1 39704 Federal Register / Vol. 82, No. 161 / Tuesday, August 22, 2017 / Proposed Rules review of NCUA regulations are defined as follows: Degree of Effort: The degree of effort considers factors such as the length of time needed to make the change, the complexity of the change, the resources needed to make the change and the perceived contentiousness of the change. A lower degree of effort has relatively fewer of these characteristics than does a high degree of effort. Degree of Impact: The degree of impact mostly considers the number of credit unions that would experience a benefit from the change. A low degree of impact classification does not mean that an amendment is unimportant. The table on the following page arranges these two primary factors into an effort/impact prioritization matrix. The purpose of the matrix is to guide agency efforts toward the actions that are expected to yield the greatest benefit relative to the degree of effort to make a particular change. The more immediate focus of the regulatory reform effort should emphasize changes that would require a relatively small effort in order to yield a large impact (benefit), as well as some changes with a significant impact that may require a higher degree of effort (the right side of the matrix). Changes that would fall on the left side of the matrix (lesser impact) will also be pursued in this comprehensive approach, but in many cases as a less immediate focus. The Task Force’s initial prioritization of regulatory reforms is presented in Section III [III.d] of this document, which prioritizes the regulatory review into three tiers. As expressed in Section III [III.d], Tier 1 regulations provide the most important targets for reform and they should be amended in the first two years of this project. Tier 2 and Tier 3 regulations would be implemented in year three and year four respectively. The timeframe for Tier 2 and Tier 3 is dependent on timely completion of Tier 1 and NCUA Board priorities. Tier 2 and Tier 3 regulations should be scheduled later because generally these will require more research and consensus on reform initiatives. Consistent with the Executive Order, the Task Force recommends publishing in the Federal Register, with a 90 day comment period, a summary version of the Section III [III.d] regulations targeted for reform. This summary version would include a description of the regulations and the recommended actions. Publication will require an affirmative NCUA Board vote. The Task Force also recommends a Board briefing at an open meeting to report on the substance of the comments received, as well as to report on the progress in reforming Tier 1 regulations. The Task Force also recommends that in the second quarter of 2018, after NCUA has received and evaluated VerDate Sep<11>2014 17:08 Aug 21, 2017 Jkt 241001 PO 00000 Frm 00003 Fmt 4702 Sfmt 4702 E:\FR\FM\22AUP1.SGM 22AUP1 EP22AU17.082</GPH> sradovich on DSK3GMQ082PROD with PROPOSALS and annual one-third regulatory reviews, may not have been prescribed by those documents. The general framework for this approach considers as primary factors both the ‘‘degree of effort’’ and ‘‘degree of impact’’ involved in amending each section of the existing regulations. Additional consideration is also given to the need to connect or sequence certain changes together, efforts to change regulations that are already underway, and the overall level of resources available to carry out this comprehensive approach. All regulatory changes will require the affirmative vote of the NCUA Board. The primary factors for assessing how to comprehensively approach the Federal Register / Vol. 82, No. 161 / Tuesday, August 22, 2017 / Proposed Rules public comments on the summary version of Section III [III.d], the Task Force, upon consultation with the Board, provide the Board with a refined blueprint of the timeline for completing the specific amendments discussed in Tiers 2 and 3 of Section III [III.d] of this report. It is important to note that, while the report and refined blueprint will guide NCUA’s actions moving forward, the process of implementing the amendments suggested in Tier 1 has already begun. Despite this blueprint, NCUA Board future priorities may change over time with circumstances, so ongoing changes to the tiers can be expected. In light of the comprehensive approach articulated by the Executive Order, the Task Force recommends suspending the Office of General Counsel’s annual one-third review of NCUA’s Regulations because the Task Force will have reviewed all of NCUA’s Regulations as part of this project. The Task Force recommends that the onethird review be revived again in 2020. The Task Force recommends that the offices of primary interest, the Office of General Counsel and the Office of Examination & Insurance take the lead in revising all regulations. This makes sense both because of the substantive expertise each office of primary interest will have for individual regulations and because the regular duties of both the General Counsel and the Director of E&I encompass the efforts that will be required in amending the regulations. The lead offices will also consult and engage other offices as needed. Finally, the Task Force recommends the agency continue to coordinate with the other federal financial institution regulators to determine if there are any joint rulemakings that can be targeted for reform. sradovich on DSK3GMQ082PROD with PROPOSALS d. Regulatory Recommendations and Proposed Timeline 2 As noted, Section III [III.d] details the specific regulations the Task Force identified as being ripe for reform initiatives and makes general recommendations about how each of the identified regulations should be amended and the timeline that should be followed. The Task Force’s recommendations, as described in Section II [III.c], follow. i. Tier 1 (First 24 Months) 1. § 701.21—Loans to Members and Lines of Credit to Members Addresses: Loan maturity limits for federal credit unions. 2 Recommendation Categories: Remove, Clarify, Simplify, Improve, Expand (Authority/Relief). VerDate Sep<11>2014 17:08 Aug 21, 2017 Jkt 241001 Sections: 701.21(c)(4),(f), & (g). Category: Clarify. Degree of Effort: Moderate. Degree of Impact: High. Recommendation: Combine all the maturity limitations into one section. Current maturity limits are confusing because they are not all co-located. Also, incorporate the legal opinion with respect to modifications to make it clear a lending action (like a troubled debt restructuring) that does not meet the generally accepted accounting principles (GAAP) standard for a ‘‘new loan’’ is not subject to the maturity limits. In addition, consider providing longer maturity limits for 1–4 family real estate loans and other loans (such as home improvement and mobile home loans) permitted by 12 U.S.C. 1757(5)(A)(i) and (ii) and removing the ‘‘case-by-case’’ exception the NCUA Board can provide. Addresses: Single borrower and group of associated borrowers limit. Sections: 701.21(c)(5); 701.22(a) & (b)(5); 723.2 & 723.4(c). Category: Clarify. Degree of Effort: Low. Degree of Impact: High. Recommendation: Combine single borrower (and group of associated borrowers) limits into one provision. Currently these limits are interspersed in the general loan, loan participation and member business lending regulations. It would provide clarity and consistency to incorporate all references in one location. Addresses: Third-party servicing of indirect vehicle loans. Sections: 701.21(h). Category: Remove. Degree of Effort: Low. Degree of Impact: Moderate. Recommendation: Revise this section to eliminate the portfolio limits and related waiver provision. A single, comprehensive third-party due diligence regulation would address the minimum expectations for credit unions using any servicers. 2. § 701.21—Loans to Members and Lines of Credit to Members Addresses: Compensation in connection with loans. Sections: 701.21(c)(8). Category: Clarify. Degree of Effort: Low. Degree of Impact: Moderate/High. Recommendation: Modify to provide flexibility with respect to senior executive compensation plans that incorporate lending as part of a broad and balanced set of organizational goals and performance measures. PO 00000 Frm 00004 Fmt 4702 Sfmt 4702 39705 3. Appendix A to Part 701—Federal Credit Union Bylaws Addresses: Federal Credit Union Bylaws. Sections: Appendix A to Part 701. Category: Improve. Degree of Effort: High. Degree of Impact: High. Recommendation: Recommend using an ANPR and forming a working group to update the Bylaws. The Bylaws have not been significantly updated in nearly a decade and need to be modernized; the modernization is likely to be complex enough to require a working group approach. 4. Appendix B to Part 701—Chartering and Field of Membership Manual Addresses: Field of Membership. Sections: Appendix B to Part 701. Category: Expand Authority. Degree of Effort: Moderate. Degree of Impact: Moderate. Recommendation: Revise the chartering and field of membership rules to give applicants for communitycharter approval, expansion or conversion the option, in lieu of a presumptive community, to submit a narrative to establish common interests or interaction among residents of the area it proposes to serve, thus qualifying the area as a well-defined local community. Add public hearings for determining well-defined local communities with populations over 2.5 million. Remove the population limit on a community consisting of a statistical area or a portion thereof. Finally, when such an area is subdivided into metropolitan divisions, permit a credit union to designate a portion of the area as its community without regard to division boundaries.3 5. Appendix B to Part 701—Chartering and Field of Membership Manual Addresses: Emergency Mergers. Sections: Appendix 1 to Appendix B to Part 701. Category: Improve. Degree of Effort: Moderate. Degree of Impact: Moderate.4 Recommendation: Revise the definition of the term ‘‘in danger of insolvency’’ for emergency merger purposes to provide a standard that better protects the National Credit Union Share Insurance Fund (NCUSIF). First, for two of the three current net worth-based categories, extend the time period in which a credit union’s net worth is projected to either render it 3 The timeline of this rule is subject to pending litigation. 4 Includes potential efficiencies and/or cost savings for NCUA. E:\FR\FM\22AUP1.SGM 22AUP1 39706 Federal Register / Vol. 82, No. 161 / Tuesday, August 22, 2017 / Proposed Rules insolvent or drop below two percent from 24 to 30 months and from 12 to 18 months, respectively. Additionally, add a fourth category to the three existing net worth-based categories of the definition, to include credit unions that have been granted or received assistance under section 208 of the Federal Credit Union Act (FCU Act) within the last 15 months. 6. Part 702—Capital Adequacy Addresses: Capital Planning and Stress Testing. Sections: 702.501–702.506. Category: Expand Relief. Degree of Effort: Moderate. Degree of Impact: Moderate.5 Recommendation: Explore raising the threshold for required stress testing to an amount greater than $10 billion, and assigning responsibility for conducting stress testing to the credit unions. 7. Part 702—Capital Adequacy Addresses: Risk-Based Capital (Delay). Sections: 702. Category: Improve. Degree of Effort: Low. Degree of Impact: High.6 Recommendation: Consider extending the January 1, 2019, implementation date to avoid needing to develop call report and system changes while this rule is under review. This will also allow time for the agency to more closely coincide changes with the implementation of the new expected credit loss accounting standard and consider any changes in risk-based capital standards for community banks currently being considered by the federal banking agencies.7 Considerations include changing the definition of complex to narrow the applicability of the rule, allowing for credit unions with high net worth ratios to be exempt, and simplifying the overall risk category and weighting scheme. (See also number 7 in Tier 2 discussion below.) sradovich on DSK3GMQ082PROD with PROPOSALS 8. Part 704—Corporate Credit Unions Addresses: Corporate Credit Unions. Sections: 704. Category: Improve. Degree of Effort: Moderate. Degree of Impact: Low. Recommendation: Amend capital standards for corporate credit unions to 5 Includes potential efficiencies and/or cost savings for NCUA. 6 Includes potential efficiencies and/or cost savings for NCUA. 7 CECL (current expected credit loss) is a new accounting standard adopted by the Financial Accounting Standards Board (FASB) affecting how credit unions account for losses and related reserves for financial instruments. The FASB effective date of CECL applicable to credit unions is 2021. VerDate Sep<11>2014 17:08 Aug 21, 2017 Jkt 241001 include expanding what constitutes Tier 1 Capital. For mergers, permit Tier 1 Capital to include GAAP Equity Acquired. Also, establish a retained earnings requirement of 2.50 percent, which, when achieved, will allow for all perpetual contributed capital to be included in Tier 1 Capital. The current rule for perpetual contributed capital would remain in effect until the retained earnings requirement is met. 9. Part 713—Fidelity Bond and Insurance Coverage Addresses: Fidelity Bond and Insurance Coverage. Sections: 713. Category: Improve. Degree of Effort: High. Degree of Impact: High.8 Recommendation: Explore ways to implement the requirements of the FCU Act in the least costly way possible. While requiring fidelity coverage is an FCU Act requirement, NCUA’s objective should be to allow a credit union to make a business decision based on their own product and service needs. This will effectively reduce NCUA’s involvement in a credit union’s operational decisions while maintaining the spirit of the FCU Act. This should be done separately from the Regulatory Reform Task Force.9 10. Part 715—Supervisory Committee Audits and Verification Addresses: Engagement letter, target date of delivery. Sections: 715.9(c)(6). Category: Remove. Degree of Effort: Low. Degree of Impact: High. Recommendation: Revise this section of the regulation to remove the specific ‘‘120 days from the date of calendar or fiscal year-end under audit (period covered)’’ reference from this section. Recommend the target date of the engagement letter be presented so the ‘‘credit union can meet the annual audit requirement.’’ This allows credit unions to negotiate the target date of delivery with the person or firm they contract with, but also ensures they meet the audit requirement per the FCU Act. This would also alleviate the need for a waiver. 11. Part 715—Supervisory Committee Audits and Verification Addresses: Audit per Supervisory Committee Guide. Sections: 715.7(c). Category: Clarify. 8 Includes potential efficiencies and/or cost savings for NCUA. 9 The timeline of this rule is subject to pending litigation. PO 00000 Frm 00005 Fmt 4702 Sfmt 4702 Degree of Effort: Moderate. Degree of Impact: High. Recommendation: Revise this to remove the reference to NCUA’s Supervisory Committee Audit Guide. In its place, include minimum standards a supervisory committee audit would be required to meet if they do not obtain a CPA opinion audit. 12. Securitization Addresses: Securitization. Sections: 721. Category: Expand Authority. Degree of Effort: High. Degree of Impact: Low. Recommendation: Issue a legal opinion letter authorizing federal credit unions to issue and sell securities under their incidental powers authority. Also, finalize the safe harbor rule proposed in 2014 regarding the treatment by the NCUA Board, as liquidating agent or conservator of a federally insured credit union, of financial assets transferred by the credit union in connection with a securitization or a participation. 13. Part 722—Appraisals Addresses: Appraisals. Sections: 722. Category: Expand Relief. Degree of Effort: Moderate. Degree of Impact: High. Recommendation: NCUA should further explore issuing a rule to raise appraisal thresholds separately from the interagency process. In response to comments received through the EGRPRA process, NCUA joined with the other banking agencies to establish an interagency task force to consider whether changes in the appraisal threshold are warranted. The task force is now drafting a proposed rule to relieve certain appraisal burdens. In particular, the proposal would increase the appraisal threshold from $250,000 to $400,000 for ‘‘commercial real estate loans’’ where repayment is dependent primarily on the sale of real estate or rental income derived from the real estate. In contrast to the other agencies’ appraisal regulations, NCUA’s appraisal regulation does not currently distinguish, with respect to the appraisal threshold requirement, between different types of real estate secured loans. Under 12 CFR part 722, the dollar threshold for any real estate secured loan is $250,000; loans above that amount must be supported by an appraisal performed by a state certified appraiser. The banking agencies’ current appraisal regulations have the same $250,000 threshold as NCUA’s regulation for most real estate related loans, but also recognize a separate appraisal threshold of $1 million for E:\FR\FM\22AUP1.SGM 22AUP1 Federal Register / Vol. 82, No. 161 / Tuesday, August 22, 2017 / Proposed Rules certain real estate related business loans that are not dependent on the sale of, or rental income derived from, real estate as the primary source of income (hereinafter, qualifying business loans). If NCUA joins the task force in issuing this joint proposed rule defining and raising the threshold for ‘‘commercial real estate loans,’’ the agency will likely also need to address the appraisal threshold for ‘‘qualifying business loans’’ in a subsequent rulemaking. Recommend that, instead of joining the joint proposed rule, NCUA further explore issuing a rule to raise both thresholds separately from the interagency process.10 14. Part 740—Accuracy of Advertising and Notice of Insured Status Addresses: Accuracy of Advertising and Notice of Insured Status. Sections: 740. Category: Expand Relief. Degree of Effort: Moderate. Degree of Impact: High. Recommendation: Revise certain provisions of NCUA’s advertising rule to provide regulatory relief to federally insured credit unions. The current draft NPRM proposes to allow federally insured credit unions to use a fourth version of the official advertising statement, ‘‘Insured by NCUA.’’ The draft also expands a current exemption from the advertising statement requirement regarding radio and television advertisements and eliminates the requirement to include the official advertising statement on statements of condition required to be published by law. Finally, it requests comment about whether the regulation should be modified to accommodate advertising via new types of social media, mobile banking, text messaging and other digital communication platforms, including Twitter and Instagram. Changes made based on this final request would need to be part of a separate rulemaking. sradovich on DSK3GMQ082PROD with PROPOSALS 15. Part 741—Requirements for Insurance 11 Addresses: Conversion from, or termination of, Federal share insurance. Sections: 741.4(j)(1)(ii). Category: Improve. Degree of Effort: Low, Degree of Impact: Low.12 Recommendation: Revise this section of the regulation to preclude a credit 10 If NCUA decides to join the other agencies in issuing this joint proposed rule the timing will be subject to the interagency process. 11 Also make technical corrections to the GAAP citations in 741.6(c). 12 Includes potential efficiencies and/or cost savings for NCUA. VerDate Sep<11>2014 17:08 Aug 21, 2017 Jkt 241001 union that has already converted to another form of insurance from receiving a subsequently declared NCUSIF dividend. Currently, if a credit union terminates insurance before a premium is declared it does not pay, but if it terminates insurance before a dividend is declared but within the same calendar year it receives the dividend. This is unfair to credit unions that remain insured. 16. Supervisory Review Committee Addresses: Supervisory Review Committee. Sections: 746, Subpart A. Category: Improve. Degree of Effort: High. Degree of Impact: Low. Recommendation: Expand and formalize procedures by which federally insured credit unions may secure review of material supervisory determinations by NCUA’s Supervisory Review Committee (SRC). Broaden the jurisdiction of the SRC to more closely conform to the practices of the other federal financial institution regulatory agencies. Expand the pool of agency personnel who will serve on the SRC and implement an optional, intermediate level of review by the Director of NCUA’s Office of Examination and Insurance before a matter is considered by the SRC. 17. Appeals Addresses: Appeals. Sections: 746, Subpart B. Category: Improve. Degree of Effort: High. Degree of Impact: Low. Recommendation: Consolidate procedures currently imbedded in various substantive regulations by which parties affected by an adverse determination at the regional or program office level may appeal that determination to the NCUA Board. Exclude formal enforcement actions and certain other subject areas. Establish uniform procedural guidelines to govern appeals and provide an avenue by which appellants may request the opportunity to appear in person before the Board. Matters that are excluded from the proposed new rule either require a formal hearing on the record in accordance with the Administrative Procedure Act (e.g., formal enforcement actions and certain creditor claims in liquidation) or are already governed by separate, discrete procedures (e.g., enforcement measures under prompt corrective action or material supervisory determinations reviewable by the Supervisory Review Committee). Appeals of matters that are delegated by rule to an officer or position below the PO 00000 Frm 00006 Fmt 4702 Sfmt 4702 39707 Board for final, binding agency action are also excluded. ii. Tier 2 (Year 3) 1. § 701.22—Loan Participations Addresses: Establish a limit on the aggregate amount of loan participations that may be purchased from any one originating lender not to exceed the greater of $5 million or 100 percent of the federally insured credit union’s net worth (unless waived). Sections: 701.22(b)(5)(ii); 701.22(c). Category: Remove. Degree of Effort: Low. Degree of Impact: High. Recommendation: Remove the prescriptive limit on the aggregate amount of loan participations that may be purchased from one originating lender. Replace with a requirement the credit union establish a limit in their policy, and tie into proposed new universal standards for third-party due diligence with heightened standards if it exceeds 100 percent of net worth. Eliminates the need for the waiver provision in section 701.22(c). 2. § 701.23—Purchase, Sale, and Pledge of Eligible Obligations Addresses: Purchase, sale, and pledge of eligible obligations. Sections: 701.23. Category: Clarify & Expand. Degree of Effort: Moderate. Degree of Impact: High. Recommendation: Simplify and combine all the authority to purchase loans and other assets into one section, and provide full authority consistent with the FCU Act. Eligible obligations of the credit union’s members should have no limit. Remove CAMEL rating and other limitations not required by the FCU Act.13 3. § 741.8—Purchase of assets and assumption of liabilities Addresses: Purchase of assets and assumption of liabilities. Sections: 741.8. Category: Improve. Degree of Effort: Moderate. Degree of Impact: Moderate. Recommendation: Review this regulation to determine if NCUA approval is really needed in purchasing loans and assuming liabilities from market participants other than federally insured credit unions. Credit unions already have relatively broad authority to make loans, buy investments and other assets, and enter into transactions that create liabilities. Requiring NCUA approval in all cases (including 13 See 12 U.S.C. 1757(7)(E), 1757(13), and 1757(14). E:\FR\FM\22AUP1.SGM 22AUP1 39708 Federal Register / Vol. 82, No. 161 / Tuesday, August 22, 2017 / Proposed Rules transactions not material to the acquirer) is an inordinate burden for the institution and NCUA. 4. § 701.32—Payment on Shares by Public Units and Nonmembers Addresses: Payment on shares by public units and nonmembers. Sections: 701.32. Category: Expand. Degree of Effort: Low. Degree of Impact: Moderate. Recommendation: Raise the nonmember deposit limit from 20 percent to 50 percent. As the functional equivalent of borrowing, this will parallel the ability of credit unions to borrow from any source up to 50 percent of paid-in and unimpaired capital and surplus per section 1757(9) of the FCU Act. A credit union is required to be low-income designated to accept nonmember deposits, limiting the institutions that can engage in this activity. 5. § 701.34—Designation of Low Income Status; Acceptance of Secondary Capital Accounts by Low-Income Designated Credit Unions Addresses: Designation of low income status; Acceptance of secondary capital accounts by low-income designated credit unions. Sections: 701.34. Category: Improve. Degree of Effort: High. Degree of Impact: Low. Recommendation: See the January 2017 ANPR on Alternative Capital for the broad range of changes that need to be made to this regulation to relocate capital treatment to Part 702 and address securities law issues, issuance and redemption standards, etc. sradovich on DSK3GMQ082PROD with PROPOSALS 6. § 701.38—Borrowed Funds From Natural Persons Addresses: Borrowed funds from natural persons. Sections: 701.38. Category: Clarify/Expand. Degree of Effort: High. Degree of Impact: Moderate. Recommendation: Recommend revising this section of the regulation to comprehensively address borrowing authority for federal credit unions. See the January 2017 ANPR on Alternative Capital for a discussion on this subject. Also, see recommended changes to Part 703. A comprehensive borrowing rule could provide clarity and certainty needed to support supplemental capital. 7. Part 702—Capital Adequacy Addresses: Risk-Based Capital (Substantive Amendments). Sections: 702. VerDate Sep<11>2014 17:08 Aug 21, 2017 Jkt 241001 Category: Improve. Degree of Effort: High. Degree of Impact: Low/Moderate.14 Recommendation: Considerations include changing the definition of complex to narrow the applicability of the rule, allowing for credit unions with high net worth ratios to be exempt, and simplifying the overall risk category and weighting scheme. These amendments need to be coordinated with any amendments to supplemental and secondary capital, which need to be coordinated with any amendments to the borrowing rule. 8. Alternative Capital Addresses: Alternative Capital. Sections: 702 generally. Category: Expand Authority. Degree of Effort: High. Degree of Impact: Low. Recommendation: As a follow up to the ANPR issued in January 2017, the NCUA Board should consider whether to propose a rule on alternative forms of capital federally insured credit unions could use in meeting capital standards. First, the Board should decide whether to make changes to the secondary capital regulation for low-income designated credit unions. Second, the Board should decide whether or not to authorize credit unions to issue supplemental capital instruments that would only count towards the riskbased net worth requirement. 9. Part 703—Investment and Deposit Activities Addresses: Investment and Deposit Activities. Sections: 703. Category: Improve & Expand. Degree of Effort: High. Degree of Impact: High. Recommendation: Revise the regulation to remove unnecessary restrictions on investment authorities not required by the FCU Act, and provide a principles-based approach focused on governance for investing activity. Also, remove the pre-approval requirement for derivatives authority and substitute with a notice requirement (coheres this to Part 741 for federally insured, state-charted credit unions as well). See the appendix for details on modifying this regulation. 10. § 701.21—Loans to Members and Lines of Credit to Members Addresses: Put option purchases in managing increased interest-rate risk for real estate loans produced for sale on the secondary market. Sections: 701.21(i). 14 Degree PO 00000 of impact depends on the approach. Frm 00007 Fmt 4702 Sfmt 4702 Category: Clarify. Degree of Effort: Low. Degree of Impact: High. Recommendation: Recommend moving section 701.21(i) to Part 703 Subpart B—Derivatives Authority to have all options/derivatives authority in one section. iii. Tier 3 (Year 4+) 15 1. § TBD—Third-Party Due Diligence Requirements Addresses: Third-party due diligence requirements. Sections: TBD. Category: Simplify & Improve. Degree of Effort: Moderate. Degree of Impact: High. Recommendation: Add a comprehensive third-party due diligence regulation and remove and/or relocate such provisions from other regulations. 2. § 701.21—Loans to Members and Lines of Credit to Members Addresses: Preemption of state laws Sections: 701.21(b) Category: Simplify & Improve Degree of Effort: Moderate Degree of Impact: High Recommendation: Enhance Federal preemption where possible and appropriate. Federal credit unions that are multi-state lenders still are subject to a variety of state laws that create overlap and additional regulatory burden. Enhancing preemption where possible and appropriate may help reduce overlap and burden. 3. § 701.21—Loans to Members and Lines of Credit to Members Addresses: Loan interest rate, temporary rate. Sections: 701.21(c)(7)(ii). Category: Expand/Clarify. Degree of Effort: Moderate. Degree of Impact: Low.16 Recommendation: Research the possibility of using a variable rate instead of a fixed, temporary rate. Also, remove the specific means for notifying credit unions to preserve future flexibility in sending notices in the most efficient and suitable manner available. 4. § 701.37—Treasury Tax and Loan Depositaries and Financial Agents of the Government Addresses: Treasury tax and loan depositaries and financial agents of the Government. Sections: 701.37. 15 These regulations will require more discussion on any potential changes. 16 Includes potential efficiencies and/or cost savings for NCUA. E:\FR\FM\22AUP1.SGM 22AUP1 Federal Register / Vol. 82, No. 161 / Tuesday, August 22, 2017 / Proposed Rules Category: Remove/Improve. Degree of Effort: Moderate. Degree of Impact: Undetermined. Recommendation: Determine if this regulation remains relevant and necessary. Category: Improve. Degree of Effort: Moderate. Degree of Impact: Undetermined. Recommendation: Review this regulation to identify if any changes or improvements are needed. 5. Part 709—Involuntary Liquidation of Federal Credit Unions and Adjudication of Creditor Claims Involving Federally Insured Credit Unions in Liquidation 8. Part 725—National Credit Union Administration Central Liquidity Facility (CLF) Addresses: National Credit Union Administration Central Liquidity Facility (CLF). Sections: 725. Category: Clarify. Degree of Effort: Moderate. Degree of Impact: Moderate. Recommendation: Update this regulation to streamline, facilitate the use of correspondents, and reduce minimum collateral requirements for certain loans/collateral. Addresses: Payout priorities in involuntary liquidation. Sections: 709.5. Category: Clarify. Degree of Effort: Low. Degree of Impact: Low.17 Recommendation: Revise the payout priorities to make unsecured creditors pari passu with the NCUSIF. Currently, unsecured creditors are senior to the NCUSIF. 6. Part 712—Credit Union Service Organizations (CUSOs) Addresses: Credit Union Service Organizations (CUSOs). Sections: 712. Category: Remove & Expand. Degree of Effort: Low. Degree of Impact: High. Recommendation: Recommend examining the CUSO regulation and evaluating the permissible activities in light of the FCU Act permitting CUSOs ‘‘whose business relates to the daily operations of the credit unions they serve’’ 18 or that are ‘‘providing services which are associated with the routine operations of credit unions.’’ 19 7. Part 714—Leasing Addresses: Leasing. Sections: 714. 9. Part 741—Requirements for Insurance Addresses: Maximum borrowing authority. Sections: 741.2. Category: Remove. Degree of Effort: Low. Degree of Impact: Low. Recommendation: Remove the 50 percent borrowing limit for federally insured, state-chartered credit unions and the related waiver provision. State law should govern in this area. 10. Part 741—Requirements for Insurance Addresses: Special reserve for nonconforming investments. Sections: 741.3(a)(2). Category: Remove. Degree of Effort: Low. Degree of Impact: Technical Amendment. 39709 Recommendation: Remove as no longer necessary and not consistent with GAAP.20 11. Part 748—Security Program, Report of Suspected Crimes, Suspicious Transactions, Catastrophic Acts, and Bank Secrecy Act Compliance Addresses: Security Program, Report of Suspected Crimes, Suspicious Transactions, Catastrophic Acts, and Bank Secrecy Act Compliance. Sections: 748. Category: Improve. Degree of Effort: Moderate. Degree of Impact: High. Recommendation: Review this regulation to identify if any changes or improvements are needed. Recommend using an ANPR and forming a working group due to the complexity. 12. Part 749—Records Preservation Program and Appendices—Record Retention Guidelines; Catastrophic Act Preparedness Guidelines Addresses: Records Preservation Program and Appendices—Record Retention Guidelines; Catastrophic Act Preparedness Guidelines Sections: 749 Category: Improve Degree of Effort: Moderate Degree of Impact: High Recommendation: Review this regulation to identify if any changes or improvements are needed. Recommend using an ANPR and forming a working group due to the complexity. e. Appendix to Section III—Part 703 Recommendations Details INVESTMENTS—PART 703 SUBPART A Item Change Rationale 1. Investment Policies § 703.3 ........................... Fine tune section to focus on investment activities and not on balance sheet activities. E.g., remove (c) and (d), IRR and liquidity, since those items should be addressed in the IRR and liquidity policies. Remove 100 percent of net worth limit for delegated discretionary control. Would need to add language to ensure credit unions have provided investment advisors with investment guidelines that contain: Duration/average life targets, permissible investments, and investment limits. Reduces burden on credit unions by not requiring IRR and liquidity policies in the investment policy. Also should help credit unions focus on balance sheet risk. sradovich on DSK3GMQ082PROD with PROPOSALS 2. Discretionary Control Over Investments and Investment Advisor § 703.5(b)(1)(ii), § 703.5(b)(2)—(Net worth limit). 3. Discretionary Control Over Investments and Investment Advisor § 703.5(b)(3)—(Due diligence). 17 Includes potential efficiencies and/or cost savings for NCUA. 18 12 U.S.C. 1757(5)(D). VerDate Sep<11>2014 17:08 Aug 21, 2017 Jkt 241001 Remove prescriptive due diligence requirements and simply state the credit union must perform due diligence on the investment advisor. 19 12 U.S.C. 1757(7)(I). are 11 federally insured, state-chartered credit unions from 8 different states that report a 20 There PO 00000 Frm 00008 Fmt 4702 Sfmt 4702 This would allow credit unions to have professionally managed, separate-account, investments without imposing a limit. There are no limits on mutual funds where the credit union has less control of what the manager invests in. Separate-account delegated discretionary programs have considerably more transparency than mutual funds. This section is too prescriptive for a credit union to perform due diligence. It also does not focus on the investment advisor’s ability to manage investments for the credit union. total of $4.4 million in this account on the Call Report as of December 31, 2016. E:\FR\FM\22AUP1.SGM 22AUP1 39710 Federal Register / Vol. 82, No. 161 / Tuesday, August 22, 2017 / Proposed Rules INVESTMENTS—PART 703 SUBPART A—Continued Item Change Rationale 4. Credit Analysis § 703.6—(Due diligence) ....... Modify exception to credit analysis requirements to only securities guaranteed by the entities listed in the section. 5. Credit Analysis § 703.6—(Maximum credit risk). Require a minimum of investment grade for all investments. 6. Credit Analysis § 703.6—(Credit union process and people). A credit union, or its investment advisor, must have sufficient resources, knowledge, systems, and procedures to handle the risks and risk management (e.g. IRR modeling) of the investments it purchases. 7. Broker-Dealers—§ 703.8(b)—(Due diligence) Remove prescriptive due diligence requirements and simply state the credit union must perform due diligence on the brokerdealer. Remove this section ........................................ This will make it clear that NCUA requires credit analysis for investments not guaranteed, but issued by, agencies. Currently the rule would not require a credit analysis for a Fannie Mae loss sharing bond or an unguaranteed subordinate tranche of a Freddie Mac multi-family mortgage security. Sets a minimum expectation of credit worthiness for all investments purchased under the Part 703 investment authority. This establishes the basic standard for a credit union to purchase an investment. This will allow for a loosening of Part 703 since NCUA has established standards to purchase investments that may have been prohibited or restricted in the past. This section is too prescriptive for a brokerdealer that doesn’t provide advice. May want to specify standards for broker-dealers that provide advice to credit unions. Unduly prescriptive. 8. Monitoring Non-Security Investments § 703.10—(Reporting requirements). 9. Valuing Securities § 703.11(a) & (d)—(Due diligence). 10. Valuing Securities § 703.11(c)—(Due diligence). 11. Monitoring Securities § 703.12(a)—(Reporting requirements). 12. Monitoring Securities § 703.12(b), (c) and (d)—(Reporting requirements). 13. Permissible Investment Activities and Permissible Investments § 703.13 and § 703.14. 14. Permissible Investment Activities § 703.13(d) (Borrowing repurchase transactions). 15. Permissible Investments § 703.14(a)—(Permissible indices for variable rate investments). 16. Permissible Investments § 703.14(e)—(Muni bond limits). 17. Permissible Investments § 703.14(h)— (Mortgage note repurchase transactions). 18. Permissible Investments § 703.14(i)—(Zero coupon investment restrictions). Combine sections and remove the reference to two price quotations. The requirement should be that the credit union use market inputs to determine if the purchase is at a reasonable market price. Remove this section ........................................ Move to and combine with § 703.11 ................ Unduly prescriptive. Expand permissible indices for credit unions that have sufficient resources, knowledge, systems, and procedures to handle the risks of the investment. Ability to model the investment for IRR should be required. Remove limitations on municipal exposure ..... This could provide credit unions with investments that they could benefit from and not pose a risk to the NCUSIF. Limits will be reviewed to determine if they are appropriate. Remove limits on zero-coupon investments .... sradovich on DSK3GMQ082PROD with PROPOSALS Remove this section ........................................ 20. Prohibited Investment Activities § 703.15— (Short Sales). 21. Prohibited Investments § 703.16(a)—(Mortgage servicing rights). Review regulatory history on the prohibition of short sales. Determine if mortgage servicing rights (MSRs) are permissible for credit unions to purchase per the FCU Act. If so, there should be consideration given to permit the purchase of MSRs. Remove this section ........................................ VerDate Sep<11>2014 17:08 Aug 21, 2017 Jkt 241001 Unnecessary. This should be dictated by GAAP. Streamlines Part 703. Remove these sections and 703.12 (a) will be combined with Part 703.11. Merge these sections and add language from the FCU Act for permissible investments. Allow mismatch permissible in § 703.20 as the ‘‘base’’ permissible activity. 19. Permissible Investments § 703.14(j)(3)— (Commercial mortgage related securities). 22. Prohibited Investments § 703.16(b)—(Exchangeable, IO and PO MBS). Currently too prescriptive. A principled approach conforms more to market convention. PO 00000 Frm 00009 Fmt 4702 Sfmt 4702 Streamlines rule and provides full investment authority allowed under the Act. A 30 day mismatch is not very risky. This limit is unnecessary. Credit unions should determine limits. Limits may need to be increased or eliminated. Interest rate and liquidity risk should be managed from a balance sheet standpoint. This appears to try to manage it from an individual security standpoint. This limit is unnecessary. Not realistic in the current market place. Furthermore, having a large number of loans was actually a negative in many CMRS deals prior to 2007. Less attention was paid to the smaller loans that were poorly underwritten versus the larger loans in the deal. Restriction may be reconsidered. Buying MSRs from other credit unions may offer efficiencies in the credit union system. A credit union should be able to purchase interest-only and principal-only investments if it has sufficient resources, knowledge, systems, and procedures to handle the risks and risk management (e.g. IRR modeling) of the investments it purchases. E:\FR\FM\22AUP1.SGM 22AUP1 Federal Register / Vol. 82, No. 161 / Tuesday, August 22, 2017 / Proposed Rules 39711 INVESTMENTS—PART 703 SUBPART A—Continued Item Change Rationale 23. Grandfathered Investments § 703.18 ........... 24. Investment Pilot Program § 703.19 .............. Remove sections that will no longer apply based on other changes in the rule. Remove this section ........................................ 25. Request for Additional Authority § 703.20 ... Remove this section ........................................ Some parts of the section may not apply due to other changes in the rule. Pilot programs will no longer be needed with the proposed changes. Will no longer be needed with the removal or alignment of the restrictions in other sections. DERIVATIVES—PART 703 SUBPART B AND RELATED ITEMS Item Change Rationale 1. ‘‘Move’’ Put-option purchases in managing increased interest-rate risk for real estate loans produced for sale on the secondary market, in 701.21(i) to 703.102(a). 2. ‘‘Move’’ European financial options contract in 703.14(g) to 703.102(a). 3. ‘‘Rename’’ 703 Subpart B from ‘‘Derivatives Authority’’ to ‘‘Derivatives and Hedging Authority’’. 4. ‘‘Move and Modify’’ Derivatives section in 703.14(k) to 703 Subpart B. Move the product to the Subpart B permissible derivative products. This would consolidate into one place all permissible derivative activities. Move the product to the Subpart B permissible derivative products. Name change ................................................... This would consolidate into one place all permissible derivative activities. Would widen the rule to address off balance sheet hedging instruments that are permissible. Would provide more clarity on hedging activities for TBA, Dollar Rolls, etc. 5. ‘‘Modify’’ Derivatives Application process to ‘‘Notification’’. 6. ‘‘Remove’’ Derivatives Regulatory Limits ....... 7. ‘‘Expand’’ Eligible Collateral for Margining ..... 8. ‘‘Modify’’ Eligibility (only part) ......................... With the move, remove 703.14(k)(1), move 703.14(k)(2) to 703.100 and move 703.14(k)(3) to 703.102. Remove the FCU application requirements and replace with a ‘‘Notification’’. This would require changes to § 703.108, § 703.109, § 703.110, § 703.111, § 703.112. Remove the volume limits on derivatives activity. This would require changes to § 703.103, § 703.105, Appendix A. Expand the eligible collateral in 703.104(a)(2)(iii) to include Agency Debt (Ginnie Mae Securities). Remove or change 703.108(b) to require notice but not pre-approval, and re-evaluate the CAMEL and asset size eligibility criteria. 9. ‘‘Modify’’ Notification requirement for FISCUs Change 741.219(b) .......................................... 10. ‘‘Remove’’ Pilot Program Participants .......... Change 703.113 .............................................. sradovich on DSK3GMQ082PROD with PROPOSALS IV. Request for Comment Executive Order 13777 requires that ‘‘each Regulatory Reform Task Force shall seek input and other assistance, as permitted by law, from entities significantly affected by Federal regulations, including State, local, and tribal governments, small businesses, consumers, non-governmental organizations, and trade associations.’’ In compliance with the spirit of the Executive Order, the Board seeks comments on all aspects of the Task Force’s report. Commenters are also encouraged to discuss any other relevant issues they believe NCUA should consider with respect to reducing regulatory burden and fulfilling the aims of Executive Order 13777. The Board requests that, to the extent feasible, commenters provide documentation to support any recommendations. VerDate Sep<11>2014 17:08 Aug 21, 2017 Jkt 241001 By the National Credit Union Administration Board on August 15, 2017. John H. Brolin, Acting Board Secretary. [FR Doc. 2017–17673 Filed 8–21–17; 8:45 am] BILLING CODE 7535–01–P DEPARTMENT OF HEALTH AND HUMAN SERVICES Food and Drug Administration 21 CFR Part 172 [Docket No. FDA–2017–F–3717] Juice Products Association; Filing of Food Additive Petition; Correction AGENCY: Food and Drug Administration, HHS. Notification; petition for rulemaking; correction. ACTION: PO 00000 Frm 00010 Fmt 4702 Sfmt 4702 The ‘‘Notification’’ requirements would include providing NCUA with at least 60 day notice before initially engaging in a Derivative transaction. Will be better supported as part of supervision guidance and possible use as scoping metrics. This is an acceptable practice and should have been in the Final Rule. Allows for more credit unions to use derivatives to manage interest rate risk subject to supervisory intervention if they are not equipped to manage it properly. Make consistent with FCU notification requirements. Not relevant anymore. The Food and Drug Administration (FDA or we) is correcting a notice that appeared in the Federal Register of Wednesday, July 26, 2017 (82 FR 34615). The document announced that we have filed a petition, submitted by the Juice Products Association, proposing that the food additive regulations be amended to replace the current Recommended Daily Intake (RDI) percentage values of calcium in fruit juices and fruit juice drinks in the regulation for vitamin D3 with absolute values and to update the specifications for vitamin D3. The document was published with incorrect information on the absolute level of added calcium for fruit juice drinks that are fortified with calcium. This document corrects that error. SUMMARY: This document is publishing in the Federal Register on August 22, 2017. DATES: E:\FR\FM\22AUP1.SGM 22AUP1

Agencies

[Federal Register Volume 82, Number 161 (Tuesday, August 22, 2017)]
[Proposed Rules]
[Pages 39702-39711]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2017-17673]


========================================================================
Proposed Rules
                                                Federal Register
________________________________________________________________________

This section of the FEDERAL REGISTER contains notices to the public of 
the proposed issuance of rules and regulations. The purpose of these 
notices is to give interested persons an opportunity to participate in 
the rule making prior to the adoption of the final rules.

========================================================================


Federal Register / Vol. 82, No. 161 / Tuesday, August 22, 2017 / 
Proposed Rules

[[Page 39702]]



NATIONAL CREDIT UNION ADMINISTRATION

12 CFR Chapter VII


Regulatory Reform Agenda

AGENCY: National Credit Union Administration (NCUA).

ACTION: Request for comment.

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SUMMARY: NCUA has established a Regulatory Reform Task Force (Task 
Force) to oversee the implementation of the agency's regulatory reform 
agenda. This is consistent with the spirit of President Trump's 
regulatory reform agenda and Executive Order 13777. Although NCUA, as 
an independent agency, is not required to comply with Executive Order 
13777, the agency chooses to comply with its spirit and has reviewed 
all of NCUA's regulations to that end. The substance of the Task 
Force's initial report is provided in this notice. NCUA seeks public 
comment on the report and if any other regulatory changes should be 
made.

DATES: Comments must be received on or before November 20, 2017.

ADDRESSES: You may submit comments by any one of the following methods 
(Please send comments by one method only):
     NCUA Web site: https://www.ncua.gov/about/pages/board-comments.aspx.
     Email: Address to boardcomments@ncua.gov. Include ``[Your 
name]--Comments on NCUA Regulatory Reform Agenda'' in the email subject 
line.
     Fax: (703) 518-6319. Use the subject line described above 
for email.
     Mail: Address to Gerald Poliquin, Secretary of the Board, 
National Credit Union Administration, 1775 Duke Street, Alexandria, 
Virginia 22314-3428.
     Hand Delivery/Courier: Same as mailing address.
    Public Inspection: You can view all public comments on NCUA's Web 
site at https://www.ncua.gov/about/pages/board-comments.aspx as 
submitted, except for those we cannot post for technical reasons. NCUA 
will not edit or remove any identifying or contact information from the 
public comments submitted. You may inspect paper copies of comments in 
NCUA's headquarters at 1775 Duke Street, Alexandria, Virginia 22314, by 
appointment weekdays between 9 a.m. and 3 p.m. To make an appointment, 
call (703) 518-6546 or send an email to OGCMail@ncua.gov.

FOR FURTHER INFORMATION CONTACT: Thomas I. Zells, Staff Attorney, 
Office of General Counsel, National Credit Union Administration, 1775 
Duke Street, Alexandria, Virginia 22314 or telephone: (703) 548-2478.

SUPPLEMENTARY INFORMATION

Table of Contents

I. Background
    a. NCUA's Regulatory Mission
    b. The Regulatory Reform Agenda
II. This Notice--NCUA's Implementation of the Regulatory Reform 
Agenda
III. The Task Force Report
    a. Executive Summary
    b. Introduction
    c. General Recommendations
    d. Regulatory Recommendations and Proposed Timeline
IV. Request for Comment

I. Background

a. NCUA's Regulatory Mission

    NCUA, as a prudential safety and soundness regulator, is charged 
with protecting the safety and soundness of the credit union system 
and, in turn, the National Credit Union Share Insurance Fund (NCUSIF) 
and the taxpayer through regulation and supervision. NCUA's mission is 
to ``provide, through regulation and supervision, a safe and sound 
credit union system, which promotes confidence in the national system 
of cooperative credit.'' \1\ Consistent with that mission, NCUA has 
statutory responsibility for a wide variety of regulations that protect 
the credit union system, members, and the NCUSIF.
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    \1\ https://www.ncua.gov/About/Pages/Mission-and-Vision.aspx.
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b. The Regulatory Reform Agenda

    President Trump has established a regulatory reform agenda and 
issued multiple executive orders designed to alleviate unnecessary 
regulatory burdens. NCUA is not subject to these executive orders but 
has nonetheless chosen to comply with them in spirit. Executive Order 
13777, entitled ``Enforcing the Regulatory Reform Agenda,'' directs 
subject agencies to establish Regulatory Task Forces and to evaluate 
existing regulations to identify those that should be repealed, 
replaced, or modified. The Executive Order requires subject agencies 
to, at a minimum, attempt to identify regulations that:
    1. Eliminate jobs, or inhibit job creation;
    2. Are outdated, unnecessary, or ineffective;
    3. Impose costs that exceed benefits;
    4. Create a serious inconsistency or otherwise interfere with 
regulatory reform initiatives and policies;
    5. Are inconsistent with the requirements of section 515 of the 
Treasury and General Government Appropriations Act, 2001 (44 U.S.C. 
3516 note), or the guidance issued pursuant to that provision, in 
particular those regulations that rely in whole or in part on data, 
information, or methods that are not publicly available or that are 
insufficiently transparent to meet the standard for reproducibility; or
    6. Derive from or implement Executive Orders or other Presidential 
directives that have been subsequently rescinded or substantially 
modified.

II. This Notice--NCUA's Implementation of the Regulatory Reform Agenda

    In complying with the spirit of Executive Order 13777, NCUA formed 
its Task Force in March 2017. The Task Force undertook an exhaustive 
review of NCUA's regulations and issued its first draft report to 
Chairman McWatters in May 2017 and submitted it without change to the 
NCUA Board in June 2017. This report outlines the Task Force's proposed 
review and reporting procedures and makes numerous recommendations for 
the amendment or repeal of regulatory requirements that the Task Force 
believes are outdated, ineffective, or excessively burdensome. The 
substance of the report is provided below. The report has been 
minimally modified from its original form to ensure readability and 
compliance with Federal Register publication requirements.

[[Page 39703]]

III. The Task Force Report

a. Executive Summary

    Executive Order 13777 requires agencies to appoint a Regulatory 
Reform Officer (RRO) and establish a Regulatory Reform Task Force (Task 
Force) to oversee the implementation of regulatory reform initiatives 
and policies to ensure that agencies effectively carry out regulatory 
reforms, consistent with applicable law. Although NCUA is not required 
to comply with this Executive Order, the agency is choosing to comply 
with its spirit. From the end of March to the beginning of May, the 
Task Force met and reviewed all of NCUA's Regulations to determine how 
best to fulfill the aims of the Executive Order and decide what 
regulations could be eliminated, revised, improved, or clarified. This 
report contains the Task Force's initial findings and recommendations.
    The Task Force has developed a comprehensive four-year agenda for 
reviewing and revising NCUA's Regulations. The regulations are broken 
into three tiers that cover the four-year scope. The Task Force 
approached this task with Executive Order's stated policy of 
``alleviat[ing] unnecessary regulatory burdens placed on the American 
people'' and the strong philosophy of regulatory relief embraced by 
both the new administration and NCUA's Chairman in mind. As a result, 
the Task Force's recommendations eclipse the depth of changes 
previously proposed during NCUA's Economic Growth and Regulatory 
Paperwork Reduction Act (EGRPRA) and annual one-third regulatory review 
processes. For comparison purposes, this report also includes NCUA's 
2016 EGRPRA report to Congress and the agency's regulatory review 
recommendations from 2014-2016. These attachments are not included in 
this Federal Register notice. Instead, they are available on NCUA's Web 
site at https://www.ncua.gov/regulation-supervision/Pages/rules.aspx.
    The primary factors for evaluating the tiers were degree of impact 
and degree of effort, which are described in Section II of this report 
[section III.c of this Federal Register notice]. ``Impact'' is focused 
on the magnitude of the benefit that would result from the change, and 
how broadly the stakeholder community would be impacted. ``Effort'' 
considers how much time and energy would go into making the change. 
Additional consideration was also given to the need to connect or 
sequence certain changes together, efforts to change regulations that 
are already underway, and the overall level of resources available to 
carry out this comprehensive approach.
    Consistent with the spirit of the Executive Order, the Task Force 
recommends publishing in the Federal Register, with a 90 day comment 
period, a summary version of the Section III [III.d] regulations 
targeted for reform. This summary version would provide both a 
description of the regulations and the recommended actions. Publication 
will require an affirmative NCUA Board vote.
    Going forward, the Task Force shall determine a mechanism for 
measuring progress in performing the tasks outlined in the Executive 
Order and report to the Board. The Task Force also recommends that in 
the second quarter of 2018, after NCUA has received and evaluated 
public comments on the summary version of Section III [III.d], the Task 
Force, upon consultation with the Board, provide the Board with a 
second report and a refined blueprint of the timeline for completing 
the specific amendments discussed in Tiers 2 and 3 of Section III 
[III.d] of this report. It is important to note that, while the report 
and refined blueprint will guide NCUA's actions moving forward, the 
process of implementing the amendments suggested in Tier 1 has already 
begun.

b. Introduction

    Executive Order 13777 states that ``it is the policy of the United 
States to alleviate unnecessary regulatory burdens placed on the 
American people.'' It goes on to require that each Task Force created 
under this Executive Order ``evaluate existing regulations [ ] and make 
recommendations to the agency head regarding their repeal, replacement, 
or modification, consistent with applicable law.''
    Executive Order 13777 requires agencies to appoint a Regulatory 
Reform Officer (RRO) and establish a Regulatory Reform Task Force (Task 
Force) to oversee the implementation of regulatory reform initiatives 
and policies to ensure that agencies effectively carry out regulatory 
reforms, consistent with applicable law. Although NCUA is not required 
to comply with this Executive Order, the agency is choosing to comply 
with its spirit. Because NCUA is an independent agency, it does not 
have the structure of a cabinet department. Accordingly, the Task Force 
has tried to cohere the language of the Executive Order to NCUA's 
structure, as well as follow the timeline outlined in it.
    On March 20, 2017, Chairman McWatters appointed General Counsel 
Michael McKenna as NCUA's Regulatory Reform Officer and chair of the 
Regulatory Reform Task Force (Task Force). In addition, Chairman 
McWatters appointed to the Task Force the following: (1) Larry Fazio, 
Director, Examination & Insurance; (2) Ralph Monaco, Chief Economist; 
(3) Scott Hunt, Director, Office of National Examinations & 
Supervision; (4) Eugene Schied, Deputy Chief Financial Officer; and (5) 
Bob Foster, Director of Public and Congressional Affairs. General 
Counsel Michael McKenna added Special Counsel to the General Counsel 
Ross Kendall and Staff Attorney Tom Zells to the Task Force on March 
21, 2017.
    From the end of March to the beginning of May, the Task Force met 
and reviewed all of NCUA's Regulations to determine how best to fulfill 
the aims of the Executive Order and decide what regulations could be 
eliminated, revised, improved, or clarified. Section II [III.c] 
provides five general recommendations for complying with the spirt of 
the Executive Order. Section III [III.d] outlines those regulations the 
Task Force believes are ripe for reform. The current recommendations 
are the views of the Task Force; the Task Force has not yet consulted 
with the NCUA Board, other NCUA staff or sought the opinion of the 
credit union industry. Sections IV and V of this document contain the 
NCUA portion of the final EGRPRA report and NCUA's annual one-third 
regulatory reviews from 2014-2016. The Task Force's recommendations are 
generally consistent with that report and the regulatory reviews, but 
more fully embrace the regulatory relief philosophy of the current 
administration, the Chairman and Executive Order 13777, and should be 
used as guiding principles for the NCUA Board's regulatory reform 
initiatives moving forward.

c. General Recommendations

    The NCUA Regulatory Reform Task Force recommends a comprehensive 
approach for eliminating, revising, improving, and clarifying NCUA's 
regulations over a four year period. The approach would examine all 
aspects of NCUA's regulations and embrace the strong philosophy of 
regulatory relief promoted by the new administration, NCUA's Chairman, 
and Executive Order 13777. The Task Force's recommendations propose 
greater and more significant regulatory relief amendments than have 
been embraced in the past. As such, this report makes recommendations 
that, while for the most part consistent with those articulated in 
NCUA's EGRPRA report

[[Page 39704]]

and annual one-third regulatory reviews, may not have been prescribed 
by those documents.
    The general framework for this approach considers as primary 
factors both the ``degree of effort'' and ``degree of impact'' involved 
in amending each section of the existing regulations.
    Additional consideration is also given to the need to connect or 
sequence certain changes together, efforts to change regulations that 
are already underway, and the overall level of resources available to 
carry out this comprehensive approach. All regulatory changes will 
require the affirmative vote of the NCUA Board.
    The primary factors for assessing how to comprehensively approach 
the review of NCUA regulations are defined as follows:

    Degree of Effort: The degree of effort considers factors such as 
the length of time needed to make the change, the complexity of the 
change, the resources needed to make the change and the perceived 
contentiousness of the change. A lower degree of effort has 
relatively fewer of these characteristics than does a high degree of 
effort.
    Degree of Impact: The degree of impact mostly considers the 
number of credit unions that would experience a benefit from the 
change. A low degree of impact classification does not mean that an 
amendment is unimportant.

    The table on the following page arranges these two primary factors 
into an effort/impact prioritization matrix. The purpose of the matrix 
is to guide agency efforts toward the actions that are expected to 
yield the greatest benefit relative to the degree of effort to make a 
particular change. The more immediate focus of the regulatory reform 
effort should emphasize changes that would require a relatively small 
effort in order to yield a large impact (benefit), as well as some 
changes with a significant impact that may require a higher degree of 
effort (the right side of the matrix). Changes that would fall on the 
left side of the matrix (lesser impact) will also be pursued in this 
comprehensive approach, but in many cases as a less immediate focus.
[GRAPHIC] [TIFF OMITTED] TP22AU17.082

    The Task Force's initial prioritization of regulatory reforms is 
presented in Section III [III.d] of this document, which prioritizes 
the regulatory review into three tiers. As expressed in Section III 
[III.d], Tier 1 regulations provide the most important targets for 
reform and they should be amended in the first two years of this 
project. Tier 2 and Tier 3 regulations would be implemented in year 
three and year four respectively. The timeframe for Tier 2 and Tier 3 
is dependent on timely completion of Tier 1 and NCUA Board priorities. 
Tier 2 and Tier 3 regulations should be scheduled later because 
generally these will require more research and consensus on reform 
initiatives.
    Consistent with the Executive Order, the Task Force recommends 
publishing in the Federal Register, with a 90 day comment period, a 
summary version of the Section III [III.d] regulations targeted for 
reform. This summary version would include a description of the 
regulations and the recommended actions. Publication will require an 
affirmative NCUA Board vote. The Task Force also recommends a Board 
briefing at an open meeting to report on the substance of the comments 
received, as well as to report on the progress in reforming Tier 1 
regulations.
    The Task Force also recommends that in the second quarter of 2018, 
after NCUA has received and evaluated

[[Page 39705]]

public comments on the summary version of Section III [III.d], the Task 
Force, upon consultation with the Board, provide the Board with a 
refined blueprint of the timeline for completing the specific 
amendments discussed in Tiers 2 and 3 of Section III [III.d] of this 
report. It is important to note that, while the report and refined 
blueprint will guide NCUA's actions moving forward, the process of 
implementing the amendments suggested in Tier 1 has already begun. 
Despite this blueprint, NCUA Board future priorities may change over 
time with circumstances, so ongoing changes to the tiers can be 
expected.
    In light of the comprehensive approach articulated by the Executive 
Order, the Task Force recommends suspending the Office of General 
Counsel's annual one-third review of NCUA's Regulations because the 
Task Force will have reviewed all of NCUA's Regulations as part of this 
project. The Task Force recommends that the one-third review be revived 
again in 2020.
    The Task Force recommends that the offices of primary interest, the 
Office of General Counsel and the Office of Examination & Insurance 
take the lead in revising all regulations. This makes sense both 
because of the substantive expertise each office of primary interest 
will have for individual regulations and because the regular duties of 
both the General Counsel and the Director of E&I encompass the efforts 
that will be required in amending the regulations. The lead offices 
will also consult and engage other offices as needed.
    Finally, the Task Force recommends the agency continue to 
coordinate with the other federal financial institution regulators to 
determine if there are any joint rulemakings that can be targeted for 
reform.

d. Regulatory Recommendations and Proposed Timeline 2
---------------------------------------------------------------------------

    \2\ Recommendation Categories: Remove, Clarify, Simplify, 
Improve, Expand (Authority/Relief).
---------------------------------------------------------------------------

    As noted, Section III [III.d] details the specific regulations the 
Task Force identified as being ripe for reform initiatives and makes 
general recommendations about how each of the identified regulations 
should be amended and the timeline that should be followed. The Task 
Force's recommendations, as described in Section II [III.c], follow.
i. Tier 1 (First 24 Months)
1. Sec.  701.21--Loans to Members and Lines of Credit to Members
    Addresses: Loan maturity limits for federal credit unions.
    Sections: 701.21(c)(4),(f), & (g).
    Category: Clarify.
    Degree of Effort: Moderate.
    Degree of Impact: High.
    Recommendation: Combine all the maturity limitations into one 
section. Current maturity limits are confusing because they are not all 
co-located. Also, incorporate the legal opinion with respect to 
modifications to make it clear a lending action (like a troubled debt 
restructuring) that does not meet the generally accepted accounting 
principles (GAAP) standard for a ``new loan'' is not subject to the 
maturity limits. In addition, consider providing longer maturity limits 
for 1-4 family real estate loans and other loans (such as home 
improvement and mobile home loans) permitted by 12 U.S.C. 1757(5)(A)(i) 
and (ii) and removing the ``case-by-case'' exception the NCUA Board can 
provide.

    Addresses: Single borrower and group of associated borrowers limit.
    Sections: 701.21(c)(5); 701.22(a) & (b)(5); 723.2 & 723.4(c).
    Category: Clarify.
    Degree of Effort: Low.
    Degree of Impact: High.
    Recommendation: Combine single borrower (and group of associated 
borrowers) limits into one provision. Currently these limits are 
interspersed in the general loan, loan participation and member 
business lending regulations. It would provide clarity and consistency 
to incorporate all references in one location.

    Addresses: Third-party servicing of indirect vehicle loans.
    Sections: 701.21(h).
    Category: Remove.
    Degree of Effort: Low.
    Degree of Impact: Moderate.
    Recommendation: Revise this section to eliminate the portfolio 
limits and related waiver provision. A single, comprehensive third-
party due diligence regulation would address the minimum expectations 
for credit unions using any servicers.
2. Sec.  701.21--Loans to Members and Lines of Credit to Members
    Addresses: Compensation in connection with loans.
    Sections: 701.21(c)(8).
    Category: Clarify.
    Degree of Effort: Low.
    Degree of Impact: Moderate/High.
    Recommendation: Modify to provide flexibility with respect to 
senior executive compensation plans that incorporate lending as part of 
a broad and balanced set of organizational goals and performance 
measures.
3. Appendix A to Part 701--Federal Credit Union Bylaws
    Addresses: Federal Credit Union Bylaws.
    Sections: Appendix A to Part 701.
    Category: Improve.
    Degree of Effort: High.
    Degree of Impact: High.
    Recommendation: Recommend using an ANPR and forming a working group 
to update the Bylaws. The Bylaws have not been significantly updated in 
nearly a decade and need to be modernized; the modernization is likely 
to be complex enough to require a working group approach.
4. Appendix B to Part 701--Chartering and Field of Membership Manual
    Addresses: Field of Membership.
    Sections: Appendix B to Part 701.
    Category: Expand Authority.
    Degree of Effort: Moderate.
    Degree of Impact: Moderate.
    Recommendation: Revise the chartering and field of membership rules 
to give applicants for community-charter approval, expansion or 
conversion the option, in lieu of a presumptive community, to submit a 
narrative to establish common interests or interaction among residents 
of the area it proposes to serve, thus qualifying the area as a well-
defined local community. Add public hearings for determining well-
defined local communities with populations over 2.5 million. Remove the 
population limit on a community consisting of a statistical area or a 
portion thereof. Finally, when such an area is subdivided into 
metropolitan divisions, permit a credit union to designate a portion of 
the area as its community without regard to division boundaries.\3\
---------------------------------------------------------------------------

    \3\ The timeline of this rule is subject to pending litigation.
---------------------------------------------------------------------------

5. Appendix B to Part 701--Chartering and Field of Membership Manual
    Addresses: Emergency Mergers.
    Sections: Appendix 1 to Appendix B to Part 701.
    Category: Improve.
    Degree of Effort: Moderate.
    Degree of Impact: Moderate.\4\
---------------------------------------------------------------------------

    \4\ Includes potential efficiencies and/or cost savings for 
NCUA.
---------------------------------------------------------------------------

    Recommendation: Revise the definition of the term ``in danger of 
insolvency'' for emergency merger purposes to provide a standard that 
better protects the National Credit Union Share Insurance Fund 
(NCUSIF). First, for two of the three current net worth-based 
categories, extend the time period in which a credit union's net worth 
is projected to either render it

[[Page 39706]]

insolvent or drop below two percent from 24 to 30 months and from 12 to 
18 months, respectively. Additionally, add a fourth category to the 
three existing net worth-based categories of the definition, to include 
credit unions that have been granted or received assistance under 
section 208 of the Federal Credit Union Act (FCU Act) within the last 
15 months.
6. Part 702--Capital Adequacy
    Addresses: Capital Planning and Stress Testing.
    Sections: 702.501-702.506.
    Category: Expand Relief.
    Degree of Effort: Moderate.
    Degree of Impact: Moderate.\5\
---------------------------------------------------------------------------

    \5\ Includes potential efficiencies and/or cost savings for 
NCUA.
---------------------------------------------------------------------------

    Recommendation: Explore raising the threshold for required stress 
testing to an amount greater than $10 billion, and assigning 
responsibility for conducting stress testing to the credit unions.
7. Part 702--Capital Adequacy
    Addresses: Risk-Based Capital (Delay).
    Sections: 702.
    Category: Improve.
    Degree of Effort: Low.
    Degree of Impact: High.\6\
---------------------------------------------------------------------------

    \6\ Includes potential efficiencies and/or cost savings for 
NCUA.
---------------------------------------------------------------------------

    Recommendation: Consider extending the January 1, 2019, 
implementation date to avoid needing to develop call report and system 
changes while this rule is under review. This will also allow time for 
the agency to more closely coincide changes with the implementation of 
the new expected credit loss accounting standard and consider any 
changes in risk-based capital standards for community banks currently 
being considered by the federal banking agencies.\7\ Considerations 
include changing the definition of complex to narrow the applicability 
of the rule, allowing for credit unions with high net worth ratios to 
be exempt, and simplifying the overall risk category and weighting 
scheme. (See also number 7 in Tier 2 discussion below.)
---------------------------------------------------------------------------

    \7\ CECL (current expected credit loss) is a new accounting 
standard adopted by the Financial Accounting Standards Board (FASB) 
affecting how credit unions account for losses and related reserves 
for financial instruments. The FASB effective date of CECL 
applicable to credit unions is 2021.
---------------------------------------------------------------------------

8. Part 704--Corporate Credit Unions
    Addresses: Corporate Credit Unions.
    Sections: 704.
    Category: Improve.
    Degree of Effort: Moderate.
    Degree of Impact: Low.
    Recommendation: Amend capital standards for corporate credit unions 
to include expanding what constitutes Tier 1 Capital. For mergers, 
permit Tier 1 Capital to include GAAP Equity Acquired. Also, establish 
a retained earnings requirement of 2.50 percent, which, when achieved, 
will allow for all perpetual contributed capital to be included in Tier 
1 Capital. The current rule for perpetual contributed capital would 
remain in effect until the retained earnings requirement is met.
9. Part 713--Fidelity Bond and Insurance Coverage
    Addresses: Fidelity Bond and Insurance Coverage.
    Sections: 713.
    Category: Improve.
    Degree of Effort: High.
    Degree of Impact: High.\8\
---------------------------------------------------------------------------

    \8\ Includes potential efficiencies and/or cost savings for 
NCUA.
---------------------------------------------------------------------------

    Recommendation: Explore ways to implement the requirements of the 
FCU Act in the least costly way possible. While requiring fidelity 
coverage is an FCU Act requirement, NCUA's objective should be to allow 
a credit union to make a business decision based on their own product 
and service needs. This will effectively reduce NCUA's involvement in a 
credit union's operational decisions while maintaining the spirit of 
the FCU Act. This should be done separately from the Regulatory Reform 
Task Force.\9\
---------------------------------------------------------------------------

    \9\ The timeline of this rule is subject to pending litigation.
---------------------------------------------------------------------------

10. Part 715--Supervisory Committee Audits and Verification
    Addresses: Engagement letter, target date of delivery.
    Sections: 715.9(c)(6).
    Category: Remove.
    Degree of Effort: Low.
    Degree of Impact: High.
    Recommendation: Revise this section of the regulation to remove the 
specific ``120 days from the date of calendar or fiscal year-end under 
audit (period covered)'' reference from this section. Recommend the 
target date of the engagement letter be presented so the ``credit union 
can meet the annual audit requirement.'' This allows credit unions to 
negotiate the target date of delivery with the person or firm they 
contract with, but also ensures they meet the audit requirement per the 
FCU Act. This would also alleviate the need for a waiver.
11. Part 715--Supervisory Committee Audits and Verification
    Addresses: Audit per Supervisory Committee Guide.
    Sections: 715.7(c).
    Category: Clarify.
    Degree of Effort: Moderate.
    Degree of Impact: High.
    Recommendation: Revise this to remove the reference to NCUA's 
Supervisory Committee Audit Guide. In its place, include minimum 
standards a supervisory committee audit would be required to meet if 
they do not obtain a CPA opinion audit.
12. Securitization
    Addresses: Securitization.
    Sections: 721.
    Category: Expand Authority.
    Degree of Effort: High.
    Degree of Impact: Low.
    Recommendation: Issue a legal opinion letter authorizing federal 
credit unions to issue and sell securities under their incidental 
powers authority. Also, finalize the safe harbor rule proposed in 2014 
regarding the treatment by the NCUA Board, as liquidating agent or 
conservator of a federally insured credit union, of financial assets 
transferred by the credit union in connection with a securitization or 
a participation.
13. Part 722--Appraisals
    Addresses: Appraisals.
    Sections: 722.
    Category: Expand Relief.
    Degree of Effort: Moderate.
    Degree of Impact: High.
    Recommendation: NCUA should further explore issuing a rule to raise 
appraisal thresholds separately from the interagency process. In 
response to comments received through the EGRPRA process, NCUA joined 
with the other banking agencies to establish an interagency task force 
to consider whether changes in the appraisal threshold are warranted. 
The task force is now drafting a proposed rule to relieve certain 
appraisal burdens. In particular, the proposal would increase the 
appraisal threshold from $250,000 to $400,000 for ``commercial real 
estate loans'' where repayment is dependent primarily on the sale of 
real estate or rental income derived from the real estate. In contrast 
to the other agencies' appraisal regulations, NCUA's appraisal 
regulation does not currently distinguish, with respect to the 
appraisal threshold requirement, between different types of real estate 
secured loans. Under 12 CFR part 722, the dollar threshold for any real 
estate secured loan is $250,000; loans above that amount must be 
supported by an appraisal performed by a state certified appraiser. The 
banking agencies' current appraisal regulations have the same $250,000 
threshold as NCUA's regulation for most real estate related loans, but 
also recognize a separate appraisal threshold of $1 million for

[[Page 39707]]

certain real estate related business loans that are not dependent on 
the sale of, or rental income derived from, real estate as the primary 
source of income (hereinafter, qualifying business loans). If NCUA 
joins the task force in issuing this joint proposed rule defining and 
raising the threshold for ``commercial real estate loans,'' the agency 
will likely also need to address the appraisal threshold for 
``qualifying business loans'' in a subsequent rulemaking. Recommend 
that, instead of joining the joint proposed rule, NCUA further explore 
issuing a rule to raise both thresholds separately from the interagency 
process.\10\
---------------------------------------------------------------------------

    \10\ If NCUA decides to join the other agencies in issuing this 
joint proposed rule the timing will be subject to the interagency 
process.
---------------------------------------------------------------------------

14. Part 740--Accuracy of Advertising and Notice of Insured Status
    Addresses: Accuracy of Advertising and Notice of Insured Status.
    Sections: 740.
    Category: Expand Relief.
    Degree of Effort: Moderate.
    Degree of Impact: High.
    Recommendation: Revise certain provisions of NCUA's advertising 
rule to provide regulatory relief to federally insured credit unions. 
The current draft NPRM proposes to allow federally insured credit 
unions to use a fourth version of the official advertising statement, 
``Insured by NCUA.'' The draft also expands a current exemption from 
the advertising statement requirement regarding radio and television 
advertisements and eliminates the requirement to include the official 
advertising statement on statements of condition required to be 
published by law. Finally, it requests comment about whether the 
regulation should be modified to accommodate advertising via new types 
of social media, mobile banking, text messaging and other digital 
communication platforms, including Twitter and Instagram. Changes made 
based on this final request would need to be part of a separate 
rulemaking.
15. Part 741--Requirements for Insurance \11\
---------------------------------------------------------------------------

    \11\ Also make technical corrections to the GAAP citations in 
741.6(c).
---------------------------------------------------------------------------

    Addresses: Conversion from, or termination of, Federal share 
insurance.
    Sections: 741.4(j)(1)(ii).
    Category: Improve.
    Degree of Effort: Low,
    Degree of Impact: Low.\12\
---------------------------------------------------------------------------

    \12\ Includes potential efficiencies and/or cost savings for 
NCUA.
---------------------------------------------------------------------------

    Recommendation: Revise this section of the regulation to preclude a 
credit union that has already converted to another form of insurance 
from receiving a subsequently declared NCUSIF dividend. Currently, if a 
credit union terminates insurance before a premium is declared it does 
not pay, but if it terminates insurance before a dividend is declared 
but within the same calendar year it receives the dividend. This is 
unfair to credit unions that remain insured.
16. Supervisory Review Committee
    Addresses: Supervisory Review Committee.
    Sections: 746, Subpart A.
    Category: Improve.
    Degree of Effort: High.
    Degree of Impact: Low.
    Recommendation: Expand and formalize procedures by which federally 
insured credit unions may secure review of material supervisory 
determinations by NCUA's Supervisory Review Committee (SRC). Broaden 
the jurisdiction of the SRC to more closely conform to the practices of 
the other federal financial institution regulatory agencies. Expand the 
pool of agency personnel who will serve on the SRC and implement an 
optional, intermediate level of review by the Director of NCUA's Office 
of Examination and Insurance before a matter is considered by the SRC.
17. Appeals
    Addresses: Appeals.
    Sections: 746, Subpart B.
    Category: Improve.
    Degree of Effort: High.
    Degree of Impact: Low.
    Recommendation: Consolidate procedures currently imbedded in 
various substantive regulations by which parties affected by an adverse 
determination at the regional or program office level may appeal that 
determination to the NCUA Board. Exclude formal enforcement actions and 
certain other subject areas. Establish uniform procedural guidelines to 
govern appeals and provide an avenue by which appellants may request 
the opportunity to appear in person before the Board. Matters that are 
excluded from the proposed new rule either require a formal hearing on 
the record in accordance with the Administrative Procedure Act (e.g., 
formal enforcement actions and certain creditor claims in liquidation) 
or are already governed by separate, discrete procedures (e.g., 
enforcement measures under prompt corrective action or material 
supervisory determinations reviewable by the Supervisory Review 
Committee). Appeals of matters that are delegated by rule to an officer 
or position below the Board for final, binding agency action are also 
excluded.
ii. Tier 2 (Year 3)
1. Sec.  701.22--Loan Participations
    Addresses: Establish a limit on the aggregate amount of loan 
participations that may be purchased from any one originating lender 
not to exceed the greater of $5 million or 100 percent of the federally 
insured credit union's net worth (unless waived).
    Sections: 701.22(b)(5)(ii); 701.22(c).
    Category: Remove.
    Degree of Effort: Low.
    Degree of Impact: High.
    Recommendation: Remove the prescriptive limit on the aggregate 
amount of loan participations that may be purchased from one 
originating lender. Replace with a requirement the credit union 
establish a limit in their policy, and tie into proposed new universal 
standards for third-party due diligence with heightened standards if it 
exceeds 100 percent of net worth. Eliminates the need for the waiver 
provision in section 701.22(c).
2. Sec.  701.23--Purchase, Sale, and Pledge of Eligible Obligations
    Addresses: Purchase, sale, and pledge of eligible obligations.
    Sections: 701.23.
    Category: Clarify & Expand.
    Degree of Effort: Moderate.
    Degree of Impact: High.
    Recommendation: Simplify and combine all the authority to purchase 
loans and other assets into one section, and provide full authority 
consistent with the FCU Act. Eligible obligations of the credit union's 
members should have no limit. Remove CAMEL rating and other limitations 
not required by the FCU Act.\13\
---------------------------------------------------------------------------

    \13\ See 12 U.S.C. 1757(7)(E), 1757(13), and 1757(14).
---------------------------------------------------------------------------

3. Sec.  741.8--Purchase of assets and assumption of liabilities
    Addresses: Purchase of assets and assumption of liabilities.
    Sections: 741.8.
    Category: Improve.
    Degree of Effort: Moderate.
    Degree of Impact: Moderate.
    Recommendation: Review this regulation to determine if NCUA 
approval is really needed in purchasing loans and assuming liabilities 
from market participants other than federally insured credit unions. 
Credit unions already have relatively broad authority to make loans, 
buy investments and other assets, and enter into transactions that 
create liabilities. Requiring NCUA approval in all cases (including

[[Page 39708]]

transactions not material to the acquirer) is an inordinate burden for 
the institution and NCUA.
4. Sec.  701.32--Payment on Shares by Public Units and Nonmembers
    Addresses: Payment on shares by public units and nonmembers.
    Sections: 701.32.
    Category: Expand.
    Degree of Effort: Low.
    Degree of Impact: Moderate.
    Recommendation: Raise the nonmember deposit limit from 20 percent 
to 50 percent. As the functional equivalent of borrowing, this will 
parallel the ability of credit unions to borrow from any source up to 
50 percent of paid-in and unimpaired capital and surplus per section 
1757(9) of the FCU Act. A credit union is required to be low-income 
designated to accept nonmember deposits, limiting the institutions that 
can engage in this activity.
5. Sec.  701.34--Designation of Low Income Status; Acceptance of 
Secondary Capital Accounts by Low-Income Designated Credit Unions
    Addresses: Designation of low income status; Acceptance of 
secondary capital accounts by low-income designated credit unions.
    Sections: 701.34.
    Category: Improve.
    Degree of Effort: High.
    Degree of Impact: Low.
    Recommendation: See the January 2017 ANPR on Alternative Capital 
for the broad range of changes that need to be made to this regulation 
to relocate capital treatment to Part 702 and address securities law 
issues, issuance and redemption standards, etc.
6. Sec.  701.38--Borrowed Funds From Natural Persons
    Addresses: Borrowed funds from natural persons.
    Sections: 701.38.
    Category: Clarify/Expand.
    Degree of Effort: High.
    Degree of Impact: Moderate.
    Recommendation: Recommend revising this section of the regulation 
to comprehensively address borrowing authority for federal credit 
unions. See the January 2017 ANPR on Alternative Capital for a 
discussion on this subject. Also, see recommended changes to Part 703. 
A comprehensive borrowing rule could provide clarity and certainty 
needed to support supplemental capital.
7. Part 702--Capital Adequacy
    Addresses: Risk-Based Capital (Substantive Amendments).
    Sections: 702.
    Category: Improve.
    Degree of Effort: High.
    Degree of Impact: Low/Moderate.\14\
---------------------------------------------------------------------------

    \14\ Degree of impact depends on the approach.
---------------------------------------------------------------------------

    Recommendation: Considerations include changing the definition of 
complex to narrow the applicability of the rule, allowing for credit 
unions with high net worth ratios to be exempt, and simplifying the 
overall risk category and weighting scheme. These amendments need to be 
coordinated with any amendments to supplemental and secondary capital, 
which need to be coordinated with any amendments to the borrowing rule.
8. Alternative Capital
    Addresses: Alternative Capital.
    Sections: 702 generally.
    Category: Expand Authority.
    Degree of Effort: High.
    Degree of Impact: Low.
    Recommendation: As a follow up to the ANPR issued in January 2017, 
the NCUA Board should consider whether to propose a rule on alternative 
forms of capital federally insured credit unions could use in meeting 
capital standards. First, the Board should decide whether to make 
changes to the secondary capital regulation for low-income designated 
credit unions. Second, the Board should decide whether or not to 
authorize credit unions to issue supplemental capital instruments that 
would only count towards the risk-based net worth requirement.
9. Part 703--Investment and Deposit Activities
    Addresses: Investment and Deposit Activities.
    Sections: 703.
    Category: Improve & Expand.
    Degree of Effort: High.
    Degree of Impact: High.
    Recommendation: Revise the regulation to remove unnecessary 
restrictions on investment authorities not required by the FCU Act, and 
provide a principles-based approach focused on governance for investing 
activity. Also, remove the pre-approval requirement for derivatives 
authority and substitute with a notice requirement (coheres this to 
Part 741 for federally insured, state-charted credit unions as well). 
See the appendix for details on modifying this regulation.
10. Sec.  701.21--Loans to Members and Lines of Credit to Members
    Addresses: Put option purchases in managing increased interest-rate 
risk for real estate loans produced for sale on the secondary market.
    Sections: 701.21(i).
    Category: Clarify.
    Degree of Effort: Low.
    Degree of Impact: High.
    Recommendation: Recommend moving section 701.21(i) to Part 703 
Subpart B--Derivatives Authority to have all options/derivatives 
authority in one section.
iii. Tier 3 (Year 4+) \15\
---------------------------------------------------------------------------

    \15\ These regulations will require more discussion on any 
potential changes.
---------------------------------------------------------------------------

1. Sec.  TBD--Third-Party Due Diligence Requirements
    Addresses: Third-party due diligence requirements.
    Sections: TBD.
    Category: Simplify & Improve.
    Degree of Effort: Moderate.
    Degree of Impact: High.
    Recommendation: Add a comprehensive third-party due diligence 
regulation and remove and/or relocate such provisions from other 
regulations.
2. Sec.  701.21--Loans to Members and Lines of Credit to Members
    Addresses: Preemption of state laws
    Sections: 701.21(b)
    Category: Simplify & Improve
    Degree of Effort: Moderate
    Degree of Impact: High
    Recommendation: Enhance Federal preemption where possible and 
appropriate. Federal credit unions that are multi-state lenders still 
are subject to a variety of state laws that create overlap and 
additional regulatory burden. Enhancing preemption where possible and 
appropriate may help reduce overlap and burden.
3. Sec.  701.21--Loans to Members and Lines of Credit to Members
    Addresses: Loan interest rate, temporary rate.
    Sections: 701.21(c)(7)(ii).
    Category: Expand/Clarify.
    Degree of Effort: Moderate.
    Degree of Impact: Low.\16\
---------------------------------------------------------------------------

    \16\ Includes potential efficiencies and/or cost savings for 
NCUA.
---------------------------------------------------------------------------

    Recommendation: Research the possibility of using a variable rate 
instead of a fixed, temporary rate. Also, remove the specific means for 
notifying credit unions to preserve future flexibility in sending 
notices in the most efficient and suitable manner available.
4. Sec.  701.37--Treasury Tax and Loan Depositaries and Financial 
Agents of the Government
    Addresses: Treasury tax and loan depositaries and financial agents 
of the Government.
    Sections: 701.37.

[[Page 39709]]

    Category: Remove/Improve.
    Degree of Effort: Moderate.
    Degree of Impact: Undetermined.
    Recommendation: Determine if this regulation remains relevant and 
necessary.
5. Part 709--Involuntary Liquidation of Federal Credit Unions and 
Adjudication of Creditor Claims Involving Federally Insured Credit 
Unions in Liquidation
    Addresses: Payout priorities in involuntary liquidation.
    Sections: 709.5.
    Category: Clarify.
    Degree of Effort: Low.
    Degree of Impact: Low.\17\
---------------------------------------------------------------------------

    \17\ Includes potential efficiencies and/or cost savings for 
NCUA.
---------------------------------------------------------------------------

    Recommendation: Revise the payout priorities to make unsecured 
creditors pari passu with the NCUSIF. Currently, unsecured creditors 
are senior to the NCUSIF.
6. Part 712--Credit Union Service Organizations (CUSOs)
    Addresses: Credit Union Service Organizations (CUSOs).
    Sections: 712.
    Category: Remove & Expand.
    Degree of Effort: Low.
    Degree of Impact: High.
    Recommendation: Recommend examining the CUSO regulation and 
evaluating the permissible activities in light of the FCU Act 
permitting CUSOs ``whose business relates to the daily operations of 
the credit unions they serve'' \18\ or that are ``providing services 
which are associated with the routine operations of credit unions.'' 
\19\
---------------------------------------------------------------------------

    \18\ 12 U.S.C. 1757(5)(D).
    \19\ 12 U.S.C. 1757(7)(I).
---------------------------------------------------------------------------

7. Part 714--Leasing
    Addresses: Leasing.
    Sections: 714.
    Category: Improve.
    Degree of Effort: Moderate.
    Degree of Impact: Undetermined.
    Recommendation: Review this regulation to identify if any changes 
or improvements are needed.
8. Part 725--National Credit Union Administration Central Liquidity 
Facility (CLF)
    Addresses: National Credit Union Administration Central Liquidity 
Facility (CLF).
    Sections: 725.
    Category: Clarify.
    Degree of Effort: Moderate.
    Degree of Impact: Moderate.
    Recommendation: Update this regulation to streamline, facilitate 
the use of correspondents, and reduce minimum collateral requirements 
for certain loans/collateral.
9. Part 741--Requirements for Insurance
    Addresses: Maximum borrowing authority.
    Sections: 741.2.
    Category: Remove.
    Degree of Effort: Low.
    Degree of Impact: Low.
    Recommendation: Remove the 50 percent borrowing limit for federally 
insured, state-chartered credit unions and the related waiver 
provision. State law should govern in this area.
10. Part 741--Requirements for Insurance
    Addresses: Special reserve for nonconforming investments.
    Sections: 741.3(a)(2).
    Category: Remove.
    Degree of Effort: Low.
    Degree of Impact: Technical Amendment.
    Recommendation: Remove as no longer necessary and not consistent 
with GAAP.\20\
---------------------------------------------------------------------------

    \20\ There are 11 federally insured, state-chartered credit 
unions from 8 different states that report a total of $4.4 million 
in this account on the Call Report as of December 31, 2016.
---------------------------------------------------------------------------

11. Part 748--Security Program, Report of Suspected Crimes, Suspicious 
Transactions, Catastrophic Acts, and Bank Secrecy Act Compliance
    Addresses: Security Program, Report of Suspected Crimes, Suspicious 
Transactions, Catastrophic Acts, and Bank Secrecy Act Compliance.
    Sections: 748.
    Category: Improve.
    Degree of Effort: Moderate.
    Degree of Impact: High.
    Recommendation: Review this regulation to identify if any changes 
or improvements are needed. Recommend using an ANPR and forming a 
working group due to the complexity.
12. Part 749--Records Preservation Program and Appendices--Record 
Retention Guidelines; Catastrophic Act Preparedness Guidelines
    Addresses: Records Preservation Program and Appendices--Record 
Retention Guidelines; Catastrophic Act Preparedness Guidelines
    Sections: 749
    Category: Improve
    Degree of Effort: Moderate
    Degree of Impact: High
    Recommendation: Review this regulation to identify if any changes 
or improvements are needed. Recommend using an ANPR and forming a 
working group due to the complexity.
e. Appendix to Section III--Part 703 Recommendations Details

                     Investments--Part 703 Subpart A
------------------------------------------------------------------------
            Item                     Change               Rationale
------------------------------------------------------------------------
1. Investment Policies Sec.   Fine tune section to  Reduces burden on
  703.3.                       focus on investment   credit unions by
                               activities and not    not requiring IRR
                               on balance sheet      and liquidity
                               activities. E.g.,     policies in the
                               remove (c) and (d),   investment policy.
                               IRR and liquidity,    Also should help
                               since those items     credit unions focus
                               should be addressed   on balance sheet
                               in the IRR and        risk.
                               liquidity policies.
2. Discretionary Control      Remove 100 percent    This would allow
 Over Investments and          of net worth limit    credit unions to
 Investment Advisor Sec.       for delegated         have professionally
 703.5(b)(1)(ii), Sec.         discretionary         managed, separate-
 703.5(b)(2)--(Net worth       control. Would need   account,
 limit).                       to add language to    investments without
                               ensure credit         imposing a limit.
                               unions have           There are no limits
                               provided investment   on mutual funds
                               advisors with         where the credit
                               investment            union has less
                               guidelines that       control of what the
                               contain: Duration/    manager invests in.
                               average life          Separate-account
                               targets,              delegated
                               permissible           discretionary
                               investments, and      programs have
                               investment limits.    considerably more
                                                     transparency than
                                                     mutual funds.
3. Discretionary Control      Remove prescriptive   This section is too
 Over Investments and          due diligence         prescriptive for a
 Investment Advisor Sec.       requirements and      credit union to
 703.5(b)(3)--(Due             simply state the      perform due
 diligence).                   credit union must     diligence. It also
                               perform due           does not focus on
                               diligence on the      the investment
                               investment advisor.   advisor's ability
                                                     to manage
                                                     investments for the
                                                     credit union.

[[Page 39710]]

 
4. Credit Analysis Sec.       Modify exception to   This will make it
 703.6--(Due diligence).       credit analysis       clear that NCUA
                               requirements to       requires credit
                               only securities       analysis for
                               guaranteed by the     investments not
                               entities listed in    guaranteed, but
                               the section.          issued by,
                                                     agencies. Currently
                                                     the rule would not
                                                     require a credit
                                                     analysis for a
                                                     Fannie Mae loss
                                                     sharing bond or an
                                                     unguaranteed
                                                     subordinate tranche
                                                     of a Freddie Mac
                                                     multi-family
                                                     mortgage security.
5. Credit Analysis Sec.       Require a minimum of  Sets a minimum
 703.6--(Maximum credit        investment grade      expectation of
 risk).                        for all investments.  credit worthiness
                                                     for all investments
                                                     purchased under the
                                                     Part 703 investment
                                                     authority.
6. Credit Analysis Sec.       A credit union, or    This establishes the
 703.6--(Credit union          its investment        basic standard for
 process and people).          advisor, must have    a credit union to
                               sufficient            purchase an
                               resources,            investment. This
                               knowledge, systems,   will allow for a
                               and procedures to     loosening of Part
                               handle the risks      703 since NCUA has
                               and risk management   established
                               (e.g. IRR modeling)   standards to
                               of the investments    purchase
                               it purchases.         investments that
                                                     may have been
                                                     prohibited or
                                                     restricted in the
                                                     past.
7. Broker-Dealers--Sec.       Remove prescriptive   This section is too
 703.8(b)--(Due diligence).    due diligence         prescriptive for a
                               requirements and      broker-dealer that
                               simply state the      doesn't provide
                               credit union must     advice. May want to
                               perform due           specify standards
                               diligence on the      for broker-dealers
                               broker-dealer.        that provide advice
                                                     to credit unions.
8. Monitoring Non-Security    Remove this section.  Unduly prescriptive.
 Investments Sec.   703.10--
 (Reporting requirements).
9. Valuing Securities Sec.    Combine sections and  Currently too
 703.11(a) & (d)--(Due         remove the            prescriptive. A
 diligence).                   reference to two      principled approach
                               price quotations.     conforms more to
                               The requirement       market convention.
                               should be that the
                               credit union use
                               market inputs to
                               determine if the
                               purchase is at a
                               reasonable market
                               price.
10. Valuing Securities Sec.   Remove this section.  Unnecessary. This
  703.11(c)--(Due diligence).                        should be dictated
                                                     by GAAP.
11. Monitoring Securities     Move to and combine   Streamlines Part
 Sec.   703.12(a)--            with Sec.   703.11.   703.
 (Reporting requirements).
12. Monitoring Securities     Remove these          Unduly prescriptive.
 Sec.   703.12(b), (c) and     sections and 703.12
 (d)--(Reporting               (a) will be
 requirements).                combined with Part
                               703.11.
13. Permissible Investment    Merge these sections  Streamlines rule and
 Activities and Permissible    and add language      provides full
 Investments Sec.   703.13     from the FCU Act      investment
 and Sec.   703.14.            for permissible       authority allowed
                               investments.          under the Act.
14. Permissible Investment    Allow mismatch        A 30 day mismatch is
 Activities Sec.   703.13(d)   permissible in Sec.   not very risky.
 (Borrowing repurchase           703.20 as the
 transactions).                ``base''
                               permissible
                               activity.
15. Permissible Investments   Expand permissible    This could provide
 Sec.   703.14(a)--            indices for credit    credit unions with
 (Permissible indices for      unions that have      investments that
 variable rate investments).   sufficient            they could benefit
                               resources,            from and not pose a
                               knowledge, systems,   risk to the NCUSIF.
                               and procedures to
                               handle the risks of
                               the investment.
                               Ability to model
                               the investment for
                               IRR should be
                               required.
16. Permissible Investments   Remove limitations    This limit is
 Sec.   703.14(e)--(Muni       on municipal          unnecessary. Credit
 bond limits).                 exposure.             unions should
                                                     determine limits.
17. Permissible Investments   Limits will be        Limits may need to
 Sec.   703.14(h)--(Mortgage   reviewed to           be increased or
 note repurchase               determine if they     eliminated.
 transactions).                are appropriate.
18. Permissible Investments   Remove limits on      Interest rate and
 Sec.   703.14(i)--(Zero       zero-coupon           liquidity risk
 coupon investment             investments.          should be managed
 restrictions).                                      from a balance
                                                     sheet standpoint.
                                                     This appears to try
                                                     to manage it from
                                                     an individual
                                                     security
                                                     standpoint. This
                                                     limit is
                                                     unnecessary.
19. Permissible Investments   Remove this section.  Not realistic in the
 Sec.   703.14(j)(3)--                               current market
 (Commercial mortgage                                place. Furthermore,
 related securities).                                having a large
                                                     number of loans was
                                                     actually a negative
                                                     in many CMRS deals
                                                     prior to 2007. Less
                                                     attention was paid
                                                     to the smaller
                                                     loans that were
                                                     poorly underwritten
                                                     versus the larger
                                                     loans in the deal.
20. Prohibited Investment     Review regulatory     Restriction may be
 Activities Sec.   703.15--    history on the        reconsidered.
 (Short Sales).                prohibition of
                               short sales.
21. Prohibited Investments    Determine if          Buying MSRs from
 Sec.   703.16(a)--(Mortgage   mortgage servicing    other credit unions
 servicing rights).            rights (MSRs) are     may offer
                               permissible for       efficiencies in the
                               credit unions to      credit union
                               purchase per the      system.
                               FCU Act. If so,
                               there should be
                               consideration given
                               to permit the
                               purchase of MSRs.
22. Prohibited Investments    Remove this section.  A credit union
 Sec.   703.16(b)--                                  should be able to
 (Exchangeable, IO and PO                            purchase interest-
 MBS).                                               only and principal-
                                                     only investments if
                                                     it has sufficient
                                                     resources,
                                                     knowledge, systems,
                                                     and procedures to
                                                     handle the risks
                                                     and risk management
                                                     (e.g. IRR modeling)
                                                     of the investments
                                                     it purchases.

[[Page 39711]]

 
23. Grandfathered             Remove sections that  Some parts of the
 Investments Sec.   703.18.    will no longer        section may not
                               apply based on        apply due to other
                               other changes in      changes in the
                               the rule.             rule.
24. Investment Pilot Program  Remove this section.  Pilot programs will
 Sec.   703.19.                                      no longer be needed
                                                     with the proposed
                                                     changes.
25. Request for Additional    Remove this section.  Will no longer be
 Authority Sec.   703.20.                            needed with the
                                                     removal or
                                                     alignment of the
                                                     restrictions in
                                                     other sections.
------------------------------------------------------------------------


            Derivatives--Part 703 Subpart B and Related Items
------------------------------------------------------------------------
            Item                     Change               Rationale
------------------------------------------------------------------------
1. ``Move'' Put-option        Move the product to   This would
 purchases in managing         the Subpart B         consolidate into
 increased interest-rate       permissible           one place all
 risk for real estate loans    derivative products.  permissible
 produced for sale on the                            derivative
 secondary market, in                                activities.
 701.21(i) to 703.102(a).
2. ``Move'' European          Move the product to   This would
 financial options contract    the Subpart B         consolidate into
 in 703.14(g) to 703.102(a).   permissible           one place all
                               derivative products.  permissible
                                                     derivative
                                                     activities.
3. ``Rename'' 703 Subpart B   Name change.........  Would widen the rule
 from ``Derivatives                                  to address off
 Authority'' to                                      balance sheet
 ``Derivatives and Hedging                           hedging instruments
 Authority''.                                        that are
                                                     permissible.
4. ``Move and Modify''        With the move,        Would provide more
 Derivatives section in        remove                clarity on hedging
 703.14(k) to 703 Subpart B.   703.14(k)(1), move    activities for TBA,
                               703.14(k)(2) to       Dollar Rolls, etc.
                               703.100 and move
                               703.14(k)(3) to
                               703.102.
5. ``Modify'' Derivatives     Remove the FCU        The ``Notification''
 Application process to        application           requirements would
 ``Notification''.             requirements and      include providing
                               replace with a        NCUA with at least
                               ``Notification''.     60 day notice
                               This would require    before initially
                               changes to Sec.       engaging in a
                               703.108, Sec.         Derivative
                               703.109, Sec.         transaction.
                               703.110, Sec.
                               703.111, Sec.
                               703.112.
6. ``Remove'' Derivatives     Remove the volume     Will be better
 Regulatory Limits.            limits on             supported as part
                               derivatives           of supervision
                               activity. This        guidance and
                               would require         possible use as
                               changes to Sec.       scoping metrics.
                               703.103, Sec.
                               703.105, Appendix A.
7. ``Expand'' Eligible        Expand the eligible   This is an
 Collateral for Margining.     collateral in         acceptable practice
                               703.104(a)(2)(iii)    and should have
                               to include Agency     been in the Final
                               Debt (Ginnie Mae      Rule.
                               Securities).
8. ``Modify'' Eligibility     Remove or change      Allows for more
 (only part).                  703.108(b) to         credit unions to
                               require notice but    use derivatives to
                               not pre-approval,     manage interest
                               and re-evaluate the   rate risk subject
                               CAMEL and asset       to supervisory
                               size eligibility      intervention if
                               criteria.             they are not
                                                     equipped to manage
                                                     it properly.
9. ``Modify'' Notification    Change 741.219(b)...  Make consistent with
 requirement for FISCUs.                             FCU notification
                                                     requirements.
10. ``Remove'' Pilot Program  Change 703.113......  Not relevant
 Participants.                                       anymore.
------------------------------------------------------------------------

IV. Request for Comment

    Executive Order 13777 requires that ``each Regulatory Reform Task 
Force shall seek input and other assistance, as permitted by law, from 
entities significantly affected by Federal regulations, including 
State, local, and tribal governments, small businesses, consumers, non-
governmental organizations, and trade associations.'' In compliance 
with the spirit of the Executive Order, the Board seeks comments on all 
aspects of the Task Force's report.
    Commenters are also encouraged to discuss any other relevant issues 
they believe NCUA should consider with respect to reducing regulatory 
burden and fulfilling the aims of Executive Order 13777. The Board 
requests that, to the extent feasible, commenters provide documentation 
to support any recommendations.

    By the National Credit Union Administration Board on August 15, 
2017.
John H. Brolin,
Acting Board Secretary.
[FR Doc. 2017-17673 Filed 8-21-17; 8:45 am]
 BILLING CODE 7535-01-P