The National Credit Union Administration (NCUA) issued a Letter to Credit Unions 23-CU-01 which included succession planning as a supervisory priority for 2023. Previously, NCUA had issued Letter to Credit Unions 22-CU-05 which covered the CAMELS Rating System and listed succession planning for key management positions under “Management.” Credit union succession plan reviews by examiners could only, however, impact what would normally be considered when evaluating and assigning the “Management” component in the CAMELS rating. Examiners are also not able to issue an “Examiner’s Finding or Document of Resolution” unless the credit union is in violation of its own policy regarding succession plans. So, in addition to there not being a regulation that specifies what should be included in a succession plan, the tools available to examiners for ensuring that succession plans are developed and followed are very limited.
NCUA’s other concerns noted in the commentary of the proposed regulation are that the lack of a succession plan has led to mergers between credit unions that would otherwise not be necessary resulting in fewer credit unions which is a disservice to the public. In addition, because more retirements are expected as a result of the “Baby Boomer” generation reaching retirement age, succession plans are necessary.
NCUA’s published its first proposed rulemaking regarding succession plans for key positions on February 3, 2022. NCUA published its second proposed rulemaking on July 24, 2024, and comments were due September 23, 2024.
The NCUA Board views succession planning as necessary for sound governance and vital for the success of any financial institution. Succession planning should include identifying and developing talented candidates to be elected or appointed to fill vacancies on the credit union board and committees and to fill vacancies in senior management positions.
The proposed rule will apply to federally-insured, state charted credit unions (FICUs) unless there is a conflict with a state requirement, in which case, deference will be given to the state requirement. The proposed rule will add a new paragraph (e) to Section 701.4 of the NCUA Regulations (described below) and Section 701.4(b)(3) would also be amended to provide that when elected or appointed (or no later than 6 months after being elected or appointed), directors must have at least a working familiarity with, and be able to ask questions of, management and auditors about the succession plan.
New paragraph (e) to Section 701.4 will require FICUs to establish a board-approved written succession plan consistent with the FICU’s size and complexity that, at a minimum, covers board members, supervisory committee members, credit committee members or loan officers (whichever is provided for in the bylaws and is involved daily in the review of loans), management and assistant management officials where provided for in the bylaws, chief executive officer, vice-presidents, chief financial officer, and any other personnel deemed critical by the board of directors.
The succession plan must, at a minimum, cover:
The credit union’s board must review and update the succession plan, as necessary, but no less than annually. The board must document in its meeting minutes its approval of any substantive deviations from the plan.
The NCUA Board requested comments on the questions below (comment period now closed). We will see if there are any changes to the final rule based on the comments received:
What should the board’s responsibilities be in developing a succession plan?
Should deviations from the succession plan be prohibited or restricted in between the required, at least annual, review?
How can NCUA support credit unions in developing succession plans?
What should the timing be for regular review of succession plans? Should different timeframes be required? Should boards have flexibility in establishing their own time frames?
Should credit committee members and loan officers be included in the succession plan?
What should be included in the succession plan?
The Board also requested comments from smaller credit unions regarding how to improve succession planning and reduce the burden of the proposed rule.
Article by Janet Jones, Partner at Moore, Brewer & Wolfe.
