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Federal Register / Vol. 86, No. 34 / Tuesday, February 23, 2021 / Rules and Regulations
contemplating an issuance of Subordinated Debt Notes retain professional advisors experienced in securities law disclosure matters to help them prepare related Offering Documents. In short, the Board continues to believe that Subordinated Debt Notes issued under this final rule would be securities. Therefore, the Board is taking a prudential stance by finalizing, as proposed, the various provisions related to securities law that appeared in the proposed rule. The Board believes that, in the infancy of Subordinated Debt issuances, such provisions are transparent and will help Issuing Credit Unions navigate and properly issue Subordinated Debt Notes in consultation with counsel. The Board further notes that the disclosures required by this final rule are akin to those most investors are accustomed to seeing in the marketplace, which may make issuances of Subordinated Debt Notes less costly for some Issuing Credit Unions.
a. Exemptions for Certain Subordinated Debt Issuances In addition to the aforementioned comments, several commenters stated that the OCCs requirements for national banks offering subordinated debt are less restrictive than what the Board proposed for credit unions. Commenters noted that the OCC requires banks that issue subordinated debt to comply with 16.5 of the Federal Deposit Insurance Corporations FDICs Securities Offering Disclosure Rule, which contains several exemptions to the prospectus delivery requirement, including exemptions for nonpublic offerings and small issuances made in conformance with applicable SEC
rules.28 To align with regulations issued by the OCC and FDIC, these commenters stated that the NCUA should consider a more flexible approach.
The Board is aware that the FDICs Securities Offering Disclosure Rule 29
contains exemptions that were not included in the proposed rule and are not included in this final rule. First, related to the preceding section of this document, the Board notes that while the OCC and FDIC provide exemptions for certain issuances, the OCC and FDIC
still deem such issuances to be securities. Rather, the OCC and FDIC
have provided exemptions from registration and delivery of an Offering Document for issuances of securities that satisfy certain requirements.
Second, the Board notes that the OCC
has supervisedand banks have 28 12

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engaged insubordinated debt transactions for many years. As noted previously, this final rule will be, to some degree, a new endeavor for many Issuing Credit Unions. The Board believes it is both prudent and necessary to maintain the proposed guardrails to help Issuing Credit Unions comply with applicable securities laws, particularly those related to anti-fraud.
As the NCUA and credit unions move forward with this final rule, the Board will continue to evaluate the rule and may undertake future rulemakings to provide exemptions where they are both warranted and prudent for Issuing Credit Unions.
2. Offering Document In addition to comments related to the applicability of securities laws and exemptions from submitting an Offering Document, as discussed previously, several commenters offered specific comments on the requirement that an Issuing Credit Union create an Offering Document for each issuance of Subordinated Debt. Generally, these commenters opposed the Offering Document process, or at least requested an exemption or streamlined process for certain issuances.
One commenter stated that the NCUA
should include exemptions for certain issuances of Subordinated Debt, similar to the OCC and FDIC. This commenter contended that such exemptions would lower regulatory burden on smaller institutions and bring the NCUAs regulation more in line with the OCCs, FDICs, and SECs disclosure requirements. This commenter went on to state that almost every current issuance of secondary capital would be exempt from the Offering Document process under the OCCs Subordinated Debt regulation.
Another commenter stated that the NCUAs documentation requirement goes beyond that of the OCC, which permits a bank seeking to issue securities to tailor its approach to the relevant securities registration exemptionand associated market practicethat meets its needs. This commenter went on to state that the NCUAs requirement could result in credit unions having higher burdens and less transaction flexibilitythan their community bank counterparts.
Finally, this commenter argued that the NCUAs requirements would be similar to those imposed by the SEC on public offerings, which, in the commenters view, would hinder the credit union industry, which would largely be engaging in small, private issuances.
Another commenter suggested that instead of the NCUAs proposed
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approach to Offering Documents, the NCUA should require a potential credit union issueras part of its initial application to issue Subordinated Debtto explain how its approach to due diligence, disclosure, and securities law considerations is reasonable given the specifics of an issuance. In support, this commenter stated that this approach would provide flexibility while accounting for the varying types of issuances and varying degrees of investor sophistication.
Another commenter suggested the Board detach the Offering Document from the application process, and instead make approval contingent on the inclusion of an offering circular to comply with 17 CFR 240.10b5 and other disclosures the NCUA deems appropriate. This commenter stated that this would allow a credit union to defer the legal costs associated with preparing an Offering Document until the credit union was ready to execute its Subordinated Debt strategy.
Finally, one commenter requested that the NCUA explicitly require issuers to disclose all pending legal or other items that could have a negative impact on the credit unions capital, income, or operating performance. This commenter stated that such information was necessary for an investor to make a wellinformed decision.
For the reasons articulated in the proposed rule and those discussed previously, the Board is finalizing the sections relating to the Offering Document as proposed. In addition to the previous discussion related to Subordinated Debt as a security, the Board continues to believe that a robust Offering Document is prudent for credit unions that issue Subordinated Debt.
As noted in the proposed rule, the Offering Document is designed to provide investors with disclosures that provide the information they need to make an informed decision on purchasing Subordinated Debt. Further, the Board modeled the Offering Document from disclosures common in the marketplace for this type of instrument. Because Subordinated Debt is a security and thus subject to the broad antifraud provisions of the Securities Exchange Act, as codified in the SECs regulations,30 the Board intends the Offering Document to be an aid for credit unions and an extra level of protection for investors.
In response to commenters seeking an exemption for certain types of Subordinated Debt transactions, the Board may consider such actions in future rulemakings. However, as noted 30 17

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