Board Action Memorandum - Proposed Rule – Succession Planning (12 C.F.R. Parts 701 and 741)

TO: NCUA Board

FROM:

Office of Examination and Insurance
Office of General Counsel

DATE: July 5, 2024

SUBJ: Proposed Rule – Succession Planning (12 C.F.R. Parts 701 and 741)

ACTION REQUESTED: Board approval to issue the attached proposed rule, which would require federally insured credit union (FICU) boards of directors to establish succession planning processes for key positions.

DATE ACTION REQUESTED: July 18, 2024.

OTHER OFFICES CONSULTED: Office of Credit Union Resources and Expansion, Office of National Examinations and Supervision.

VIEWS OF OTHER OFFICES CONSULTED: Concur.

BUDGET IMPACT, IF ANY: None.

SUBMITTED TO INSPECTOR GENERAL FOR REVIEW: Yes.

RESPONSIBLE STAFF MEMBERS: Summer Chapman, Policy Division Director, and John Berry, Policy Officer, Office of Examination and Insurance; Ariel Pereira, Senior Staff Attorney, Office of General Counsel.

SUMMARY: At its January 27, 2022, meeting, the Board approved a proposed rule to establish succession planning requirements for federal credit unions.¹ The proposed rule would have required federal credit union boards of directors to establish succession plans for key positions. This new proposed rule modifies the earlier proposal based on the public comments received and upon further consideration of the issues involved. The changes are designed to further strengthen succession planning efforts for both consumer federal credit unions and consumer federally insured, state-chartered credit unions.

The proposed rule would require that a FICU board of directors establish a written succession plan that addresses specified positions. At a minimum, the succession plans would be required to cover: (1) the board of directors; (2) the supervisory committee; (3) management officials and assistant management officials, if the FICU has provided for such positions in its bylaws; and (4) any other FICU personnel the board of directors deems critical given the FICU’s size, complexity, or risk of operations. The succession plan would also be required to address the members of the credit committee and loan officers, where such officials are involved in the daily review of loans.

The board of directors would be required to review the succession plan in accordance with a schedule it establishes, but no less than annually. In addition, the succession plan would be required to address the FICU’s strategy for recruiting candidates with the potential to assume each of the covered positions. The strategy must consider how the selection and diversity among the employees covered by the succession plan collectively and individually promotes the safe and sound operation of the FICU.

The expectation is for a FICU to develop a succession plan that is consistent with its size and complexity. Therefore, smaller FICUs are more likely to have a simple succession plan that only addresses a few key leadership positions. The proposed rule includes a sample template for a succession plan that may be appropriate for some smaller FICUs, though all FICUs may benefit from it.

RECOMMENDED ACTION: The NCUA Board issue the attached proposed rule.

ATTACHMENT: Proposed rule.