WEBVTT NOTE This file was generated by Descript 00:00:00.080 --> 00:00:01.940 Samantha: Hello, this is Samantha Shares. 00:00:02.580 --> 00:00:07.910 This episode covers twenty twent y two NCU A’s proposed rule on Succession Planning. 00:00:08.349 --> 00:00:10.979 Why are we covering this proposal on our podcast? 00:00:11.249 --> 00:00:15.869 Because we anticipate that with the NCU A board now being led by two democrats, 00:00:15.969 --> 00:00:19.189 that some version of this rule will be approved in twenty twenty four. 00:00:19.692 --> 00:00:22.312 The following is an audio version of that proposal. 00:00:22.792 --> 00:00:25.932 This podcast is educational and is not legal advice. 00:00:26.352 --> 00:00:30.232 We are sponsored by Credit Union Exam Solutions Incorporated, whose 00:00:30.232 --> 00:00:33.262 team has over two hundred and Forty years of National Credit 00:00:33.262 --> 00:00:35.202 Union Administration experience. 00:00:35.682 --> 00:00:39.172 We assist our clients with NCU A so they save time and money. 00:00:39.542 --> 00:00:44.182 If you are worried about a recent, upcoming or in process NCU A examination, 00:00:44.262 --> 00:00:47.532 reach out to learn how they can assist at Mark Treichel DOT COM. 00:00:47.992 --> 00:00:52.242 Also check out our other podcast called With Flying Colors where we provide tips 00:00:52.242 --> 00:00:54.812 on how to achieve success with NCU A. 00:00:55.233 --> 00:00:58.183 And now the proposed regulation on succession planning. 00:00:58.635 --> 00:01:00.705 NATIONAL CREDIT UNION ADMINISTRATION 00:01:01.209 --> 00:01:03.219 12 CFR Part 701 00:01:03.669 --> 00:01:04.839 Succession Planning 00:01:05.251 --> 00:01:08.911 AGENCY: National Credit Union Administration (NCUA). 00:01:09.315 --> 00:01:10.945 ACTION: Proposed rule. 00:01:11.366 --> 00:01:15.996 SUMMARY: Through this proposed rule, the NCU A Board ( hereinafter the Board) would 00:01:15.996 --> 00:01:20.716 require that Federal Credit Union (FCU) boards of directors establish and adhere 00:01:20.716 --> 00:01:22.806 to processes for succession planning. 00:01:23.486 --> 00:01:27.266 The succession plans will help to ensure that the credit union has plans to 00:01:27.266 --> 00:01:31.446 fill key positions, such as officers of the board, management officials, 00:01:31.636 --> 00:01:35.826 executive committee members, supervisory committee members, and (where provided 00:01:35.826 --> 00:01:37.846 for in the bylaws) the members of the 00:01:38.305 --> 00:01:38.685 1 00:01:39.147 --> 00:01:42.107 credit committee to provide continuity of operations. 00:01:42.527 --> 00:01:46.147 In addition, the proposed rule would require directors to be knowledgeable 00:01:46.147 --> 00:01:48.037 about the FCU’s succession plan. 00:01:48.537 --> 00:01:52.337 Although the proposed rule would apply only to FCUs, the Board’s purpose is 00:01:52.337 --> 00:01:56.127 to encourage and strengthen succession planning for all credit unions. 00:01:56.607 --> 00:01:59.997 The proposed rule would provide FCUs with broad discretion in 00:01:59.997 --> 00:02:04.187 implementing the proposed regulatory requirements to minimize any burden. 00:02:04.635 --> 00:02:06.535 DATES: Comments have expired. 00:02:07.016 --> 00:02:07.326 I. 00:02:07.686 --> 00:02:08.296 Background 00:02:08.768 --> 00:02:09.098 A. 00:02:09.548 --> 00:02:10.678 Succession Planning 00:02:11.165 --> 00:02:14.485 Board members play a key role in a credit union’s success. 00:02:14.935 --> 00:02:18.705 The Federal Credit Union Act (FCU Act) vests the general direction 00:02:18.745 --> 00:02:20.865 and control of an FCU to its board. 00:02:21.285 --> 00:02:25.175 Credit union boards are faced with a multitude of complicated challenges, 00:02:25.375 --> 00:02:29.115 such as meeting evolving member needs, fostering employee loyalty 00:02:29.115 --> 00:02:33.475 and trust, retaining and developing necessary skills, and keeping pace with 00:02:33.475 --> 00:02:35.505 technological and industry changes. 00:02:35.985 --> 00:02:39.825 Among this list of issues, succession planning is one of the most critical. 00:02:40.252 --> 00:02:43.802 Succession planning is the process through which an organization helps 00:02:43.802 --> 00:02:47.902 identify, develop, and retain key personnel to ensure its viability 00:02:47.932 --> 00:02:49.822 and continued effective performance. 00:02:50.282 --> 00:02:54.052 It also allows an organization to prepare for the unexpected, including 00:02:54.052 --> 00:02:55.872 the sudden departure of key staff. 00:02:56.352 --> 00:02:59.882 Succession planning is recognized as vital to the success of any 00:02:59.882 --> 00:03:02.122 institution, including credit unions. 00:03:02.562 --> 00:03:06.662 One of the variables over which a credit union board has control is the hiring 00:03:06.662 --> 00:03:08.602 of the organization’s senior management. 00:03:09.012 --> 00:03:12.192 A board’s failure to plan for the transition of its management 00:03:12.705 --> 00:03:16.225 could potentially come with high costs, including the potential for the 00:03:16.255 --> 00:03:20.145 unplanned merger of the credit union upon the departure of key personnel. 00:03:20.620 --> 00:03:25.060 Conversely, good succession planning confers a variety of benefits, including: 00:03:25.538 --> 00:03:28.908 Minimizing service disruptions during management transitions; 00:03:29.353 --> 00:03:32.353 Ensuring organizational viability over the long term; 00:03:32.857 --> 00:03:35.047 Clarifying the employee development path; 00:03:35.487 --> 00:03:36.867 Developing current talent; 00:03:37.373 --> 00:03:39.643 Creating opportunities for employees; and 00:03:40.178 --> 00:03:42.618 Bringing in new ideas from outside hires. 00:03:43.046 --> 00:03:45.886 Succession planning is a critical component of a credit 00:03:45.886 --> 00:03:47.996 union’s overall strategic plan. 00:03:48.546 --> 00:03:52.276 It ensures that the appropriate personnel are available to execute the credit 00:03:52.276 --> 00:03:54.306 union’s strategic plan and mission. 00:03:54.746 --> 00:03:58.556 As noted, the goal of succession planning is to build and/or identify 00:03:58.556 --> 00:04:02.216 a pool of qualified individuals who can be recruited or selected to 00:04:02.216 --> 00:04:04.236 fill a vacancy in a key position. 00:04:04.736 --> 00:04:08.396 To be successful, succession planning should be an ongoing and iterative 00:04:08.396 --> 00:04:10.496 process, not a one-time event. 00:04:10.891 --> 00:04:11.271 B. 00:04:11.711 --> 00:04:13.921 Increased Relevance of Succession Planning 00:04:14.351 --> 00:04:17.831 Several factors have contributed to increase the relevance of succession 00:04:17.831 --> 00:04:19.751 planning for credit union boards. 00:04:20.111 --> 00:04:23.351 First, there has been a decline in the number of credit unions mainly 00:04:23.351 --> 00:04:26.541 resulting from the long-running trend of consolidation across 00:04:26.541 --> 00:04:28.441 all depository institutions. 00:04:28.951 --> 00:04:32.571 This trend has remained relatively constant across all economic 00:04:32.571 --> 00:04:34.661 cycles for more than three decades. 00:04:35.078 --> 00:04:38.748 During the third quarter of 2021, the number of FICUs increased in 00:04:38.788 --> 00:04:42.918 every asset category tracked by the NCU A, except for those with less 00:04:42.918 --> 00:04:45.068 than 50 million dollars in assets. 00:04:45.518 --> 00:04:49.498 The number of FICUs with assets of at least 10 million dollars but less 00:04:49.498 --> 00:04:54.698 than 50 million dollars declined to 1,467 in the third quarter of 2021 00:04:54.698 --> 00:05:00.028 from 1,561in the third quarter of 2020 (a decline of 94 credit unions). 00:05:00.518 --> 00:05:03.578 The decline in the number of FICUs with less than 10 million 00:05:03.578 --> 00:05:05.628 dollars in assets was even greater. 00:05:06.038 --> 00:05:09.838 The number of FICUs with less than 10 million dollars in assets declined 00:05:09.838 --> 00:05:14.988 to 1,068 in the third quarter of 2021 from 1,199 in the third quarter of 00:05:14.988 --> 00:05:18.178 2020 (a decline of 131 credit unions). 00:05:18.688 --> 00:05:21.768 The available data does not differentiate between those smaller 00:05:21.768 --> 00:05:25.768 credit unions that consolidated or were liquidated, versus those that 00:05:25.768 --> 00:05:28.238 expanded into a larger asset category. 00:05:28.738 --> 00:05:32.388 However, the decrease in the total number of FICUs with less than 50 00:05:32.388 --> 00:05:36.348 million dollars in assets (especially those with assets of less than 00:05:36.809 --> 00:05:41.019 10 million dollars), combined with the ongoing industry trend of consolidation, 00:05:41.259 --> 00:05:45.279 suggests that mergers may be more prevalent among smaller credit unions. 00:05:45.752 --> 00:05:49.462 One of the reasons for the consolidation is the lack of succession planning. 00:05:49.952 --> 00:05:54.002 An NCU A analysis found that poor management succession planning was 00:05:54.002 --> 00:05:58.212 either a primary or secondary reason for almost a third (32 percent) 00:05:58.212 --> 00:06:00.162 of credit union consolidations. 00:06:00.553 --> 00:06:04.323 The FCU Act contains provisions that disfavor consolidation, 00:06:04.393 --> 00:06:07.303 implying a presumption that the public is better served with a 00:06:07.303 --> 00:06:09.113 greater number of credit unions. 00:06:09.493 --> 00:06:13.223 For example, the statute imposes added limitations on the addition of 00:06:13.223 --> 00:06:17.453 larger groups to multiple common-bond credit unions, prompting the Board 00:06:17.453 --> 00:06:21.053 to consider the feasibility of formation of a separate credit union. 00:06:21.303 --> 00:06:25.863 Further, the FCU Act provides that the Board shall “encourage the formation of 00:06:25.863 --> 00:06:29.983 separately chartered credit unions instead of approving an application to include 00:06:29.983 --> 00:06:34.053 an additional group within the field of membership of an existing credit union 00:06:34.123 --> 00:06:38.393 whenever P R Acticable and consistent with reasonable standards for the safe 00:06:38.393 --> 00:06:40.593 and sound operation of the credit union.” 00:06:41.531 --> 00:06:44.771 Another reason for a heightened focus on succession planning is the 00:06:44.771 --> 00:06:48.901 ongoing retirements of the so-called “Baby Boomer” generation (individuals 00:06:48.901 --> 00:06:51.741 born between 1946 and 1964). 00:06:52.471 --> 00:06:55.241 These individuals comprise more than a quarter of the total 00:06:55.241 --> 00:06:57.091 population of the United States. 00:06:57.701 --> 00:07:01.251 Each day, commencing in 2011 (when the oldest members of the 00:07:01.251 --> 00:07:06.341 generation turned 65) and continuing until 2030, approximately 10,000 00:07:06.341 --> 00:07:08.781 Baby Boomers will turn age 65. 00:07:09.461 --> 00:07:13.421 The COVID-19 pandemic has accelerated the pace of retirements among 00:07:13.421 --> 00:07:17.341 this generational cohort.11 These retirements include credit union 00:07:17.341 --> 00:07:19.011 board members and executives. 00:07:19.221 --> 00:07:23.181 According to some sources, approximately 10 percent of credit union chief 00:07:23.181 --> 00:07:27.961 executive officers were expected to retire between 2019 and 2021. 00:07:28.388 --> 00:07:32.188 Succession planning is critical to the continued operation of those credit 00:07:32.188 --> 00:07:36.388 unions with board members and executives that are part of this retirement wave. 00:07:36.879 --> 00:07:37.769 Legal Authority 00:07:38.237 --> 00:07:41.067 The Board is issuing this proposed rule pursuant to its 00:07:41.067 --> 00:07:42.927 authority under the FCU Act. 00:07:43.427 --> 00:07:46.107 The proposed rule would establish succession planning 00:07:46.107 --> 00:07:47.687 requirements for an FCU. 00:07:48.117 --> 00:07:52.367 Section 113 of the FCU Act provides that the board of directors shall 00:07:52.367 --> 00:07:55.817 have the general direction and control of the affairs of the FCU. 00:07:56.337 --> 00:08:00.007 The board of directors must oversee the credit union’s operations to 00:08:00.007 --> 00:08:03.317 ensure the credit union operates in a safe and sound manner. 00:08:03.567 --> 00:08:07.057 For example, the board must be kept informed about the credit union’s 00:08:07.057 --> 00:08:11.527 operating environment, hire and retain competent management, and ensure that 00:08:11.527 --> 00:08:15.587 the credit union has a risk management structure and process suitable for the 00:08:15.587 --> 00:08:17.757 credit union’s size and activities. 00:08:18.260 --> 00:08:22.390 Further, under the FCU Act, the NCU A is the chartering and supervisory 00:08:22.390 --> 00:08:26.310 authority for FCUs and the Federal supervisory authority for FICUs. 00:08:26.790 --> 00:08:30.960 The FCU Act grants the NCU A a broad mandate to issue regulations 00:08:30.960 --> 00:08:33.280 governing both FCUs and all FICUs. 00:08:33.700 --> 00:08:37.610 Section 120 of the FCU Act is a general grant of regulatory 00:08:37.610 --> 00:08:41.630 authority and authorizes the Board to prescribe rules and regulations for 00:08:41.630 --> 00:08:43.590 the administration of the FCU Act. 00:08:44.130 --> 00:08:48.220 Section 207 of the FCU Act is a specific grant of authority 00:08:48.220 --> 00:08:51.890 over share insurance coverage, conservatorships, and liquidations. 00:08:52.180 --> 00:08:57.120 Section 209 of the FCU Act is a plenary grant of regulatory authority to the 00:08:57.120 --> 00:08:59.370 Board to issue rules and regulations 00:08:59.754 --> 00:09:04.474 necessary or appropriate to carry out its role as share insurer for all FICUs. 00:09:04.834 --> 00:09:08.874 Accordingly, the FCU Act grants the Board broad rulemaking authority to 00:09:08.874 --> 00:09:13.124 ensure that the credit union industry and the NCUSIF remain safe and sound. 00:09:13.593 --> 00:09:14.713 This Proposed Rule 00:09:15.156 --> 00:09:16.986 Applicability of Proposed Rule 00:09:17.440 --> 00:09:20.600 As described in more detail in the following discussion, the 00:09:20.600 --> 00:09:24.120 proposed regulatory amendments would apply solely to FCUs. 00:09:24.620 --> 00:09:27.770 FISCUs must comply with any state-specific requirements 00:09:27.770 --> 00:09:29.530 pertaining to succession planning. 00:09:29.860 --> 00:09:33.650 However, the Board encourages FISCU boards, to the extent compatible with 00:09:33.650 --> 00:09:38.040 state law, to undertake succession planning efforts to help ensure continued 00:09:38.040 --> 00:09:39.850 viability of their credit union. 00:09:40.261 --> 00:09:44.421 In addition, the proposed rule would not amend the regulations in 12 CFR 00:09:44.421 --> 00:09:49.011 part 704, which establishes requirements applicable to federally insured 00:09:49.011 --> 00:09:53.141 corporate credit unions, since the Board believes these regulations already 00:09:53.141 --> 00:09:55.331 adequately address succession planning. 00:09:55.721 --> 00:09:56.441 For example, 00:09:56.880 --> 00:10:01.880 §704.13(c)(1) requires that the board must ensure that “senior managers are 00:10:01.880 --> 00:10:07.070 capable of identifying, hiring, and retaining qualified staff.” Further, 00:10:07.100 --> 00:10:10.620 paragraph (c)(2) of the section requires that the board also ensure 00:10:10.620 --> 00:10:15.240 that “qualified personnel are employed or under contract for all line support 00:10:15.240 --> 00:10:19.760 and audit areas, and designated back-up personnel or resources with adequate 00:10:19.760 --> 00:10:24.330 cross- training are in place.” The Board welcomes public comment on whether 00:10:24.330 --> 00:10:29.360 changes to the wording of section 704.13 are necessary to effectuate the purposes 00:10:29.360 --> 00:10:31.520 of the proposed regulatory amendments. 00:10:31.889 --> 00:10:35.949 The proposed rule applies to all FCUs, irrespective of asset size. 00:10:36.309 --> 00:10:39.799 However, as discussed above, smaller credit unions may be more 00:10:39.799 --> 00:10:41.589 susceptible to consolidation. 00:10:42.069 --> 00:10:45.489 Further, data demonstrates that the lack of succession planning is a 00:10:45.489 --> 00:10:47.779 major cause of credit union mergers. 00:10:48.209 --> 00:10:51.219 Accordingly, smaller credit unions may be the most likely to 00:10:51.219 --> 00:10:52.879 benefit from the proposed rule. 00:10:53.389 --> 00:10:57.089 The Board specifically invites comment from smaller credit unions on the 00:10:57.089 --> 00:11:01.239 proposed regulatory amendments, as well as other suggestions, to improve 00:11:01.239 --> 00:11:03.149 credit union succession planning. 00:11:03.533 --> 00:11:03.963 C. 00:11:04.423 --> 00:11:06.263 Proposed Regulatory Amendments 00:11:06.671 --> 00:11:11.701 The proposed rule would amend section 701.4, which sets forth the general duties 00:11:11.701 --> 00:11:14.071 and responsibilities of FCU directors. 00:11:14.631 --> 00:11:19.001 The proposal would add a new paragraph e requiring that FCU directors must 00:11:19.001 --> 00:11:23.381 establish and adhere to processes for succession planning for key positions. 00:11:24.031 --> 00:11:27.931 In specifying the officials covered by the succession plan, the Board has 00:11:27.931 --> 00:11:32.321 relied on the language of the FCU Act, which provides that “the management of a 00:11:32.321 --> 00:11:36.851 Federal credit union shall be by a board of directors, a supervisory committee, 00:11:37.121 --> 00:11:41.601 and where the bylaws so provide, a credit committee.” The FCU bylaws codified in 00:11:41.601 --> 00:11:47.351 Appendix A of 12 CFR part 701 expand the list of senior FCU executives to 00:11:47.351 --> 00:11:50.931 include the members of an executive committee and management officials. 00:11:51.338 --> 00:11:54.648 The board of directors or an appropriate committee of the board would be 00:11:54.648 --> 00:11:58.308 required to review and approve a written succession plan regarding the 00:11:58.308 --> 00:12:00.998 specified FCU executives and officials. 00:12:01.468 --> 00:12:06.128 The succession plan must, at a minimum, identify the credit union’s key positions, 00:12:06.547 --> 00:12:10.967 necessary competencies and skill sets for those positions, and strategies to 00:12:10.967 --> 00:12:13.407 identify alternatives to fill vacancies. 00:12:13.947 --> 00:12:17.387 The board of directors must review the succession plan in accordance 00:12:17.387 --> 00:12:21.097 with a schedule established by the board, but no less than annually. 00:12:21.577 --> 00:12:26.657 In addition, the proposed rule would amend section 701.4(b)(3), which sets 00:12:26.657 --> 00:12:30.887 forth certain education requirements for FCU directors, to require that 00:12:30.887 --> 00:12:34.687 directors have a working familiarity with the FCU’s succession plan. 00:12:35.137 --> 00:12:38.467 In making this change, the Board also proposes to reorganize the 00:12:38.467 --> 00:12:42.037 current contents of paragraph (b)(3) for clarity and grammar. 00:12:42.517 --> 00:12:45.637 No substantive changes are proposed to the current requirements 00:12:45.637 --> 00:12:47.907 of section 701.4(b)(3). 00:12:48.418 --> 00:12:50.328 Current Succession Planning Efforts 00:12:50.746 --> 00:12:53.996 This proposed rule is intended to strengthen current succession 00:12:53.996 --> 00:12:58.126 planning efforts being taken by credit unions, and to require others that 00:12:58.126 --> 00:13:01.726 have not yet done so to commence their succession planning process. 00:13:02.236 --> 00:13:06.296 The proposed rule is also consistent with the guidance issued by the other banking 00:13:06.296 --> 00:13:08.616 agencies to address succession planning. 00:13:09.064 --> 00:13:12.994 The Board is aware that many credit unions have already adopted succession 00:13:12.994 --> 00:13:14.784 planning strategies and models. 00:13:15.254 --> 00:13:19.424 The NCU A offers training and other resources to aid credit unions in 00:13:19.424 --> 00:13:21.294 developing their succession plans. 00:13:21.594 --> 00:13:25.334 For example, the NCU A has posted a video series on succession 00:13:25.334 --> 00:13:26.384 planning on the internet. 00:13:26.994 --> 00:13:30.844 In addition, the Board’s 2019 final rule on FCU bylaws 00:13:31.328 --> 00:13:35.058 promoted succession planning efforts by providing guidance to FCUs 00:13:35.088 --> 00:13:36.928 on associate director positions. 00:13:37.488 --> 00:13:41.508 The proposed rule clarified, through staff commentary, that these positions 00:13:41.508 --> 00:13:45.098 may be thought of as apprenticeships in which the incumbent receives training and 00:13:45.098 --> 00:13:49.118 knowledge about the business of the board, with the expectation that the experience 00:13:49.118 --> 00:13:53.118 will prepare the individual for an eventual election to a director position. 00:13:53.565 --> 00:13:53.835 D. 00:13:54.205 --> 00:13:55.375 Minimizing Burden 00:13:55.782 --> 00:13:59.402 In designing this proposed rule, the Board has endeavored to minimize the 00:13:59.402 --> 00:14:02.212 burden on FCUs, especially small FCUs. 00:14:02.762 --> 00:14:06.792 The proposed regulatory amendments provide FCUs with broad discretion in 00:14:06.792 --> 00:14:08.732 how to implement the new requirements. 00:14:09.082 --> 00:14:13.142 For example, while the proposed rule would require succession plans to include 00:14:13.142 --> 00:14:17.452 certain mandatory elements, the rule neither specifies how the topics should be 00:14:17.452 --> 00:14:21.992 addressed nor does it otherwise prescribe the contents of the succession plans. 00:14:22.292 --> 00:14:26.482 Similarly, the proposal would require that directors have a working familiarity 00:14:26.482 --> 00:14:30.422 with the FCU’s succession plan but does not mandate the contents of 00:14:30.422 --> 00:14:32.062 training to meet this requirement. 00:14:32.576 --> 00:14:36.796 The expectation is for credit unions to develop a plan and provide training 00:14:36.796 --> 00:14:40.256 that is consistent with the size and complexity of the credit union. 00:14:40.866 --> 00:14:44.146 Therefore, smaller credit unions are more likely to have a simple 00:14:44.146 --> 00:14:48.056 succession plan that only addresses a few key leadership positions. 00:14:48.456 --> 00:14:52.426 The Board envisions that the examination program would confirm the existence 00:14:52.426 --> 00:14:54.386 of a succession plan and training. 00:14:54.586 --> 00:14:58.496 The examination program will defer to a credit union’s self-assessment 00:14:58.496 --> 00:15:01.826 of its succession planning needs and the information contained in the 00:15:01.826 --> 00:15:06.006 plan, so long as its plan addresses the elements required by the rule. 00:15:06.485 --> 00:15:09.885 Further, the Board envisions that, as a result of other planning and 00:15:09.885 --> 00:15:14.785 documentation efforts, many FCUs already have the necessary data and information 00:15:14.785 --> 00:15:16.635 to complete their succession plans. 00:15:17.145 --> 00:15:21.805 Rather than undertaking new analysis specifically for the succession plan, FCUs 00:15:21.805 --> 00:15:25.795 are encouraged to use already existing information in preparing their plans. 00:15:26.225 --> 00:15:32.165 For example, under the NCU A guidelines codified in 12 CFR part 749, Appendix 00:15:32.165 --> 00:15:36.535 B, all federally insured credit unions are encouraged to develop a program 00:15:36.535 --> 00:15:38.465 to prepare for a catastrophic act. 00:15:38.805 --> 00:15:42.825 The codified guidelines suggest that the program address several elements that 00:15:42.825 --> 00:15:45.045 are also relevant to succession planning. 00:15:45.575 --> 00:15:49.255 These suggested elements include a “business impact analysis to 00:15:49.255 --> 00:15:53.185 evaluate potential threats,” the determination of “critical systems 00:15:53.185 --> 00:15:56.925 and necessary resources,” and the identification of the “persons 00:15:56.925 --> 00:15:58.715 with authority to enact the plan.” 00:15:59.589 --> 00:16:02.859 The Board is committed to assisting credit unions in implementing 00:16:02.859 --> 00:16:04.169 their succession plans. 00:16:04.589 --> 00:16:08.729 For example, the NCU A has posted online training on succession planning 00:16:08.729 --> 00:16:10.489 through its Learning Management System. 00:16:10.959 --> 00:16:14.839 In addition, credit union trade associations may also provide training 00:16:14.879 --> 00:16:18.359 and have guidance available to assist credit unions in the development 00:16:18.359 --> 00:16:20.229 of their succession plan process. 00:16:20.569 --> 00:16:23.999 Credit unions with low-income designation may be able to apply 00:16:23.999 --> 00:16:28.039 for technical assistance grants to support succession planning or offset 00:16:28.039 --> 00:16:31.559 training costs through the Community Development Revolving Loan Fund. 00:16:31.899 --> 00:16:36.029 Credit unions are encouraged to make use of these and other available resources 00:16:36.029 --> 00:16:37.939 in complying with the proposed rule. 00:16:38.419 --> 00:16:42.669 The NCU A will develop additional guidance, as it deems necessary, to aid 00:16:42.669 --> 00:16:45.059 credit union succession planning efforts. 00:16:45.440 --> 00:16:46.670 Questions for Comment 00:16:47.077 --> 00:16:50.717 The Board welcomes comments on all aspects of this proposed rule. 00:16:51.257 --> 00:16:55.337 It is especially interested in comments addressing ways the NCU A may better 00:16:55.337 --> 00:16:59.627 support succession planning in small credit unions and suggestions on ways 00:16:59.627 --> 00:17:01.667 the final rule might minimize burden. 00:17:02.247 --> 00:17:06.147 In particular, the Board requests public input on the following questions: 00:17:06.579 --> 00:17:06.959 1. 00:17:07.619 --> 00:17:10.879 What do you believe will be the quantified burden imposed by the rule, 00:17:11.209 --> 00:17:13.269 be it in hours, dollars, or effort? 00:17:13.683 --> 00:17:14.053 2. 00:17:14.643 --> 00:17:19.263 It is anticipated that most FCUs already possess the information needed to comply 00:17:19.263 --> 00:17:23.693 with the proposed rule, and thus that most FCU will not have to create any new 00:17:23.693 --> 00:17:25.903 documentation as a result of the rule. 00:17:26.453 --> 00:17:27.723 Do you agree with this view? 00:17:27.963 --> 00:17:28.873 Why or why not? 00:17:29.291 --> 00:17:29.771 3. 00:17:30.271 --> 00:17:34.371 As noted, the Board anticipates that the examination program will establish 00:17:34.371 --> 00:17:38.261 an FCU’s compliance with the proposed rule by confirming the existence 00:17:38.261 --> 00:17:40.131 of a succession plan and training. 00:17:40.701 --> 00:17:44.221 Do you have any other suggested methods of establishing compliance? 00:17:44.472 --> 00:17:44.982 4. 00:17:45.662 --> 00:17:49.582 This preamble provides that smaller credit unions with less than $10 00:17:49.582 --> 00:17:53.682 million in assets will be the primary beneficiaries of the proposed rule. 00:17:54.322 --> 00:17:57.602 What benefits do you think smaller credit unions will receive from the 00:17:57.602 --> 00:17:59.792 Board’s adoption of this proposed rule? 00:18:00.212 --> 00:18:00.622 5. 00:18:01.302 --> 00:18:04.682 What benefits do you anticipate larger FCUs will receive from 00:18:04.682 --> 00:18:06.342 adoption of the proposed rule? 00:18:06.902 --> 00:18:11.692 For purposes of this question, “larger FCUs” may include FCUs with more than 00:18:12.147 --> 00:18:16.517 $10 million in assets or FCUs in another higher asset category. 00:18:16.980 --> 00:18:17.560 6. 00:18:18.280 --> 00:18:21.290 What benefits do you anticipate members will receive from the 00:18:21.290 --> 00:18:22.900 adoption of the proposed rule? 00:18:23.180 --> 00:18:23.760 7. 00:18:24.410 --> 00:18:28.490 What impact do you believe this rule will have on credit union consolidations? 00:18:28.789 --> 00:18:29.069 8. 00:18:29.699 --> 00:18:33.999 The NCU A believes that the proposed rule will result in benefits for the National 00:18:33.999 --> 00:18:38.489 Credit Union Share Insurance Fund, to the overall safety and soundness of the 00:18:38.489 --> 00:18:41.249 credit union system, and to FCU members. 00:18:41.939 --> 00:18:45.429 If the rule is adopted as is, what would you suggest the NCU A 00:18:45.429 --> 00:18:47.269 do to test the assumption above? 00:18:47.607 --> 00:18:48.087 9. 00:18:48.617 --> 00:18:52.717 The NCU A reviews all of its existing regulations every three years. 00:18:53.247 --> 00:18:57.177 The NCUA’s Office of General Counsel maintains a rolling review schedule 00:18:57.177 --> 00:19:01.777 that identifies one-third of the NCUA’s existing regulations for review each year 00:19:02.027 --> 00:19:06.207 and provides notice to the public of those regulations under review so the public 00:19:06.207 --> 00:19:10.727 may have an opportunity to comment.25 In addition, should the NCU A commit to 00:19:10.727 --> 00:19:15.327 revisiting this rule within a specific period, say after 7 years, at which 00:19:15.327 --> 00:19:19.187 time the rule would either be rescinded or approved by the Board for renewal? 00:19:19.497 --> 00:19:23.817 The Board might also choose, at that time to renew the rule but with some revisions. 00:19:24.280 --> 00:19:30.650 25 See, https://www.ncua.gov/regulation-supervision/rules-regulations/regulatory-review 00:19:31.105 --> 00:19:32.555 Regulatory Procedures 00:19:32.972 --> 00:19:34.862 Regulatory Flexibility Act 00:19:35.258 --> 00:19:39.188 The Regulatory Flexibility Act requires the NCU A to prepare an 00:19:39.188 --> 00:19:43.518 analysis to describe any significant economic impact a regulation may 00:19:43.518 --> 00:19:47.568 have on a substantial number of small entities.26 For purposes of this 00:19:47.568 --> 00:19:52.488 analysis, the NCU A considers small credit unions to be those having under 00:19:52.983 --> 00:19:55.053 100 million dollars in assets. 00:19:55.563 --> 00:19:59.313 The Board fully considered the potential economic impacts of the proposed 00:19:59.313 --> 00:20:02.763 succession planning requirements on small credit unions during the 00:20:02.763 --> 00:20:04.413 development of the proposed rule. 00:20:04.963 --> 00:20:08.233 As noted in the preamble, the proposed rule would provide FCUs 00:20:08.263 --> 00:20:11.823 with discretion in how to implement the new regulatory requirements. 00:20:12.243 --> 00:20:15.733 For example, the rule does not specify how specific succession 00:20:15.733 --> 00:20:17.543 plan topics should be addressed. 00:20:18.113 --> 00:20:22.673 Similarly, the proposal does not mandate the contents of succession plan training. 00:20:23.153 --> 00:20:26.703 Accordingly, the NCU A certifies that it would not have a significant 00:20:26.743 --> 00:20:30.663 economic impact on a substantial number of small credit unions. 00:20:31.065 --> 00:20:32.495 Paperwork Reduction Act 00:20:32.959 --> 00:20:37.339 The Paperwork Reduction Act of 1995 (P R A) applies to rulemakings in 00:20:37.339 --> 00:20:41.139 which an agency by rule creates a new paperwork burden on regulated 00:20:41.139 --> 00:20:43.529 entities or amends an existing burden. 00:20:43.879 --> 00:20:47.499 For purposes of the P R A, a paperwork burden may take the form 00:20:47.499 --> 00:20:51.509 of a reporting, disclosure, or recordkeeping requirement, each referred 00:20:51.509 --> 00:20:53.209 to as an information collection. 00:20:53.709 --> 00:20:57.489 The proposed changes to part 701 would establish new information 00:20:57.489 --> 00:21:01.819 collections in the form of succession policies, plans, and related trainings. 00:21:02.369 --> 00:21:06.259 These revisions will be addressed in a separate Federal Register notice and 00:21:06.673 --> 00:21:09.583 will be submitted for approval by the Office of Information 00:21:09.583 --> 00:21:12.913 and Regulatory Affairs at the Office of Management and Budget. 00:21:13.400 --> 00:21:16.690 Executive Order 13132 on Federalism 00:21:17.162 --> 00:21:22.022 Executive Order 13132 encourages independent regulatory agencies 00:21:22.022 --> 00:21:25.762 to consider the impact of their actions on state and local interests. 00:21:26.252 --> 00:21:32.332 The NCUA, an independent regulatory agency, as defined in 44 U.S.C. 00:21:32.332 --> 00:21:36.192 3502(5), voluntarily complies with the executive order to adhere to 00:21:36.192 --> 00:21:38.222 fundamental federalism principles. 00:21:38.762 --> 00:21:42.482 The proposed rule would not have substantial direct effects on the states, 00:21:42.612 --> 00:21:46.332 on the relationship between the national government and the states, or on the 00:21:46.332 --> 00:21:50.612 distribution of power and responsibilities among the various levels of government. 00:21:51.032 --> 00:21:54.532 The Board has therefore determined that this rule does not constitute a 00:21:54.532 --> 00:21:59.012 policy that has federalism implications for purposes of the executive order. 00:21:59.542 --> 00:22:02.832 Assessment of Federal Regulations and Policies on Families 00:22:03.235 --> 00:22:07.225 The NCU A has determined that this proposed rule would not affect family 00:22:07.225 --> 00:22:11.675 well-being within the meaning of Section 654 of the Treasury and General 00:22:11.675 --> 00:22:14.125 Government Appropriations Act, 1999. 00:22:14.596 --> 00:22:17.686 List of Subjects in 12 CFR Part 701 00:22:18.167 --> 00:22:22.787 Advertising, Aged, Civil rights, Credit, Credit unions, Fair housing, 00:22:22.787 --> 00:22:27.037 Individuals with disabilities, Insurance, Marital status discrimination, 00:22:27.107 --> 00:22:29.167 Mortgages, Religious discrimination, 00:22:29.668 --> 00:22:33.598 PART 701 – ORGANIZATION AND OPERATION OF FEDERAL CREDIT UNION 00:22:33.990 --> 00:22:38.700 § 701.4 General authorities and duties of Federal credit union directors. 00:22:39.099 --> 00:22:42.929 (3) At the time of election or appointment, or within a reasonable time 00:22:42.929 --> 00:22:47.179 thereafter, not to exceed six months, have at least a working familiarity 00:22:47.179 --> 00:22:51.299 with, and to ask, as appropriate, substantive questions of management and 00:22:51.299 --> 00:22:53.519 the internal and external auditors of: 00:22:54.085 --> 00:22:58.215 (i) Basic finance and accounting practices, including the ability to read 00:22:58.215 --> 00:23:02.695 and understand the Federal credit union's balance sheet and income statement; and 00:23:03.599 --> 00:23:07.119 (ii) The Federal credit union’s succession plan established pursuant 00:23:07.119 --> 00:23:08.989 to paragraph (e) of this section. 00:23:09.371 --> 00:23:10.631 (e) Succession planning. 00:23:11.021 --> 00:23:11.781 (1) General. 00:23:12.221 --> 00:23:16.861 A Federal credit union board of directors must establish a process to ensure proper 00:23:16.861 --> 00:23:20.741 succession planning to include officers of the board, management officials, 00:23:20.961 --> 00:23:25.361 executive committee members, supervisory committee members, and (where provided for 00:23:25.361 --> 00:23:29.571 in the bylaws) the members of the credit committee, as described in Appendix A. 00:23:29.977 --> 00:23:31.597 (2) Board responsibilities. 00:23:32.157 --> 00:23:35.537 The board of directors or an appropriate committee of the board must: 00:23:36.004 --> 00:23:39.764 (i) Approve a written succession plan that covers the individuals described 00:23:39.764 --> 00:23:42.204 in paragraph (e)(1) of this section; and 00:23:43.042 --> 00:23:46.882 (ii) Review, and update as deemed necessary, the succession plan 00:23:46.882 --> 00:23:50.202 and policy in accordance with a schedule established by the board of 00:23:50.202 --> 00:23:52.632 directors, but no less than annually. 00:23:53.145 --> 00:23:55.075 (3) Succession plan contents. 00:23:55.635 --> 00:23:59.205 The succession plan must, at a minimum, identify key positions 00:23:59.205 --> 00:24:03.265 covered by the plan, necessary general competencies and skills for those 00:24:03.265 --> 00:24:07.505 positions, and strategies to identify alternatives to fill vacancies. 00:24:07.966 --> 00:24:11.906 This concludes the NCU A’s proposed rule on Succession Planning. 00:24:12.396 --> 00:24:15.926 We anticipate that with the NCU A board now being led by two 00:24:15.926 --> 00:24:19.876 democrats, that some version of this rule will be approved in 2024. 00:24:20.389 --> 00:24:24.439 If your Credit union could use assistance with your exam, reach out to Mark Treichel 00:24:24.439 --> 00:24:27.189 on LinkedIn, or at mark Treichel dot com. 00:24:27.669 --> 00:24:30.339 This is Samantha Shares and we Thank you for listening.