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Federal Register / Vol. 86, No. 100 / Wednesday, May 26, 2021 / Rules and Regulations Regional Director with discretion to evaluate the reasons for the lower management rating and determine if the FCU can safely continue to use Derivatives. The Board notes that this flexibility will aid FCUs that have a Management CAMEL component rating of 3, 4, or 5 for reasons unrelated to the FCUs ability to safely use Derivatives.
Scenario one, described above, would also apply to any Grandfathered FCU
that, as of the effective date of this final rule, has assets below the $500 million threshold required in 703.108a of this final rule.
Under scenario two above, any FCU
that obtains Derivatives authority without applying, because the FCU met the requirement in 703.108a, would be required to cease entering into new Derivatives transactions and notify the applicable Regional Director if such FCU ever failed to continue meeting the aforementioned requirements. The required cease and notify procedures would apply to any instance in which the FCU fails to meet the requirements of 703.108a, including a situation where the FCU fails to meet one or both requirements, subsequently meets those requirements, and later falls out of compliance again. The Board notes that the cease and notify procedures in 703.108d are not an absolute bar to continuation of Derivatives transactions.
Rather, the procedures provide an opportunity for the Regional Director to evaluate the condition of the FCU and determine if it is safe and sound for the FCU to continue using Derivatives. To that end, the Board notes that this final rule provides for more flexibility than the current rule.
Finally, in scenario three the Board seeks to clarify two distinct points:
First, an FCU that is required to apply for Derivatives authority under this final rule that subsequently meets the requirements of 703.108a will, as of the date of meeting such requirements, no longer be bound by the terms of its application. Instead, such FCU will be subject only to the terms of this final rule and any future amendments made thereto. To ensure the final rule reflects this clarification, as further discussed later in this section, the Board is making minor clarifications in the final rule regulatory text.
Second, the Board notes that such FCU, discussed in the preceding sentences, that fails to continue to meet the requirements in 703.108a will be required to undertake the same cease and notify procedures as outlined above. Such FCUs will not automatically be required to reapply.
However, as for all three scenarios, the Regional Director may exercise any
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remedy he or she sees fit for an FCU that is no longer in compliance with 703.108a or its approved and still in force application. Such action could include, but is not limited to, revocation of authority or a required application for continued authority.
To effectuate the clarifications discussed in this section of the preamble, the Board has reorganized and amended the rule text in 703.108d. Specifically, the Board has divided this section into two types of changes in condition: 1 A negative change in condition that may require remedial action by the applicable Regional Director; and 2 a positive change in condition such that an FCU
that applied for Derivatives authority is no longer subject to such application.
The Board believes this reorganization will make this section of the rule clearer and more user friendly without introducing any substantive amendments. In addition, the Board is also clarifying when, after a negative change in condition, an FCU may begin entering into Derivatives transactions again. Specifically, as discussed earlier in this section of the preamble, this change will clarify that an FCU may not continue entering into Derivatives transactions until notified in writing by the applicable Regional Director. In the proposed rule, the Board stated that an FCU subject to these cease and notify procedures could choose to apply for Derivatives authority under 703.108b.
While the Board was clear that applying was something an FCU could do, the Board intended this to be but one option for the continued use of Derivatives.
The Boards intention in the proposed rule was that if an FCU chose not to apply for Derivatives authority, after being subject to the cease and notify procedures, such FCU would not be permitted to resume using Derivatives until notified by its Regional Director.
This is further supported by the notion that the cease and notify procedures also apply to an FCU that is in violation of its approved application, and the fact that the proposed rule provided the Regional Director with remedial actions.
As such, it was always the Boards intention that there would be notification back to an FCU subject to the cease and notify procedures. The Board, however, believes it could have been clearer with respect to this notification from the Regional Director.
As such, the Board is taking this opportunity to be more clear and fully transparent. Such change is not intended to be substantive in any way.

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3. Timing of Approval One commenter requested a time limit for approval if an FCU is required to submit an application. This commenter stated that:
A regulation with no time bar and an openended invitation to request additional information could needlessly slow credit unions seeking to gain access to derivatives responsibly and as part of a risk reducing strategy. In our experience, such a review without a time limit can be frustrating to a credit unions proper planning.

The Board is retaining the provisions of the proposed rule without any time limit in approving an FCUs Derivatives application. The Board notes that the current rule does not include any time limit for the NCUAs approval. The Board believes that NCUA staff should have adequate time to review an FCUs Derivatives application to ensure the FCU has the requisite infrastructure and can safely manage a Derivatives program. The Boards experience with the current rule is that the timing of approvals for FCU applications was on average less than 100 days from the receipt of the application and believes that, given the changes to the asset threshold for notifications and the expected modifications to improve the application requirements, the timing of approval would be similar, if not shorter.
4. Timing of Notification Finally, two commenters addressed the proposed requirement for a credit union to submit notification to the NCUA within five business days of entering into its first Derivatives transaction. One commenter requested an extension of the time-period to submit notification from 5 days to 710
days. This commenter stated that a longer notification period would provide flexibility for uncontrollable and unforeseen operational or marketplace delays. The other commenter requested that the NCUA
not apply the notification requirement to federally insured, state-chartered credit unions FISCUs that are chartered in states that require preapproval by, or notification to, the state regulator. This commenter stated that requiring notification to the NCUA
for these FISCUs would create an inefficient redundancy. To further streamline the application process, this commenter requested an exemption from the notification requirement for the aforementioned FISCUs.
The Board believes that replacing the application requirements for a qualified FCU with a required notification within five days after entering into its first
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