FOM Amendment & Cyber-Incident Requirements Approved

During this week’s board meeting, the National Credit Union Administration (NCUA) board unanimously approved two items: 1) a proposed rule to amend the chartering and field of membership (FOM) rules; and 2) a final rule relating to cyber-incident notification requirements. The board also received a briefing regarding the National Credit Union Share Insurance Fund’s (NCUSIF) performance.

Proposed Rule: Chartering and Field of Membership (Part 701, Appendix B)
The board issued a proposed rule to amend the chartering and FOM rules through nine changes to enhance consumer access to financial services, especially in low- and moderate-income communities while reducing duplicative or unnecessary paperwork and administrative requirements. The proposed changes cover underserved areas, community based FOMs, and some more broadly applicable FOM provisions.

The proposed rule:

• Makes changes on underserved areas that multiple common bond federal credit unions (FCUs) may seek to add to their FOMs. The changes would streamline existing application requirements and clarify the role of data and criteria that other federal agencies provide relating to underserved areas.
• Includes provisions to simplify application requirements for community based FCUs by eliminating the need to submit redundant or less useful information and providing a standard form for business and marketing plans. In addition, the proposed rule would eliminate the business and marketing plan requirement for certain FISCUs that seek to convert to a federal charter while serving the same community FOM. Further, the proposed rule would expand the community based FOM affinities to recognize the growth of telecommuting and remote work for companies headquartered in a community.
• Includes a provision to allow all FCUs to better capture the ongoing bond between individuals within a field of membership and their immediate family members following the death of a member.

Comments will be accepted for 90 days following publication in the Federal Register.

Final Rule: Cyber Incident Notification Requirements (Part 748)
The board adopted a final rule to require credit unions to notify the NCUA as soon as possible but no later than 72 hours after they reasonably believe that a reportable cyber incident has occurred. This notification requirement provides an early alert to the NCUA and does not require credit unions to provide a full incident assessment to the NCUA within the 72-hour timeframe.

The NCUA will provide more detailed reporting guidance before the effective date of Sept. 1, 2023.

Board Briefing: Share Insurance Fund Quarterly Report
The board also received a briefing on the Share Insurance Ffund which showed total income of $83.1 million and net loss of $18.9 million for the quarter ending Dec. 31, 2022. The balance sheet indicated total liabilities and net position of $20.364 billion. The fund’s reserve balance stands at $185.2 million as of the end of the fourth quarter, with $7.7 million being for specific reserves. In 2022, there were six credit union failures, at a total cost of $9.8 million; fraud was a contributing factor in 5 of the 6 failures. Over the past several years, fraud has been a contributing factor in roughly 75 percent of credit unions.

The number of CAMELS Code 4/5 credit unions increased slightly from the preceding quarter to 122; CAMELS Code 3 credit unions also increased slightly to 769 (CAMELS stands for: Capital adequacy, Asset quality, Management, Earnings, Liquidity risk, and Sensitivity to market). Of note, this change resulted in a more than tripling of assets held by CAMELS Code 3 credit unions with at least $1 billion in assets (from $7 billion to $24.8 billion). Overall, over 96 percent of assets are held by CAMELS Code 1/2 credit unions; this is a decrease from over 97 percent in the preceding quarter.

As of Dec. 31, the equity ratio of the Share Insurance Fund is 1.30 percent, this is an increase from 1.26 percent as of June 30. The primary driver of the increase in the ratio is a decrease in insured shares; an improvement in the investment portfolio yield and a low loss rate from credit unions also contributed to the increase. The Normal Operating Level of the fund is 1.33 percent.