Final derivatives rule approved by credit union regulator, with 3 changes from proposal

A final rule to modernize and make its derivatives rule for federal credit unions more principles-based was approved on a vote of 3-0 by the National Credit Union Administration (NCUA) Board, which made three changes from the proposed rule.

Currently, the agency said, about 30 credit unions engage in derivative contracts.

Key provisions of Thursday’s final rule:

  • streamline the application process for derivatives authority and exempt certain FCUs from the requirement to submit an application;
  • remove regulatory limits on the amount of derivatives an FCU can enter into;
  • remove permissible derivatives types in favor of a characteristic-based approach; and
  • reorganize rules related to loan pipeline management.

In response to concerns raised by commenters, the board backed off of three provisions that were included in its October 2020 proposed rule. With these changes, the final rule:

  • Does not impose collateral requirements for cleared derivatives.
  • Does not require all counterparties to be domiciled in the United States; current-rule requirements and definitions are preserved.
  • Permits an FCU to enter into written options if they are used only to manage interest rate risk.

The final rule will take effect 30 days after its publication in the Federal Register.

Final rule notice