Proposed rule on FCU succession planning issued on 2-1 vote, out for 60-day comment period

On a bipartisan, 2-1 vote, the board of the federal agency that regulates credit unions issued a proposed rule Thursday that would require federal credit union (FCU) boards of directors to establish and adhere to processes for succession planning.

The aim of this National Credit Union Administration (NCUA) proposal, the agency said, is to ensure that FCU boards set succession plans to help ensure their institutions have plans to fill key positions – such as officers of the board, management officials, executive committee members, supervisory committee members, and (where provided for in the bylaws) the members of the credit committee – to provide continuity of operations. The proposal would also require directors to be knowledgeable about the FCU’s succession plan.

The agency noted the ongoing consolidation in the industry – with much of the ongoing decline in the total number of credit unions occurring within the under-$10 million and under-$50 million asset-size groups – and offered that this decline is due in part to a lack of, or poor, succession planning by credit union boards.

The NCUA proposal would apply only to FCUs, but the agency said the board’s aim is to “encourage and strengthen succession planning for all credit unions.” It said the proposal would leave FCUs “broad discretion” in implementing the proposed requirements in an effort to minimize the associated regulatory burden.

The proposed rule was issued on a 2-1 vote of the NCUA Board, with Chairman Todd Harper (D) and Vice Chairman Kyle Hauptman (R) voting in favor, and Member Rodney Hood (R) voting against.

If adopted, the proposal would revise the agency’s rules on FCU director responsibilities (section 701.4). In specifying the officials covered by the succession plan, the proposal draws on the language of the FCU Act, which the NCUA notes provides that “[t]he management of a Federal credit union shall be by a board of directors, a supervisory committee, and where the bylaws so provide, a credit committee.” It notes that the FCU bylaws codified in the agency’s rules (Appendix A of part 701) expand the list of senior FCU executives to include the members of an executive committee and management officials.

Under the proposal, the board of directors or an appropriate committee of the board would be required to review and approve a written succession plan regarding the specified FCU executives and officials. The agency said the plan must, at a minimum, identify the credit union’s key positions, necessary competencies and skill sets for those positions, and strategies to identify alternatives to fill vacancies. Board review of the plan would be required at least annually. The proposal would add certain education requirements for FCU directors, specifically, “to require that directors have a working familiarity with the FCU’s succession plan,” the agency said.

All input is welcome, the agency said, but it poses nine specific questions on which it seeks responses. Those address:

  • the associated regulatory burden,
  • methods to establish compliance,
  • benefits of the rule to credit unions with less than $10 million in assets and to those with more than $10 million (“smaller” and “larger” credit unions),
  • benefits to credit union members,
  • impact on consolidations,
  • how to demonstrate how the rule’s benefits to the National Credit Union Share Insurance Fund (NCUSIF)/industry health/FCU members, and
  • when to revisit the rule – for example, within seven years – when the board would either rescind or renew the rule.

The agency conducts a rolling three-year review of all its rules and regulations.

Comments on the proposal will be due 60 days after its publication in the Federal Register.