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Federal Register / Vol. 86, No. 100 / Wednesday, May 26, 2021 / Rules and Regulations
out of compliance with the rule or its approved application, then the FCU
must cease all Derivatives activity until it comes back into compliance. In some instances, an FCU may fall out of compliance with the current rule for reasons completely unrelated to its Derivatives activity; for example, an FCU that has its management rating lowered to a 3 for reasons unrelated to its ability to manage Derivatives. In this example, under the current rule, this FCU would be required to achieve a management rating of at least 2 before it could begin entering into Derivatives again. Conversely, under this final rule, the Regional Director could evaluate the FCUs change in condition, and might allow it to continue utilizing Derivatives if he or she determines that the change in condition has not impacted the FCUs ability to manage its Derivatives program. As such, the Board is not making any changes in response to these comments.
I. Monthly Reporting Three commenters addressed the requirement that an FCU engaging in Derivatives submit monthly reports to the FCUs senior management and, if applicable, asset liability committee.
One commenter requested clarification on the level of specificity in the required reporting. Two other commenters recommended that the NCUA explore the sufficiency of less frequent reporting.
As stated in the preamble to the proposed rule,8 the Board believes that retaining these reporting requirements is essential to FCUs maintaining strong internal controls related to Derivatives, given the principles-based approach of this proposed rule. The Board also believes that the proposed reporting requirements are less burdensome to FCUs, because they are less prescriptive, while ensuring the proper FCU officials receive reports that are necessary to oversee an FCUs Derivatives program.
Therefore, the Board is retaining the reporting requirements included in the proposed rule.
J. Derivative Transactions With Commercial Borrowers
FR 68487, 68490 Oct. 29, 2020.

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K. USD LIBOR
The Board is retaining the proposed provisions of 703.103 for requirements related to the characteristics of permissible IRR Derivatives, including the provision that a Derivative contract must be based on Domestic Interest Rates or the USD London Interbank Offered Rate LIBOR. The Board acknowledges the March 5, 2021, announcement by the Intercontinental Exchange Benchmark Administration, which publishes the USD LIBOR rate settings, that it will cease the publication of all USD LIBOR rate settings by June 30, 2023. Accordingly, the Board will consider revisions to this subpart after the cessation of the USD
LIBOR.
III. Regulatory Procedures A. Paperwork Reduction Act
Two commenters encouraged the Board to permit FCUs to enter into interest rate swaps with commercial borrowers. These commenters stated that these transactions would help both the FCU and commercial borrowers while addressing the Federal Credit Union Acts FCU Act prohibition on prepayment penalties. The Board is 8 85

declining to permit this type of transaction for two reasons.
First, the Board believes it is highly unlikely that a commercial borrower an FCU does business with will be regulated by the CFTC consistent with the Counterparty requirement in 703.104b of this final rule. The Board intentionally included the Counterparty requirement in 703.104b of the rule to ensure all Derivative counterparties are CFTC-regulated. The Board believes allowing non-CFTC regulated counterparties would increase the risk of Derivatives and potentially create safety and soundness issues for the FCU.
Second, the Board believes that allowing FCUs to enter into an interest rate swap with commercial borrows would equate to a circumvention of the FCU Act. The FCU Act prohibits prepayment penalties,9 and allowing an FCU to enter into interest rate swap may require the commercial borrower to make a payment on the interest rate swap if they prepay the commercial loan. This payment on the interest rate swap would behave similar, if not identical, to a prepayment penalty. As such, the Board is retaining the prohibition on these types of transactions.

The Paperwork Reduction Act of 1995
PRA 44 U.S.C. 3501 et seq. requires that the Office of Management and Budget OMB approve all collections of information by a Federal agency from the public before they can be implemented. Respondents are not required to respond to any collection of information unless it displays a valid OMB control number. In accordance 9 12

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with the PRA, the information collection requirements included in this final rule have been submitted to OMB
for approval under control number 31330133.
B. Executive Order 13132
Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. The NCUA, an independent regulatory agency as defined in 44 U.S.C. 35025, voluntarily complies with the executive order to adhere to fundamental federalism principles.
This final rule does not have substantial direct effects on the states, on the relationship between the National Government and the states, or on the distribution of power and responsibilities among the various levels of government. The NCUA has, therefore, determined that this final rule does not constitute a policy that has federalism implications for purposes of the executive order.
C. Assessment of Federal Regulations and Policies on Families The NCUA has determined that this rule will not affect family well-being within the meaning of 654 of the Treasury and General Government Appropriations Act, 1999, Public Law 105277, 112 Stat. 2681 1998.
D. Small Business Regulatory Enforcement Fairness Act The Small Business Regulatory Enforcement Fairness Act of 1996 Pub.
L. 104121 SBREFA generally provides for congressional review of agency rules. A reporting requirement is triggered in instances where the NCUA
issues a final rule as defined by 551 of the Administrative Procedure Act. An agency rule, in addition to being subject to congressional oversight, may also be subject to a delayed effective date if the rule is a major rule. The NCUA does not believe this rule is a major rule within the meaning of the relevant sections of SBREFA. As required by SBREFA, the NCUA submitted this final rule to the Office of Management and Budget for it to determine if the final rule is a major rule for purposes of SBREFA. The Office of Management and Budget determined the final rule was not a major rule. The NCUA also will file all appropriate reports.
E. Regulatory Flexibility Act The Regulatory Flexibility Act RFA
generally requires that, in connection with a notice of proposed rulemaking, an agency prepare and make available for public comment an initial regulatory
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