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Federal Energy Regulatory Commission, Energy.
Final rule.
Pursuant to the Federal Power Act, the Commission approves a revised Reliability Standard, PRC-005-3 (Protection System and Automatic Reclosing Maintenance), submitted by the North American Electric Reliability Corporation (NERC). In addition, the Commission approves one new definition and six revised definitions referenced in the Reliability Standard, the assigned violation risk factors and violation severity levels, and NERC's implementation plan. Consistent with Order No. 758, the Reliability Standard requires applicable entities to test and maintain certain autoreclosing relays as part of a protection system maintenance program. However, to ensure that proper maintenance and testing is done for all parts of a reclosing relay scheme that can affect the reliable operation of the Bulk-Power System, the Commission directs that NERC develop a modification to the Reliability Standard to include maintenance and testing of supervisory relays.
This rule will become effective March 30, 2015.
1. Pursuant to section 215 of the Federal Power Act (FPA),
2. Section 215 of the FPA requires a Commission-certified Electric Reliability Organization (ERO) to develop mandatory and enforceable Reliability Standards, subject to Commission review and approval.
3. In 2007, in Order No. 693, the Commission approved an initial set of Reliability Standards submitted by NERC, including initial versions of four protection system and load-shedding-related maintenance standards: PRC-005-1, PRC-008-0, PRC-011-0, and PRC-017-0.
4. The Commission issued Order No. 758 in February 2012, in response to NERC's request for approval of its interpretation of Requirement R1 of the then-current version of the protection system maintenance standard, PRC-005-1. The Commission accepted NERC's proposed interpretation of PRC-005-1, which identified the types of protection system equipment to which the Reliability Standard applied. In addition, the Commission directed NERC to develop modifications to the standard to address gaps highlighted by the proposed interpretation, including the need to address reclosing relays that may affect the reliability of the Bulk-Power System.
5. Prior to issuance of Order No. 758, NERC had begun developing revisions to its initial maintenance standards for protection systems and underfrequency and undervoltage load shedding equipment in response to the Order No. 693 directives. Those revisions, reflected in a consolidated Reliability Standard, PRC-005-2, were approved
6. On February 14, 2014, NERC submitted a petition seeking approval of proposed Reliability Standard PRC-005-3. In its petition, NERC maintained that the standard promotes reliability by making certain reclosing relays subject to a mandatory maintenance program, including adding detailed tables of minimum maintenance activities and maximum maintenance intervals for the reclosing relays. NERC explained that the purpose of PRC-005-3 is to “document and implement programs for the maintenance of all Protection Systems and Automatic Reclosing affecting the reliability of the Bulk Electric System so that they are kept in working order.”
7. NERC explained that the subset of reclosing applications included in proposed PRC-005-3 is based on the findings of a technical study performed, in response to Order No. 758, by NERC's System Analysis and Modeling Subcommittee (SAMS) and System Protection and Control Subcommittee (SPCS). The resulting study (the Joint Committee Report), attached to NERC's petition as Exhibit D, examined both the scope of reclosing relays that could affect the reliable operation of the Bulk-Power System and appropriate maintenance intervals and activities for those relays.
8. In its petition, NERC explained that reclosing relays are “utilized on transmission systems to restore elements to service following automatic circuit breaker tripping,” and are “typically installed to lessen the burden on Transmission operators of manually restoring transmission lines.”
(1) Explicitly address maintenance and testing of reclosing relays applied as an integral part of a Special Protection System; and (2) include maintenance and testing of reclosing relays at or in proximity to generating plants at which the total installed capacity is greater than the capacity of the largest generating unit within the Balancing Authority Area.
9. The Joint Committee Report recommendations are reflected in the applicability section of PRC-005-3, which identifies,
4.2.6.1 Automatic Reclosing applied on terminals of Elements connected to the BES bus located at generating plant substations where the total installed gross generating plant capacity is greater than the gross capacity of the largest BES generating unit within the Balancing Authority Area.
4.2.6.2 Automatic Reclosing applied on the terminals of all BES Elements at substations one bus away from generating plants specified in Section 4.2.6.1 when the substation is less than 10 circuit-miles from the generating plant substation.
4.2.6.3 Automatic Reclosing applied as an integral part of an SPS specified in Section 4.2.4.
10. Further, NERC proposed modifications to the language of Requirements R1, R3, and R4 of PRC-005-2 to reflect the inclusion of automatic reclosing relays. NERC also proposed to include a new definition as part of the revised standard, as follows:
11. NERC's implementation plan for PRC-005-3 incorporates the phased-in implementation period approved for PRC-005-2, with the addition of compliance dates for the new requirements for automatic reclosing components. NERC explained that retirement of the legacy Reliability Standards (PRC-005-1b, PRC-008-0, PRC-011-0, and PRC-017-0) will continue to “key off” the regulatory approval date for PRC-005-2, although PRC-005-2 itself will be retired in the United States immediately prior to the effective date of PRC-005-3, on the first day of the first calendar quarter twelve months following regulatory approval.
12. NERC stated that the violation risk factors proposed in PRC-005-3 track those in the currently approved standard PRC-005-2, and that the violation severity levels now include the additional component (Automatic Reclosing) in a manner consistent with the approach taken for PRC-005-2.
13. On July 17, 2014, the Commission issued a Notice of Proposed Rulemaking (NOPR) proposing to approve Reliability Standard PRC-005-3.
14. With regard to actual operations data, the NOPR proposed that NERC enhance the granularity of its existing misoperations database “to gather relevant information regarding events that involve autoreclosing relays, such as distance from the fault, whether the relay reclosed into the fault, and whether that reclosure caused or exacerbated an event.”
15. The NOPR also proposed to direct modification of PRC-005-3 to include supervisory devices associated with applicable reclosing relay schemes. The Commission raised concerns that the failure of supervisory devices could raise reliability concerns under certain conditions, such as when static system angles are greater than designed and allow autoreclosing into a fault. Finally, the NOPR requested that commenters address the data retention obligations as proposed in PRC-005-3, which require applicable entities to retain maintenance records for a minimum of two maintenance cycles (up to 24 years).
16. Comments on the NOPR were filed by NERC; the Edison Electric Institute (EEI); International Transmission Company (ITC); Associated Electric Cooperative, Inc., Basin Electric Power Cooperative, Inc. and Tri-State Generation and Transmission Association, Inc. (together G&T Cooperatives); and Idaho Power Company (Idaho Power).
17. Pursuant to section 215(d)(2) of the FPA, we adopt our NOPR proposal and approve Reliability Standard PRC-005-3, including the associated definitions, violation risk factors and violation severity levels, and implementation plan (including the proposed retirement of identified “legacy” standards), as just, reasonable, not unduly discriminatory or preferential and in the public interest. As discussed above, NERC, EEI, ITC, and G&T Cooperatives support approval, commenting that the modifications to PRC-005-3 “address a known reliability gap” and address the directive in Order No. 758.
18. Below, we discuss the following matters: (A) Proposed reporting on the effectiveness of PRC-005-3; (B) supervisory devices; and (C) requested clarification on the applicability provisions of PRC-005-3.
19. As noted above, the Commission proposed in the NOPR to direct NERC to submit a report, two years after the effective date of PRC-005-3, addressing the effectiveness of PRC-005-3 in identifying reclosing relay schemes that could impact the reliable operation of the Bulk-Power System. The Commission suggested that NERC submit such a report to address the Commission's on-going concerns whether the standard's applicability thresholds reasonably identify those types of reclosing relays that can affect the reliability of the Bulk-Power System. The NOPR proposed two means of evaluating the standard's scope, based on (1) actual operations data and (2) simulated system conditions, such as contingency analyses required as part of the requirements of Reliability Standard TPL-001-4. The NOPR sought comment on the value of these means to evaluate PRC-005-3.
20. NERC objects to additional reporting of any kind, contending that it adequately supported the applicability thresholds in PRC-005-3 through the analysis provided in the Joint Committee Report. NERC argues that the Commission did not adequately justify the need for additional reporting or analysis, and did not provide a sufficiently detailed description of its concerns to allow the industry to “meaningfully comment” on the Commission's reporting proposals.
21. EEI supports the Commission's proposed directive to require NERC to evaluate the effectiveness of PRC-005-3 through the submission of a report. However, EEI maintains that the Commission should “allow NERC, with industry input and support, the latitude to develop” the methods and processes for such an evaluation.
22. EEI also asks the Commission to refrain from requiring changes to NERC's existing Misoperations Database, stating that such a directive could “inadvertently change the purpose and intent of this system.”
23. Idaho Power agrees with NERC and EEI that the misoperations database enhanced reporting requirement as proposed in the NOPR is of little value, and notes that the only autoreclosing relays that should be subject to additional scrutiny are those relatively few reclosing relays needed to ensure reliability.
24. By contrast, ITC does not generally oppose the proposed directive on gathering additional misoperations data related to reclosing relays, but asks for clarification about certain information NERC would be required to collect. Specifically, ITC asks that the Commission recognize that an entity may not be able to report the distance from the fault without some allowable margin of specificity.
25. Based on the comments received on this issue, we are persuaded not to require NERC to submit a report on the effectiveness of PRC-005-3 in identifying reclosing relay schemes that can have an impact on the reliable operation of the Bulk-Power System, as we had proposed in the NOPR. Instead, we direct NERC to obtain, maintain, and make available to the Commission upon request, one year following the effective date of the standard and on an annual basis thereafter, data sufficient to analyze the effectiveness of PRC-005-3, whether it be through NERC's Event Analysis process or other means. Specifically, NERC is to collect relevant information regarding Bulk-Power System events that involve high speed autoreclosing relays. Such information would include the operations of autoreclosing relays and their supervisory functionalities (
26. Given our decision in this Final Rule, we need not address the various arguments regarding the use of simulated contingency analyses as a benchmark for determining whether PRC-005-3 encompasses an adequate set of reclosing relays, and need not address ITC's request for clarification about the data points potentially required under our proposed revisions to NERC's misoperations database.
27. The NOPR proposed to require modification of PRC-005-3 to include maintenance and testing of supervisory devices associated with autoreclosing relay schemes otherwise covered by the standard, such as sync-check and voltage relays that may be critical to the operation of an autoreclosing scheme.
28. NERC states that it would support modification of PRC-005-3 to include certain supervisory devices to address the Commission's concerns as stated in the NOPR. Specifically, NERC suggests modifying the Reliability Standard to include “maintenance of supervision functions for which a failure can result in autoreclosing into a fault and potentially cause generating or plant instability.”
29. Idaho Power generally supports the inclusion of supervisory devices as part of PRC-005-3, based on its position that “any component required for the successful operation of the reclosing system at the identified critical location should be tested and maintained.”
30. Other commenters support modification of PRC-005-3 to include supervisory devices with certain limitations. EEI asks that the Commission limit the directive “to only those supervisory relays, which are directly associated with automatic reclosing schemes that would be covered by the proposed Reliability Standard.”
31. For the reasons stated in the NOPR and based on the commenters' general support, we adopt our NOPR proposal and direct that, pursuant to section 215(d)(5) of the FPA, NERC develop modifications to PRC-005-3 to include supervisory devices associated with autoreclosing relay schemes to which the Reliability Standard applies. Further, we clarify that NERC's proposal regarding the scope of supervisory devices is an acceptable approach to satisfy the Commission directive. Specifically, NERC proposed in its NOPR comments, and we find
32. ITC requests that the Commission clarify, or direct NERC to clarify, two applicability provisions. First, ITC asks for clarification that “the largest BES generating unit within the Balancing Authority Area” under Applicability section 4.2.6.1 would be determined using the NERC-defined term “Balancing Authority,” and not the MISO-defined term “Local Balancing Authority.” In addition, ITC requests that the Commission provide guidance on how to measure the gross capacity of multi-unit generating plants that are connected to electrically-isolated buses under section 4.2.6.2.
33. We decline to provide the requested clarifications. Rather, we expect that an applicable entity will consult with the relevant Balancing Authority and/or Regional Entity, as appropriate, with questions concerning identification of the largest generating unit within the Balancing Authority Area, or the determination of gross generating plant capacity under the applicability sections of Reliability Standard PRC-005-3.
34. The following collection of information contained in this rule is subject to review by the Office of Management and Budget (OMB) under section 3507(d) of the Paperwork Reduction Act of 1995.
35. The Commission solicited comments on the need for and purpose of the information contained in Reliability Standard PRC-005-3 and the corresponding burden to implement the standard. The Commission received one comment on the reporting and information collection estimates. Specifically, EEI recommends that the Commission revise the cost estimate associated with the increase in information collection burdens expected under the proposed standard. EEI states that the NOPR underestimated the cost burden because it failed to take into account the extent to which compliance “will require significant coordination with other entities, the modification of existing maintenance programs, identification of affected plants as well as all affected substations.”
36. The Final Rule approves Reliability Standard PRC-005-3 (Protection System and Automatic Reclosing Maintenance), which will replace PRC-005-2 (Protection System Maintenance). We decline to alter the burden estimate as calculated in the NOPR, as the only party to comment on the estimate (EEI) failed to point out any specific, quantifiable errors in the NOPR's estimate or otherwise offered an alternative quantification.
37. Further, in the NOPR, the Commission requested comment on the data retention requirements, explaining that PRC-005-3 requires applicable entities to maintain documentation of covered maintenance activities performed since the last audit, or of the two most recent maintenance cycles if the maintenance interval exceeds the normal audit cycle. Because the longest maintenance interval for certain components under PRC-005-3 is twelve years, an entity could be required to retain records for up to 24 years.
38. EEI, Idaho Power, and G&T Cooperatives oppose continuation of the data retention requirement, claiming that it is unnecessary and burdensome to retain maintenance records for 24 years, and noting that the record retention period far exceeds the normal audit cycle. Likewise, NERC avers that there is no “substantial need” to maintain the records for two full cycles. Further, NERC states that another version of the standard is being developed (version 4) that will reduce the data retention requirement so that records must only be maintained for the length of the audit cycle if the maintenance interval is shorter than the audit cycle, or for the length of the maintenance interval if not.
39. We generally agree with NERC and other commenters that the current data retention requirement, with a maximum retention period of 24 years, is unnecessarily long and burdensome. However, since the issuance of the NOPR and subsequent comments, NERC has submitted a petition for approval of the version 4 standard, PRC-005-4, which includes a modified document retention requirement.
40. The approved Reliability Standard expands the applicability of the existing standard to include reclosing schemes that meet certain criteria, imposing mandatory minimum maintenance activities and maximum maintenance intervals for the various reclosing scheme components. Because the specific requirements were designed to reflect common industry practice, entities are not expected generally to experience a meaningful change in actual maintenance and documentation practices. However, applicable entities will have to perform a one-time review of their reclosing schemes to determine which ones fall under PRC-005-3, and, if they have applicable reclosing schemes, review current reclosing scheme maintenance programs to ensure that they meet the requirements of PRC-005-3. Accordingly, all information collection costs are expected to be limited to the first year of implementation of the revised standard.
41.
42. Affected entities must perform a one-time review of their existing reclosing scheme maintenance program to ensure that it contains at a minimum the activities listed in Table 4 in Reliability Standard PRC-005-3, and that the activities are performed within the applicable maximum interval listed in Table 4. If the existing reclosing scheme maintenance program does not meet the criteria in Reliability Standard PRC-005-3, the entity will have to make certain adjustments to the program.
43.
44. Interested persons may obtain information on the reporting requirements by contacting the Federal Energy Regulatory Commission, Office of the Executive Director, 888 First Street NE., Washington, DC 20426 [Attention: Ellen Brown, email:
45. Comments concerning the information collections approved in this Final Rule and the associated burden estimates should be sent to the Commission in this docket and may also be sent to the Office of Management and Budget, Office of Information and Regulatory Affairs [Attention: Desk Officer for the Federal Energy Regulatory Commission]. For security reasons, comments should be sent by email to OMB at the following email address:
46. The Regulatory Flexibility Act of 1980 (RFA)
47. As discussed above, we estimate that Reliability Standard PRC-005-3 will apply to 144 generating plant sites and 144 substations that are located within 10 miles of the plant site. We therefore estimate that 288 entities will have applicable reclosing relays subject to the revised Reliability Standard's requirements, conservatively assuming
48. On average, each small entity affected may have a one-time cost of $730 per site, representing a one-time review of the program for each entity, consisting of 10 man-hours at $73/hour as explained above in the information collection statement. We do not consider this cost to be a significant economic impact for small entities. The Commission certifies that Reliability Standard PRC-005-3 will not have a significant economic impact on a substantial number of small entities. Accordingly, no regulatory flexibility analysis is required.
49. The Commission is required to prepare an Environmental Assessment or an Environmental Impact Statement for any action that may have a significant adverse effect on the human environment.
50. In addition to publishing the full text of this document in the
51. From the Commission's Home Page on the Internet, this information is available on eLibrary. The full text of this document is available on eLibrary in PDF and Microsoft Word format for viewing, printing, and/or downloading. To access this document in eLibrary, type the docket number excluding the last three digits of this document in the docket number field.
52. User assistance is available for eLibrary and the Commission's Web site during normal business hours from the Commission's Online Support at 202-502-6652 (toll free at 1-866-208-3676) or email at
53. This Final Rule is effective March 30, 2015.
54. The Commission has determined, with the concurrence of the Administrator of the Office of Information and Regulatory Affairs of OMB, that this rule is not a “major rule” as defined in section 351 of the Small Business Regulatory Enforcement Fairness Act of 1996.
By direction of the Commission. Commissioner Honorable is voting present.
Deputy Chief Management Officer, DoD.
Final rule; amendment.
This rule updates the established policies, guidance, and assigned responsibilities of the DoD Privacy Program pursuant to The Privacy Act and Office of Management and Budget (OMB) Circular No. A-130; authorizes the Defense Privacy Board and the Defense Data Integrity Board; prescribes uniform procedures for implementation of and compliance with the DoD Privacy Program; and delegates authorities and responsibilities for the effective administration of the DoD Privacy Program.
This rule is part of DoD's retrospective plan, completed in August 2011, under Executive Order 13563, “Improving Regulation and Regulatory Review.” DoD's full plan and updates can be accessed at:
This rule is effective February 26, 2015.
Samuel P. Jenkins, 703-571-0070.
a. The need for the regulatory action and how the action will meet that need.
An individual's privacy is a fundamental legal right that must be respected and protected. This regulatory action ensures that DoD's need to collect, use, maintain, or disseminate personally identifiable information (PII) about individuals for purposes of discharging its statutory responsibilities will be balanced against their right to be protected against unwarranted privacy invasions. This regulatory action also describes the rules of conduct and responsibilities of DoD personnel, DoD contractors, and DoD contractor personnel to ensure that any PII contained in a system of records that they access and use to conduct official business will be protected so that the security and confidentiality of the information is preserved.
b. Succinct statement of legal authority for the regulatory action (explaining, in brief, the legal authority laid out later in the preamble).
5 U.S.C. 552a, The Privacy Act of 1974, as amended, which requires the implementation of the Act by Federal agencies.
This rule:
a. Establishes rules of conduct for DoD personnel and DoD contractors involved in the design, development, operation, or maintenance of any system of records.
b. Establishes appropriate administrative, technical, and physical safeguards to ensure the security and confidentiality of records and to protect against any anticipated threats or hazards to their security or integrity that could result in substantial harm, embarrassment, inconvenience, or unfairness to any individual about whom information is maintained.
c. Ensures that guidance, assistance, and subject matter expert support are provided to the combatant command
d. Ensures that laws, policies, procedures, and systems for protecting individual privacy rights are implemented throughout DoD.
This regulatory action imposes no monetary costs to the Agency or public. The benefit to the public is the accurate reflection of the Agency's Privacy Program to ensure that policies and procedures are known to the public.
The Department published a proposed rule on August 22, 2013 (78 FR 52117), with a request for comments. The following comments were received and are addressed below:
Comment 1: An argument against the elimination of the term (and position/role) “System Manager”. Yes, it is every employee's responsibility to ensure PII is properly handled, but the System Manager is the `control valve' for each specific SOR and should continue to have a big say in determining `who' should have access to sensitive material. Much like the world of classified information, being trained and having the `clearance' to access the information is only part of the equation . . . the concept of “need-to-know” is equally important when determining access, and the System Manager is the POC that checks “need-to-know”. In addition, the System Manager knows (or should know) which SORN authorizes the collection of their SOR, they know with whom the info can be shared, they know what should be in the SOR and they verify that info every year, they keep track of disclosure accounting, etc. The average user with access only knows to protect it, and they wouldn't know a SORN if they tripped over it. I would suggest returning the “System Manager” to this document.
DoD Response: This Comment addresses the Rules of Conduct as described under 32 CFR 310.8(b)(1)-(3). These particular requirements have been revised and incorporated into 32 CFR 310.8(j)-(l), and are now applicable to all DoD personnel and DoD contractor personnel, including system mangers. This revision does not eliminate the position/role of system managers.
Comment 2: 32 CFR 310.22. This comment is targeted to a part of 32 CFR part 310 that DoD saw fit to not update, and it is a missed opportunity to clarify current DoD practices. The DoD has gone out of its way to establish that sharing lists of PII with non-DoD requestors is prohibited by FOIA. The DoD has requested that OPM not share DoD personnel information with requestors, and OPM has approved that request. DoD has gone to court (supporting OPM), and won, in its effort to ensure that requests for personnel information of DoD employees is exempt under the FOIA. (see
Sidebarring whether it is “actual” DoD policy to withhold or not, I think it is fair to say that DoD will likely discourage or prevent release of personnel information (either in lists per the Nov. 2001 memo or not-in-lists via FOIA exemptions). Therefore the contention expressed in 32 CFR 310.22(b)(5)(i)(A) that “. . . personal information regarding DoD civilian employees that normally may be released without a clearly unwarranted invasion of personal privacy” is misleading and disingenuous and should be reworded. As presently constituted, this wording gives the impression that this info is normally released, so either some DoD commands may release it without being aware that DoD, in practice, does exactly the opposite, or some citizens wishing to know how their government works may actually think they have a chance of getting that info from DoD without a court fight.
If the policy memo written just after 9/11 is indeed the new permanent policy and not, as Michael Donley declared, that “it was believed that this would only be a temporary policy”, please change the CFR to reflect that. 12 years of relying on a scrap of paper touting a `temporary policy' and not changing Federal Regulations seems to be circumventing the purpose of the CFR.
DoD Response: This Comment addresses the release of “personal information that is normally releasable” as described in 32 CFR 310.22(b)(5)(i)(A). The commentator objects to the wording “personally information regarding DoD civilian employees that normally may be released without a clear unwarranted invasion of personal privacy,” as “misleading and disingenuous.” Attention should be drawn to the use of the word “may,” as in indicator that it is permissible to release this information, but not required.
Comment 3: 32 CFR 310.4(h). The amendment to the definition of DoD Personnel should also include “dependents of members of armed services registered in DEERS.” Military dependents receive no protection under both the current and proposed versions of the Privacy Program. Aside from ongoing military operations, military dependents are just as likely to depend upon DoD services requiring the use of PII and/or PHI, but are afforded no protections.
Currently, family members are only required to receive notice of PII spillage, but are not afforded any civil remedies, nor is their information protected by criminal action against its malicious use. See DoD 5400.11-R, sec. C10.6.1.2.2. The Federal Tort Claims Act (FTCA) also severely limits any torts arising out of PII spillage by parties to whom the Privacy Program applies. See 28 U.S.C. 2680(h). For military dependents stationed overseas, who are more likely to use federal contractor services and in so doing, place their confidential information in someone else's care, the FTCA might preclude any protections at tort law for military families whatsoever. See 28 U.S.C. 2860(k).
Protecting DEERS dependent information has the added benefits of enhancing national security, providing accountability for dependents' records, and increasing oversight over DoD dependents' data by government contractors. Protecting dependents' privacy enhances national security by preventing another avenue by which malicious actors can exploit service members. During a service member's deployment, DoD dependents on the homefront frequently contact family readiness groups and other on-base agencies for news on their military members, provide information to DoD agencies to qualify for benefits, and join military unit sponsored clubs to relieve the stress of their loved one's absence. While information on the military member would be protected under the Privacy Program, the DoD dependent's information would not be. Thus, a malicious actor could legally request information about a service member's family and use it to exploit a service member's actions in a forward area, or illegally gain it by hacking information that is currently not required to be protected.
Adding this definition also creates accountability for DEERS dependent records. DoD dependents often become highly involved in on-base activities that require sharing private information.
Admittedly, such an amendment possibly triggers an economic impact analysis under E.O. 12866, and an unfunded mandates analysis under the Unfunded Mandates Reform Act, due to the increase in costs in archiving additional data and requiring contractor compliance.
However, the benefit to the welfare of our armed services, the eventual elimination of replication of efforts in data collection at different bases, and the savings to DoD family members' lost time and wages in fighting possible identity theft due to PII spillage, will outweigh the burden of such an amendment.
DoD Response: This Comment addresses the classification of DoD Personnel in 32 CFR 310.4(h) and suggests the inclusion of “dependents of members of the armed services registered in DEERS” in this classification. Although military dependents do carry many of the same attributes of military service members, they are not DoD employees and therefore cannot be classified as “DoD Personnel.” The commentator also suggests that military dependents “are afforded no protections” under the Privacy Program. Information concerning dependents of members of the armed services registered in DEERS is maintained by DoD in accordance with the Privacy Act of 1974, as amended, which does provide protection to military dependents. Within the DoD Privacy Program, “family members” are specifically mentioned in 32 CFR 310.14(a)(1) and 32 CFR 310.50(a)(2)(ii) with respect to breach notification and Privacy Act violations.
Comment 4: The Brennan Center is a nonpartisan law and policy institute that seeks to improve our systems of democracy and justice. The Brennan Center's Liberty and National Security Program works to further national security policies that respect constitutional values and the rule of law while protecting our people. Specifically, the Center seeks to restore the proper flow of information between the government and the people, ensure that domestic counterterrorism policies effectively target the terrorist threat, and secure appropriate mechanisms for oversight and accountability.
The Brennan Center recently published a report, What the Government Does with Americans' Data, that explores the federal government's retention of non-criminal information about Americans. The report recommends specific reforms, including reforms to the Privacy Act and limits on the retention of information reflecting the exercise of rights protected by the First Amendment.
With respect to the DoD proposed regulation, we note that a coalition of organizations is submitting a letter urging the DoD to require the National Security Agency, a component of the DoD, to publish System of Records Notices for three NSA databases: (1) A system containing “telephone numbers and electronic communications accounts/addresses/identifiers that NSA has reason to believe are being used by United States persons,” used to distinguish U.S. persons from foreigners in the source of targeting persons for the purpose of surveillance under Section 702 of the Foreign Intelligence Surveillance Act; (2) a database of email address lists and instant messaging “buddy lists” belonging to U.S. citizens and residents; and (3) a database with information about social networks, including data relating to U.S. persons. We endorse this recommendation, and believe it is critically important that the NSA comply with its obligations to provide the notices required by the Privacy Act regarding searchable databases containing information about Americans and legal residents.
DoD Response: This Comment addresses System of Records Notices (SORNs) with respect to the DoD, and with the National Security Agency (NSA) in particular. It is DoD policy to “publish in the
Comment 5: The Policy section of the DoD's Privacy Program currently states that “No record shall be maintained on how an individual exercises rights guaranteed by the First Amendment to the constitution. . . .” There are three enumerated exceptions: When retention is authorized by statute, where the individual has authorized it, or “when the record is pertinent to and within the scope of an authorized law enforcement activity.” Under the proposed rule, the analogous section would expand the third exception to allow information relating to First Amendment-protected speech to be maintained when the records is “pertinent to and within the scope of an authorized intelligence or administrative investigation.” (This same change is reflected in the proposed changes to the Privacy Program's Rules of Conduct as well.)
This exception—both as it stands and as revised—is simultaneously overly broad and vague. To begin with, it is not clear what matters are encompassed by “law enforcement activities”; it seems likely that those activities could include more than an authorized investigation, but it is unknown what other actions might qualify as an “activity” and thus trigger the ability to maintain First Amendment-protected information. The new terms are even more ambiguous. “Intelligence activities” are not defined, and the meaning of “administrative activities” is particularly uncertain; it appears susceptible to being used as a catch-all to permit the retention of First Amendment-protected information in almost any circumstances.
Furthermore, the requirement that the record be “pertinent to and within the scope of” one of the above matters is an extremely low standard, as nearly any record could be found to be “pertinent to” a particular activity. This is particularly true in light of the assertions by the NSA and the DOJ that databases containing nearly all
In short, the exception as proposed would allow First Amendment-related information to remain in an individual's file under almost any circumstances, as long as there is a colorable argument that it is related in some way, or might be related in the future, to some law enforcement, intelligence, or “administrative” matter. Because of the ambiguity of these terms, American citizens are left with little guidance about the actual circumstances under which information about their protected speech or associations may be maintained in DoD files.
Accordingly, we urge the DoD to reject the proposed changes and to significantly narrow this exception. Appropriate steps would include: (1) Adding definitions for “law enforcement activities,” “intelligence activities,” and “administrative activities to 32 CFR 310.4, Definitions; (2) Limiting the retention of information reflecting the exercise of First Amendment-protected rights to circumstances in which it is relevant and necessary to an authorized investigation; (3) Ensuring that at the close of any investigation, First Amendment-protected information is purged. (All information gathered about U.S. persons should be purged if no reasonable suspicion of criminal activity is developed.) If this information must be retained as part of an investigative file that is reasonably maintained in the ordinary course of business, it should be masked to ensure that it is accessible in the future only if strictly relevant and necessary to another authorized investigation; and (4) Specifying the circumstances under which any PII about Americans, including records reflecting First Amendment-protected activities, may be shared with other local, state, or federal agencies, foreign governments, or private parties or entities.
DoD Response: This Comment addresses the terms “law enforcement activities,” “intelligence activities,” and “administrative activities,” and raises First Amendment concerns. The proposed revision to the DoD policy includes that “no record will be maintained on how an individual exercises rights guaranteed by the First Amendment . . . , except (1) when expressly authorized by statute; (2) when expressly authorized by the individual that the record is about; or (3) when the record is pertinent to and within the scope of an authorized law enforcement activity, including an authorized intelligence or administrative investigation.” 32 CFR 310.5(f) (proposed). The Privacy Act of 1974 permits “exception from such requirements with respect to records provided in this Act only in those cases where there is an important public policy need for such exemption as has been determined by specific statutory authority.” Public Law 93-579, Section 2(b)(5). General and Specific Exemptions are provided in 5 U.S.C. 552a(j) and (k). As such, the DoD Privacy Program complies with the Privacy Act of 1974, as amended, and as codified at 5 U.S.C. 552a.
Comment 6: By notice published August 22, 2013, the Department of Defense (“DoD”) proposes to amend its Privacy Program implementing the Privacy Act of 1974. Specifically, DoD proposes to change its “policies, guidance, and assigned responsibilities of the DoD Privacy Program . . . ; authoriz[e] the Defense Privacy Board and the Defense Data Integrity Board; prescrib[e] uniform procedures for implementation of and compliance with the DoD Privacy Program; and delegat[e] authorities and responsibilities for the effective administrative of the DoD Privacy Program.”
The proposed amendments apply to all organizational entities within the DoD, including the Office of the Secretary of Defense, the Military Departments, and the DoD Office of the Inspector General, which the DoD refers to collectively as the “DoD Components.” The National Security Agency (“NSA”) is an organizational entity and agency component within the DoD. Therefore, the DoD's proposal applies to the NSA.
As discussed below, NSA currently maintains at least three unlawful Privacy Act systems of records pertaining to US citizens and permanent residents. These systems of records violate both the Privacy Act and current DoD Privacy Program regulations. Accordingly, pursuant to DoD's notice of proposed rulemaking (“NPRM”), the undersigned privacy, consumer rights, and civil rights organizations [hereinafter “Privacy Commentators”] hereby submit these comments to urge DoD to enjoin the NSA—a DoD component subject to the DoD Privacy Program—from violating the Privacy Act and current DoD Privacy Program regulations.
Although the DoD's Privacy Program NPRM is generally favorable to individual privacy and First Amendment rights and adheres to the Privacy Act, the NSA's current collection, maintenance, and disclosure of records violate the Privacy Act and current DoD Privacy Program regulations. The NSA's activity would also violate DoD's proposal.
Because the NSA is under the purview of the DoD Privacy Program, the DoD must ensure NSA implements “information privacy protections, including full compliance with federal laws, regulations, and policies relating to information privacy” before issuing a final rule. Specifically, the DoD must ensure that the NSA complies with the Privacy Act by publishing additional system of records notices and otherwise adhering to the Privacy Act.
The Privacy Act of 1974 governs federal agency maintenance, collection, use, and dissemination of U.S. citizen and lawful permanent resident “records” contained in a “system of records.” The Act broadly defines “record” to include: Any item, collection, or grouping of information about an individual that is maintained by an agency, including, but not limited to, his education, financial transactions, medical history, and criminal or employment history and that contains his name, or the identifying number, symbol, or other identifying particular assigned to the individual, such as a finger or voice print or a photograph[.]
A “system of records” is: A group of any records under the control of any agency from which information is retrieved by the name of the individual or by some identifying number, symbol, or other identifying particular assigned to the individual[.]
When it enacted the Privacy Act of 1974, Congress sought to restrict the amount of personal information that federal agencies could collect and required transparency in agency information practices. Privacy Act legislative history reveals that the Act is intended “to promote accountability, responsibility, legislative oversight, and open government with respect to the use of computer technology in the personal information systems data of the Federal Government [.]” The Act is also intended to guard the privacy interests of citizens and lawful permanent residents against government intrusion.
• May request access to records an agency maintains about him or her, as well as have copies made;
• may amend a record about him or her; and
• must be informed whom the agency asks to supply information;
Importantly, the Privacy Act grants individuals a private right of action and individuals may sue federal agencies for violating the Privacy Act.
In addition to granting individual rights, the Privacy Act also imposes several obligations on federal agencies, including obligations that agencies must:
• At least 30 days prior to publication of each record routine, “publish in the
• not maintain records “describing how any individual exercises rights guaranteed by the First Amendment unless expressly authorized by statute or by the individual about whom the record is maintained or unless pertinent to and within the scope of an authorized law enforcement activity”;
• give individuals access to the accounting of disclosure of their records;
• make notes of requested amendments within the records;
• collect records “about an individual as is relevant and necessary to accomplish a purpose of the agency required to be accomplished by statute or by executive order of the President”;
• “collect information to the greatest extent practicable directly from the subject individual when the information may result in adverse determinations about an individual's rights, benefits, and privileges under Federal programs”;
• assure that all records used by the agency in making determinations about an individual are accurate, relevant, timely and complete as reasonably necessary to maintain fairness;
• make a reasonable effort to notify an individual when a record about him or her is made available to another individual when it is a matter of public record;
• promulgate rules establishing procedures that notify an individual in response to record requests pertaining to him or her, including “reasonable times, places, and requirements for identifying an individual”, institute disclosure procedures for medical and psychological records, create procedures to review amendment requests, as well as determine the request, the status of appeals to denial of requests, and establish fees for record duplication, excluding the cost for search and review of the record;
In addition to assessing “reasonable attorney fees and other litigation costs” for noncompliant agencies, courts may order agencies to amend individuals records, as well as “enjoin the agency from withholding records.” The Act also imposes criminal penalties for officers and agency employees who willfully disclose agency records in violation of the Privacy Act or Privacy Act regulations.
The NSA is an “agency” as defined in the Privacy Act. The NSA is also a DoD organizational entity within the DoD. Accordingly, NSA is subject to the Privacy Act, current DoD Privacy Program regulations, and the NPRM. Pursuant to the Privacy Act and DoD Privacy Program regulations, the NSA has published twenty-six systems of records. These are as follows:
Recent Administration admissions and NSA documents reveal that over the last several years, NSA has maintained at least three unpublished system of records that allow the agency to retrieve information by “identifying number[s], symbol[s], or other identifying particular[s] assigned to . . . individual[s].” These groups of records violate the Privacy Act and DoD Privacy Program regulations because they were collected without individual consent, public notice, and other Privacy Act procedural requirements.
The first unlawful NSA system of records contains “telephone numbers and electronic communications accounts/addresses/identifiers that NSA has reason to believe are being used by United States persons.” The NSA uses these “identifying numbers, symbols, and other particulars” to retrieve information to identify if an individual whom the NSA intends to monitor is a U.S. person.
The second unlawful NSA system of records is comprised of contact lists that the NSA retrieves from email address books and instant message “buddy lists.” In this system of records, the NSA gathers email contact lists and instant message buddy lists that traverse global data links. The contact lists and buddy lists include those belonging to U.S. citizens. The lists are maintained within a searchable contact list database that permits the NSA to retrieve information by an “identifying number, symbol, or other identifying particular,”—
Furthermore, email contact lists, in particular, can contain other identifying information beyond the email address of the contact, such as name, address, business association, and relationship to the contact.
The third unlawful NSA system of records is a database containing information relating to social networks. Within this system of records, the NSA maintains information on social connections (
All three of the aforementioned NSA systems of records violate the Privacy Act and DoD Privacy Program regulations because the NSA has failed to publish system of records notices for each of the system of records. None of the NSA's twenty-six published SORNs listed above describes the type of data collection or dissemination that the NSA is conducting with these systems of records. Moreover, they violate the Privacy Act and DoD Privacy Program regulations because the records were collected without individual notice, consent, or other Privacy Act rights.
Finally, each of the three unpublished systems of records maintains records describing how individuals exercise their First Amendment rights, including press freedoms, and the rights to freely associate and assemble. The Privacy Act forbids agencies from maintaining these types of records “unless expressly authorized by statute or by the individual about whom the record is maintained or unless pertinent to and within the scope of an authorized law enforcement activity.” In addition to the aforementioned Privacy Act violations, the NSA has violated and continues to violate the Privacy Act by maintaining records describing how individuals exercise their First Amendment rights.
Conclusion. The NSA is currently in violation of the Privacy Act and DoD Privacy Program regulations. The DoD must ensure that the NSA complies with the Privacy Act by publishing additional system of records notices and otherwise adhering to the Privacy Act before it can adopt its current proposal.
DoD Response: This Comment addresses System of Records Notices (SORNs) with respect to the DoD, and with the National Security Agency (NSA) in particular. It is DoD policy to “publish in the
Executive Orders 12866 and 13563 direct agencies to assess all costs and benefits of available regulatory alternatives and, if regulation is necessary, to select regulatory approaches that maximize net benefits (including potential economic, environmental, public health and safety effects, distribute impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs
It has been determined that 32 CFR part 310 does not contain a Federal mandate that may result in expenditure by State, local and tribal governments, in aggregate, or by the private sector, of $100 million or more in any one year.
It has been certified that 32 CFR part 310 is not subject to the Regulatory Flexibility Act (5 U.S.C. 601) because it would not, if promulgated, have a significant economic impact on a substantial number of small entities.
It has been determined that 32 CFR part 310 does not impose reporting or recordkeeping requirements under the Paperwork Reduction Act of 1995.
It has been determined that 32 CFR part 310 does not have federalism implications, as set forth in Executive Order 13132. This rule does not have substantial direct effects on:
(1) The States;
(2) The relationship between the National Government and the States; or
(3) The distribution of power and responsibilities among the various levels of Government.
Privacy.
Accordingly 32 CFR part 310 is amended as follows:
5 U.S.C. 552a.
This part:
(a) Updates the established policies and assigned responsibilities of the DoD Privacy Program pursuant to 5 U.S.C. 552a (also known and referred to in this part as “The Privacy Act”) and Office of Management and Budget (OMB) Circular No. A-130.
(b) Authorizes the Defense Privacy Board and the Defense Data Integrity Board.
(c) Prescribes uniform procedures for implementation of and compliance with the DoD Privacy Program.
(d) Delegates authorities and responsibilities for the effective administration of the DoD Privacy Program.
(a) This part applies to the Office of the Secretary of Defense (OSD), the Military Departments, the Office of the Chairman of the Joint Chiefs of Staff and the Joint Staff, the Combatant Commands, the Office of the Inspector General of the Department of Defense, the Defense Agencies, the DoD Field Activities, and all other organizational entities within the DoD (referred to collectively in this part as the “DoD Components”).
(b) For the purposes of subsection (i), “Criminal penalties,” of The Privacy Act, any DoD contractor and any employee of such a contractor will be considered to be an employee of DoD when DoD provides by a contract for the operation by or on behalf of DoD of a system of records to accomplish a DoD function. DoD will, consistent with its authority, cause the requirements of section (m) of The Privacy Act to be applied to such systems.
The following definitions apply to this part:
(1) Directly or indirectly (
(2) Conducts business, or reasonably may be expected to conduct business, with the federal government as an agent or representative of another contractor.
It is DoD policy that:
(a) An individual's privacy is a fundamental legal right that must be respected and protected.
(1) The DoD's need to collect, use, maintain, or disseminate (also known and referred to in this part as “maintain”) PII about individuals for purposes of discharging its statutory responsibilities will be balanced against their right to be protected against unwarranted privacy invasions.
(2) The DoD protects individuals' rights, consistent with federal laws, regulations, and policies, when maintaining their PII.
(3) DoD personnel and DoD contractors have an affirmative responsibility to protect an individual's privacy when maintaining his or her PII.
(4) Consistent with section 1016(d) of Public Law 108-458 and section 1 of Executive Order 13388, “Further Strengthening the Sharing of Terrorism Information to Protect Americans”, the DoD will protect information privacy and provide other protections relating to civil liberties and legal rights in the development and use of the information sharing environment.
(b) The DoD establishes rules of conduct for DoD personnel and DoD contractors involved in the design, development, operation, or maintenance of any system of records. DoD personnel and DoD contractors will be trained with respect to such rules and the requirements of this section and any other rules and procedures adopted pursuant to this section and the penalties for noncompliance. The DoD Rules of Conduct are established in § 310.8.
(c) DoD personnel and DoD contractors conduct themselves consistent with the established rules of conduct in § 310.8, so that records maintained in a system of records will only be maintained as authorized by 5 U.S.C. 552a and this part.
(d) DoD legislative, regulatory, or other policy proposals will be evaluated to ensure consistency with the information privacy requirements of this part.
(e) Pursuant to The Privacy Act, no record will be maintained on how an individual exercises rights guaranteed by the First Amendment to the Constitution of the United States (referred to in this part as “the First Amendment”), except:
(1) When specifically authorized by statute.
(2) When expressly authorized by the individual that the record is about.
(3) When the record is pertinent to and within the scope of an authorized law enforcement activity, including an authorized intelligence or administrative investigation.
(f) Disclosure of records pertaining to an individual from a system of records is prohibited except with his or her consent or as otherwise authorized by 5 U.S.C. 552a and this part or 32 CFR part 286. When DoD Components make such disclosures, the individual may, to the extent authorized by 5 U.S.C. 552a and this part, obtain a description of such disclosures from the Component concerned.
(g) Disclosure of records pertaining to personnel of the National Security Agency, the Defense Intelligence Agency, the National Reconnaissance Office, and the National Geospatial-Intelligence Agency is prohibited to the extent authorized by Public Law 86-36, “National Security Agency-Officers and Employees” and 10 U.S.C. 424. Disclosure of records pertaining to personnel of overseas, sensitive, or routinely deployable units is prohibited to the extent authorized by 10 U.S.C. 130b.
(h) The DoD establishes appropriate administrative, technical, and physical safeguards to ensure the security and confidentiality of records and to protect against any anticipated threats or hazards to their security or integrity that could result in substantial harm, embarrassment, inconvenience, or unfairness to any individual about whom information is maintained.
(i) Disclosure of PHI will be consistent with DoD 6025.18-R.
(j) All DoD personnel and DoD contractors will be provided training pursuant to 5 U.S.C. 552a and OMB Circular No. A-130.
(k) PII collected, used, maintained, or disseminated will be:
(1) Relevant and necessary to accomplish a lawful DoD purpose required by statute or Executive Order.
(2) Collected to the greatest extent practicable directly from the individual. He or she will be informed as to why the information is being collected, the authority for collection, how it will be used, whether disclosure is mandatory or voluntary, and the consequences of not providing that information.
(3) Relevant, timely, complete, and accurate for its intended use.
(4) Protected using appropriate administrative, technical, and physical safeguards based on the media (
(l) Individuals are permitted, to the extent authorized by 5 U.S.C. 552a and this part, to:
(1) Upon request by an individual, gain access to records or to any information pertaining to the individual which is contained in a system of records.
(2) Obtain a copy of such records, in whole or in part.
(3) Correct or amend such records once it has been determined that the records are not accurate, relevant, timely, or complete.
(4) Appeal a denial for a request to access or a request to amend a record.
(m) Non-U.S. citizens and aliens not lawfully admitted for permanent residence may request access to and amendment of records pertaining to them; however, this part does not create or extend any right pursuant to The Privacy Act to them.
(n) SORNs and notices of proposed or final rulemaking are published in the
(o) All DoD personnel must make reasonable efforts to inform an individual, at their last known address, when any record about him or her is disclosed:
(1) Due to a compulsory legal process.
(2) In a manner that will become a matter of public record.
(p) Individuals must be notified in a timely manner, consistent with the requirements of this part, if there is a breach of their PII.
(q) At least 30 days prior to disclosure of information pursuant to subparagraph (e)(4)(D) (routine uses) of The Privacy Act, the DoD will publish an FR notice of any new use or intended use of the information in the system, and provide an opportunity for interested people to submit written data, views, or arguments to the agency.
(r) Computer matching programs between the DoD Components and federal, state, or local governmental agencies are conducted in accordance with the requirements of 5 U.S.C. 552a, OMB Circular No. A-130, and this part.
(s) The DoD will publish in the FR notice any establishment or revision of a matching program at least 30 days prior to conducting such program of such establishment or revision if any DoD Component is a recipient agency or a source agency in a matching program with a non-federal agency.
(a) The Deputy Chief Management Officer of the Department of Defense (DCMO):
(1) Serves as the Senior Agency Official for Privacy (SAOP) for the DoD. These duties, in accordance with OMB Memorandum M-05-08, “Designation of Senior Agency Officials for Privacy” (available at
(i) Ensuring DoD implementation of information privacy protections, including full compliance with federal laws, regulations, and policies relating to information privacy.
(ii) Overseeing, coordinating, and facilitating DoD privacy compliance efforts.
(iii) Ensuring that DoD personnel and DoD contractors receive appropriate training and education programs regarding the information privacy laws, regulations, policies, and procedures governing DoD-specific procedures for handling of PII.
(2) Provides rules of conduct and policy for, and coordinates and oversees administration of, the DoD Privacy Program to ensure compliance with policies and procedures in 5 U.S.C. 552a and OMB Circular No. A-130.
(3) Publishes this part and other guidance to ensure timely and uniform implementation of the DoD Privacy Program.
(4) Serves as the chair of the Defense Privacy Board and the Defense Data Integrity Board.
(5) As requested, ensures that guidance, assistance, and subject matter expert support are provided to the Combatant Command privacy officers in the implementation and execution of and compliance with the DoD Privacy Program.
(6) Acts as The Privacy Act Access and Amendment appellate authority for OSD and the Office of the Chairman of
(b) Under the authority, direction, and control of the DCMO, through the Director for Oversight and Compliance, the Chief, Defense Privacy and Civil Liberties Division (DPCLD):
(1) Ensures that laws, policies, procedures, and systems for protecting individual privacy rights are implemented throughout DoD.
(2) Oversees and provides strategic direction for the DoD Privacy Program.
(3) Assists the DCMO in performing the responsibilities in paragraphs (a)(1)-(a)(6) of this section.
(4) Reviews DoD legislative, regulatory, and other policy proposals that contain information on privacy issues relating to how the DoD keeps its PII. These reviews must include any proposed legislation, testimony, and comments having privacy implications in accordance with DoD Directive 5500.01, “Preparing, Processing, and Coordinating Legislation, Executive Orders, Proclamations, Views Letters, and Testimony” (available at
(5) Reviews proposed new, altered, and amended systems of records. Submits required SORNs for publication in the FR and, when required, provides advance notification to OMB and Congress consistent with 5 U.S.C. 552a, OMB Circular No. A-130, and this part.
(6) Reviews proposed DoD Component privacy exemption rules. Submits the exemption rules for publication in the FR, and submits reports to OMB and Congress consistent with 5 U.S.C. 552a, OMB Circular No. A-130, and this part.
(7) Develops, coordinates, and maintains all DoD computer matching agreements. Submits required match notices for publication in the FR and provides advance notification to OMB and Congress consistent with 5 U.S.C. 552a, OMB Circular No. A-130, and this part.
(8) Provides guidance, assistance, and support to the DoD Components in their implementation of the DoD Privacy Program to ensure that:
(i) All requirements developed to maintain PII conform to the DoD Privacy Program standards.
(ii) Appropriate procedures and safeguards are developed and implemented to protect PII when it is collected, used, maintained, or disseminated in any media.
(iii) Specific procedures and safeguards are developed and implemented when PII is collected and maintained for research purposes.
(9) Compiles data in support of the DoD Chief Information Officer (DoD CIO) submission of the Federal Information Security Management Act (FISMA) Privacy Reports, pursuant to OMB Memorandum M-06-15, “Safeguarding Personally Identifiable Information” (available at
(10) Reviews and coordinates on DoD Component privacy program implementation rules to ensure they are in compliance with the DoD-level guidance.
(11) Provides operational and administrative support to the Defense Privacy Board and the Defense Data Integrity Board.
(c) The General Counsel of the Department of Defense (GC DoD):
(1) Provides advice and assistance on all legal matters related to the administration of the DoD Privacy Program.
(2) Appoints a designee to serve as a member of the Defense Privacy Board and the Defense Data Integrity Board.
(3) When a DoD Privacy Program group is created, appoints a designee to serve as a member.
(d) The DoD Component heads:
(1) Provide adequate funding and personnel to establish and support an effective DoD Privacy Program.
(2) Establish DoD Component-specific procedures in compliance with this part and publish these procedures as well as rules of conduct in the FR.
(3) Establish and implement appropriate administrative, physical, and technical safeguards and procedures prescribed in this part and other DoD Privacy Program guidance.
(4) Ensure Component compliance with supplemental guidance and procedures in accordance with all applicable federal laws, regulations, policies, and procedures.
(5) Appoint a Component senior official for privacy (CSOP) to support the SAOP in carrying out the SAOP's duties identified in OMB Memorandum M-05-08.
(6) Appoint a Component privacy officer to administer the DoD Privacy Program, on behalf of the CSOP.
(7) Ensure DoD personnel and DoD contractors having primary responsibility for implementing the DoD Privacy Program receive appropriate privacy training. This training must be consistent with the requirements of this part and will address the provisions of 5 U.S.C. 552a, OMB Circular No. A-130, and this part.
(8) Ensure that all DoD Component legislative, regulatory, or other policy proposals are evaluated to ensure consistency with the information privacy requirements of this part.
(9) Assess the impact of technology on the privacy of PII and, when feasible, adopt privacy-enhancing technology to:
(i) Preserve and protect PII contained in a DoD Component system of records.
(ii) Audit compliance with the requirements of this part.
(10) Ensure that officials who have specialized knowledge of the DoD Privacy Program periodically review Component implementation of and compliance with the DoD Privacy Program.
(11) Submit reports, consistent with the requirements of this part, in accordance with 5 U.S.C. 552a and OMB Circular No. A-130, and as otherwise directed by the Chief, DPCLD.
(e) In addition to the responsibilities in paragraph (d), the Secretaries of the Military Departments provide program and financial support to the Combatant Commands as identified in DoD Directive 5100.03, “Support to the Headquarters of Combatant and Subordinate Unified Commands” (available at
In accordance with section (e)(9) of The Privacy Act, this section provides DoD rules of conduct for the development, operation, and maintenance of systems of records. DoD personnel and DoD contractor personnel will:
(a) Take action to ensure that any PII contained in a system of records that they access and use to conduct official
(b) Not disclose any PII contained in any system of records, except as authorized by The Privacy Act, or other applicable statute, Executive order, regulation, or policy. Those willfully making any unlawful or unauthorized disclosure, knowing that disclosure is prohibited, may be subject to criminal penalties and/or administrative sanctions.
(c) Report any unauthorized disclosures of PII from a system of records to the applicable Privacy point of contact (POC) for the respective DoD Component.
(d) Report the maintenance of any system of records not authorized by this part to the applicable Privacy POC for the respective DoD Component.
(e) Minimize the collection of PII to that which is relevant and necessary to accomplish a purpose of the DoD.
(f) Not maintain records describing how any individual exercises rights guaranteed by the First Amendment, except:
(1) When specifically authorized by statute.
(2) When expressly authorized by the individual that the record is about.
(3) When the record is pertinent to and within the scope of an authorized law enforcement activity, including authorized intelligence or administrative activities.
(g) Safeguard the privacy of all individuals and the confidentiality of all PII.
(h) Limit the availability of records containing PII to DoD personnel and DoD contractors who have a need to know in order to perform their duties.
(i) Prohibit unlawful possession, collection, or disclosure of PII, whether or not it is within a system of records.
(j) Ensure that all DoD personnel and DoD contractors who either have access to a system of records or develop or supervise procedures for handling records in a system of records are aware of their responsibilities and are properly trained to safeguard PII being maintained under the DoD Privacy Program.
(k) Prepare any required new, amended, or altered SORN for a given system of records and submit the SORN through their DoD Component Privacy POC to the Chief, DPCLD, for coordination and submission for publication in the FR.
(l) Not maintain any official files on individuals, which are retrieved by the name of the individual or by some identifying number, symbol, or other identifying particular assigned to the individual, also known as a system of records, without first ensuring that a notice has been published in the FR. Any official who willfully maintains a system of records without meeting the publication requirements as prescribed by this part and The Privacy Act may be subject to criminal penalties and/or administrative sanctions.
(m) Maintain all records in a mixed system of records as if all the records in such a system are subject to The Privacy Act.
(a)
(i)
(A) The DCMO, who serves as the chair.
(B) The Chief, DPCLD, who serves as the Executive Secretary and as a member.
(C) The Under Secretary of Defense for Personnel and Readiness.
(D) The Assistant Secretary of Defense for Health Affairs.
(E) The DoD CIO.
(F) The Director, Defense Manpower Data Center.
(G) The Director, Executive Services Directorate, Washington Headquarters Services (WHS).
(H) The GC DoD.
(I) The Chief of the National Guard Bureau.
(ii)
(2)
(i) Serves as the primary DoD policy forum for matters involving the DoD Privacy Program, meeting as necessary to address issues of common concern to ensure that consistent policy is adopted and followed by the DoD Components. The Board issues advisory opinions, as necessary, on the DoD Privacy Program to promote uniform and consistent application of 5 U.S.C. 552a, OMB Circular No. A-130, and this part.
(ii) Establishes and convenes committees as necessary.
(iii) Establishes working groups whose membership is composed of DoD Component privacy officers and others as necessary.
(b)
(i) The DCMO, who serves as the chair.
(ii) The Chief, DPCLD, who serves as the Executive Secretary.
(iii) The representatives designated by the Secretaries of the Military Departments; the DoD CIO; the GC DoD; the Inspector General of the Department of Defense, who is a non-voting advisory member; the Director, EITSD; and the Director, Defense Manpower Data Center.
(2)
(i) Oversees and coordinates, consistent with the requirements of 5 U.S.C. 552a, OMB Circular No. A-130, and this part, all computer matching agreements involving personal records contained in systems of records maintained by the DoD Components.
(ii) Reviews and approves all computer matching agreements between the DoD and other federal, state, or local governmental agencies, as well as any memorandums of understanding, when the match is internal to the DoD. This review ensures that, in accordance with 5 U.S.C. 552a, OMB Circular No. A-130, and this part, appropriate procedural and due process requirements are established before engaging in computer matching activities.
Environmental Protection Agency (EPA).
Direct final rule.
The Environmental Protection Agency (EPA) amends the EPA Acquisition Regulation (EPAAR) to address minor non-substantive changes in three clauses and two related prescriptions. The direct final rule updates “Protection of Human Subjects”, “Care of Laboratory Animals”, and “EPA Green Meetings and Conferences”. EPA does not anticipate any adverse comments.
This rule is effective on March 30, 2015 without further notice, unless adverse comment is received February 26, 2015. If adverse comment is received, the EPA will publish a timely withdrawal of the rule in the
Submit your comments, identified by Docket ID No. EPA-HQ-OARM-2014-0515 by one of the following methods:
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Holly Hubbell, Policy, Training, and Oversight Division, Acquisition Policy and Training Service Center (3802R), Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460; telephone number: 202-564-1091; email address:
1. Do not submit Classified Business Information (CBI) to EPA Web site
2. Tips for Preparing Your Comments. When submitting comments, remember to:
• Identify the rulemaking by docket number and other identifying information (subject heading,
• Follow directions—The Agency may ask you to respond to specific questions or organize comments by referencing a Code of Federal Regulations (CFR) Part or section number.
• Explain why you agree or disagree, suggest alternatives, and substitute language for your requested changes.
• Describe any assumptions and provide any technical information and/or data that you used.
• If you estimate potential costs or burdens, explain how you arrived at your estimate in sufficient detail to allow for it to be reproduced.
• Provide specific examples to illustrate your concerns, and suggest alternatives.
• Explain your views as clearly as possible, avoiding the use of profanity or personal threats.
3. Make sure to submit your comments by the comment period deadline identified.
The EPA is revising EPAAR 1552.223-70 Protection of Human Subjects and 1552.223-72 Care of Laboratory Animals to update the clauses with current references and legislative information. Except for administrative changes, the clauses were last updated in 1984 and 2000, respectively. Prescription 1523.303-72 for EPAAR 1552.223-72 clarifies the applicability of the clause of care and use. The revisions to prescription 1523.703-1 Acquisition of Environmentally Preferable Meeting and Conference Services updates the applicability of clause 1552.223-71 EPA Green Meetings and Conferences. The revision of EPAAR 1552.223-71 replaces the “14 questions” with more relevant questions which clarify the current requirements for environmentally preferred facilities.
This final rule makes the following changes:
1. Revise prescription EPAAR 1523.303-72 to clarify the applicability of the clause EPAAR 1552.223-72 Care of Laboratory Animals.
2. Revise prescription EPAAR 1523.703-1 to clarify the applicability of clause 1552.223-71 requiring information about the environmental preferability features and practices of lodging and non-lodging oriented meeting and conference facilities.
3. Revise EPAAR 1552.223-70 to update the legislative and guidance references and information.
4. Revise EPAAR 1552.223-71 by replacing the “14 questions” with more relevant questions that better clarify essential attributes for environmentally preferred facilities.
5. Revise EPAAR 1552.223-72 to update the legislative references and guidance information.
This action is not a “significant regulatory action” under the terms of Executive Order (EO) 12866 (58 FR 51735, October 4, 1993) and is therefore not subject to review under the EO 12866 and 13563 (76 FR 3821, January 21, 2011).
This action does not impose an information collection burden under the provisions of the Paperwork Reduction Act, 44 U.S.C. 3501
The RFA generally requires an agency to prepare a regulatory flexibility analysis of any rule subject to notice and comment rulemaking requirements under the Administrative Procedure Act or any other statute; unless the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities. Small entities include small businesses, small organizations, and small governmental jurisdictions. For purposes of assessing the impact of today's final rule on small entities, “small entity” is defined as: (1) A small business that meets the definition of a small business found in the Small Business Act and codified at 13 CFR 121.201; (2) a small governmental jurisdiction that is a government of a city, county, town, school district or special district with a population of less than 50,000; or (3) a small organization that is any not-for-profit enterprise which is independently owned and operated and is not dominant in its field. After considering the economic impacts of this rule on small entities, I certify that this action will not have a significant economic impact on a substantial number of small entities. In determining whether a rule has a significant economic impact on a substantial number of small entities, the impact of concern is any significant adverse economic impact on small entities, because the primary purpose of the regulatory flexibility analyses is to identify and address regulatory alternatives “which minimize any significant economic impact of the proposed rule on small entities” 5 U.S.C. 503 and 604. Thus, an agency may certify that a rule will not have a significant economic impact on a substantial number of small entities if the rule relieves regulatory burden, or otherwise has a positive economic effect on all of the small entities subject to the rule. This action revises current EPAAR clauses and will not have a significant economic impact on substantial number of small entities. We continue to be interested in the potential impacts of the rule on small entities and welcome comments on issues related to such impacts.
This action contains no federal mandates under the provisions of Title II of the Unfunded Mandates Reform Act of 1995 (UMRA), 2 U.S.C. 1531-1538 for State, local, and tribal governments or the private sector. The action imposes no enforceable duty on any State, local or tribal governments or the private sector. Therefore, this action is not subject to the requirements of Sections 202 or 205 of the UMRA. This action is also not subject to the requirements of section 203 of UMRA because it contains no regulatory requirements that might significantly or uniquely affect small governments.
This action does not have federalism implications. It will not have substantial direct effects on the States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132. Thus, Executive Order 13132 does not apply to this action. In the spirit of Executive Order 13132, and consistent with EPA policy to promote communications between EPA and State and local governments, EPA specifically solicits comment on this action from State and local officials.
This action does not have tribal implications, as specified in Executive Order 13175 (65 FR 67249, November 9, 2000). Thus, Executive Order 13175 does not apply to this action.
Executive Order 13045, entitled “Protection of Children from Environmental Health and Safety Risks” (62 FR 19885, April 23, 1997), applies to any rule that: (1) Is determined to be economically significant as defined under EO 12886, and (2) concerns an environmental health or safety risk that may have a proportionate effect on children. This rule is not subject to EO 13045 because it is not an economically significant rule as defined by EO 12866, and because it does not have a proportionate effect on children.
This action is not subject to Executive Order 13211 (66 FR 28335 May 22, 2001) because it is not a significant regulatory action under Executive Order 12866.
Section 12(d) of the National Technology Transfer and Advancement Act of 1995 (“NTTAA”), Public Law 104-113, 12(d) (15 U.S.C. 272 note) directs EPA to use voluntary consensus standards in its regulatory activities unless to do so would be inconsistent with applicable law or otherwise impractical. Voluntary consensus standards are technical standards (
Executive Order 12898 (59 FR 7629 (Feb. 16, 1994) establishes federal executive policy on environmental justice. Its main provision directs federal agencies, to the greatest extent practicable and permitted by law, to make environmental justice part of their mission by identifying and addressing, as appropriate, disproportionately high
The Congressional Review Act, 5 U.S.C. 801
Environmental protection, Acquisition of environmentally preferable meeting and conference services, Care of laboratory animals, Environmental, conservation, occupational safety, and drug-free workplace, Government procurement.
Environmental protection, Care of laboratory animals, EPA green meetings and conferences, Protection of human subjects, Government procurement.
For the reasons stated in the preamble, Chapter 15 of Title 48 Code of Federal Regulations, parts 1523 and 1552 are amended as set forth below:
Sec. 205(c), 63 Stat. 390, as amended, 40 U.S.C. 486(c).
Contracting officers shall insert the clause at 1552.223-72, Use and Care of Laboratory Animals, in all contracts involving the use of animals in testing, research or training.
(a)
(b)
(1) May provide conference participants with lodging, food and beverage, and other on-site event support services.
(2) Demonstrate they are environmentally preferable by their responses to the 17 questions in 1552.223-71(c) highlighting environmental performance. These questions address, among other things, reducing greenhouse gas (GHG) emissions, the production and disposal of solid waste, the use of and exposure to toxic chemicals/materials, and the depletion of natural resources including water.
(c)
(d)
(e)
(f)
(g)
5 U.S.C. 301; Sec. 205(c), 63 Stat. 390, as amended, 40 U.S.C. 486(c); and 41 U.S.C. 418b.
As prescribed in 1523.303-70, insert the following contract clause when the contract involves human test subjects.
(a) The contractor shall meet all EPA requirements for studies using human subjects prior to undertaking any work with human subjects in accordance with 40 CFR part 26 and EPA Order 1000.17 A1 Policy and Procedures on Protection of Human Research Subjects in EPA Conducted or Supported Research. Studies involving intentional exposure of human subjects who are children or pregnant or nursing women are prohibited. Requirements regarding observational studies involving children or pregnant women and fetuses are referenced in subparts C and D of 40 CFR part 26.
(b) The contractor's Institutional Review Board (IRB) approval must state that the contractor's study meets the EPA's regulations at 40 CFR part 26 and EPA Order 1000.17 A1. No work involving human subjects, including recruiting, may be initiated before the EPA has received a copy of the contractor's IRB approval of the project and the EPA has also issued approval. Where human subjects are involved in the research, the contractor must provide evidence of subsequent IRB reviews, including amendments or minor protocol changes, as part of annual reports.
(c) The contractor shall bear full responsibility for the proper and safe performance of all work and services involving the use of human subjects under this contract and shall ensure that work is conducted in a proper manner and as safely as is feasible. The contractor agrees that it has entered into this contract and will discharge its obligations, duties, and undertakings and the work pursuant thereto, whether requiring professional judgment or otherwise, as an independent contractor without imputing liability on the part of the government for the acts of the contractor, its employees, sub-contractors, consultants, heirs, assignees, etc.
(d) If at any time during the performance of this contract, the contracting officer determines that the contractor is not in compliance with any of the requirements and/or standards stated in above, the contracting officer may immediately suspend, in whole or in part, work and further payments under this contract until the contractor corrects the noncompliance. The contracting officer may communicate the notice of suspension by telephone with confirmation in writing. If the contractor fails to complete corrective action within the period of time designated in the contracting officer's written notice of suspension, the contracting officer may terminate this contract in whole or in part.
As prescribed in 1523.703-1, insert the following provision, or language substantially the same as the provision, in solicitations for meetings and conference facilities.
(a) The mission of the EPA is to protect human health and the environment. As such, all EPA meetings and conferences will be staged using as many environmentally preferable measures as possible. Environmentally preferable means products or services that have a lesser or reduced effect on the environment when compared with competing products or services that serve the same purpose.
(b) Potential meeting or conference facility providers for EPA shall provide information about the environmentally preferable features and practices identified by the checklist contained in paragraph (c) of this section, addressing sustainability for meeting and conference facilities including lodging and non-lodging oriented facilities.
(c) The following list of questions is provided to assist contracting officers in evaluating the environmental perferability of prospective meeting and conference facility providers. More information about EPA's Green Meetings initiative may be found on the Internet at
(1) Does your facility track energy usage and/or GHG emissions through ENERGY STAR Portfolio Manager (
(2) If available for your building type, does your facility currently qualify for the Energy Star certification for superior energy performance? Y/N __, NA__
(3) Does your facility track water use through ENERGY STAR Portfolio Manager or another equivalent tracking tool and/or undertake best management practices to reduce water use in the facility (
(4) Do you use landscaping professionals who are either certified by a WaterSense recognized program or actively undertake the WaterSense “Water-Smart” landscaping design practices (
(5) Based on the amount of renewable energy your buildings uses, does (or would) your facility qualify as a partner under EPA's Green Power Partnership program (
(6) Do you restrict idling of motor vehicles in front of your facility, at the loading dock and elsewhere at your facility? Y/N__
(7) Does your facility have a default practice of not changing bedding and towels unless requested by guests?
(8) Does your facility participate in EPA's WasteWise (
(9) Do you divert from landfill at least 50% of the total solid waste generated at your facility? Y/N__
(10) Will your facility be able to divert from the landfill at least 75% of the total solid waste expected to be generated during this conference/event? Y/N__
(11) Do you divert from landfill at least 50% of the food waste generated at your facility (through donation, use as animal feed, recycling, anaerobic digestion, or composting)? Y/N__
(12) Will your facility be able to divert from landfill at least 75% of the food waste expected to be generated during this conference/event (through donation, use as animal feed, recycling, anaerobic digestion, or composting)?
(13) Does your facility provide recycling containers for visitors, guests and staff (paper and beverage at minimum)? Y/N__
(14) With respect to any food and beverage prepared and/or served at your facility, does at least 50% of it on average meet sustainability attributes such as: Local, organic, fair trade, fair labor, antibiotic-free, etc.? Y/N__
(15) Will your facility be able to ensure that at least 75% of the food and beverage expected to be served during this conference/event meets sustainability attributes such as: Local, organic, fair trade, fair labor, antibiotic-free, etc.? Y/N__
(16) Does your facility use Design for the Environment (DfE) cleaning products (
(17) Is your facility prepared to document or demonstrate all of the claims you have made above? Y/N__
(d) The contractor shall include any additional “Green Meeting” information in their proposal which is believed is pertinent to better assist us in considering environmental preferability in selecting our meeting venue.
As prescribed in 1523.303-72, insert the following clause in all contracts involving the use of animals in testing, research or training:
(a)
(2) The contractor shall acquire animals used in research and development programs from a dealer licensed by the Secretary of Agriculture, or from exempted sources in accordance with 9 CFR 2.25-2.28. Animals shall not be acquired from any random source Class B dealer.
(3) The contractor may request registration of his/her facility and a current listing of licensed dealers from the Regional Office of the Animal and Plant Health Inspection Service (APHIS), USDA, for the region in which his/her research facility is located. The location of the appropriate APHIS Regional Office as well as information concerning this program may be obtained at
(b)
(i) The standards and practices incorporated in the
(ii) The Animal Welfare Regulations found in 9 CFR parts 1-4, and
(iii) The National Institutes of Health (NIH) Public Health Service (PHS) Policy on the Humane Care and Use of Laboratory Animals.
(2) In case of conflict between standards, the higher standard shall be used.
(3) The contractor's reports on portions of the contract in which animals were used shall contain a certificate stating that the animals were cared for in accordance with the principles enunciated in the
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Final rule.
NMFS issues this final rule to implement Amendment 20B to the Fishery Management Plan for the Coastal Migratory Pelagic Resources (CMP) in the exclusive economic zone (EEZ) of the Gulf of Mexico and Atlantic Region (FMP) (Amendment 20B), as prepared and submitted by the Gulf of Mexico (Gulf) and South Atlantic Fishery Management Councils (Councils). This rule modifies Gulf migratory group king mackerel trip limits and fishing years, allows transit through areas closed to king mackerel fishing, creates zones and quotas for Atlantic migratory group king and Spanish mackerel, modifies the framework procedures for the FMP, increases annual catch limits (ACLs) and annual catch targets (ACTs) for cobia, and creates an east coast zone and quotas for Gulf migratory group cobia. In addition, this rule reorganizes the description of CMP zones in the regulations and clarifies that spearguns and powerheads are allowable gear for cobia in Federal waters of the South Atlantic and Mid-Atlantic regions. The purpose of this rule is to help achieve optimum yield (OY) for the CMP fishery while ensuring allocations are fair and equitable and fishery resources are utilized efficiently.
This rule is effective March 1, 2015.
Electronic copies of Amendment 20B, which includes an environmental assessment, a Regulatory Flexibility Act analysis, and a regulatory impact review, may be obtained from the Southeast Regional Office Web site at
Susan Gerhart, telephone: 727-824-5305, or email:
The CMP fishery in the Gulf and Atlantic is managed under the FMP. The FMP was prepared by the Councils and implemented through regulations at 50 CFR part 622 under the authority of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act).
On October 17, 2014, NMFS published a notice of availability for Amendment 20B and requested public comment (79 FR 62410). On October 31, 2014, NMFS published a proposed rule for Amendment 20B and requested public comment (79 FR 64728). The proposed rule and Amendment 20B outline the rationale for the actions contained in this final rule. A summary of the actions implemented by this final rule is provided below.
Amendment 20B and this rule modify Gulf migratory group king mackerel trip limits and fishing years, allow transit through areas closed to king mackerel fishing, create zones and quotas for Atlantic migratory group king and Spanish mackerel, modify the framework procedures for the FMP, increase ACLs and ACTs for cobia, and create an east coast zone and quotas for Gulf migratory group cobia. The purpose of this rule is to help achieve OY for the CMP fishery while ensuring allocations are fair and equitable and fishery resources are utilized efficiently.
This final rule removes the Gulf migratory group king mackerel hook-and-line trip limit reduction for the northern and southern subzones of the Gulf eastern zone's Florida west coast subzone, to allow the harvest of 1,250 lb (567 kg) per day until the quota for the subzone has been met or projected to be met and the respective subzone is closed to king mackerel harvest.
This rule changes the Florida west coast northern subzone fishing year to October 1 through September 30. The fishing year for the Florida west coast southern subzone will remain July 1 through June 30.
This rule allows a vessel with a valid commercial vessel permit for king
This rule creates northern and southern zones for Atlantic migratory group king and Spanish mackerel, each with separate commercial quotas. The boundary between the zones is a line extending from the South Carolina/North Carolina state line. The commercial ACL is split between the zones based on landings from the 2002/2003-2011/2012 fishing years. The northern zone allocation was calculated using combined commercial landings from North Carolina, Virginia, Maryland, Delaware, Pennsylvania, New Jersey, and New York. The southern zone allocation was calculated using combined commercial landings from South Carolina, Georgia, the Florida east coast, and Florida Keys on the Atlantic side.
For king mackerel, applying this formula results in an allocation of 33.3 percent for the northern zone and 66.7 percent for the southern zone. For Spanish mackerel, the formula results in an allocation of 19.9 percent for the northern zone and 80.1 percent for the southern zone. NMFS will monitor the commercial quotas, and close Federal waters in each zone when the respective quota is reached or projected to be reached. Transfer of quota between zones is allowed through a request to NMFS initiated by either North Carolina (northern zone) or Florida (southern zone). The recreational ACLs for Atlantic migratory group king and Spanish mackerel will remain unchanged.
This rule allows modification to certain management measures under the standard documentation process of the open framework procedure. These management measures include acceptable biological catches (ABCs) and ABC control rules, ACLs and ACL control rules, and accountability measures. This rule also modifies the framework procedures to the FMP to designate responsibility to each council (Gulf or South Atlantic) for setting specified management measures for the migratory groups of each species in their respective regions. Additionally, “sale and purchase restrictions” and “transfer at sea provisions” are removed from the list in § 622.389.
Based on the results of the most recent stock assessment for Gulf and South Atlantic cobia, this rule divides Gulf migratory group cobia into a Gulf zone (Texas through the Gulf side of the Florida Keys) and a Florida east coast zone (east coast of Florida and Atlantic side of the Florida Keys,
This rule reorganizes the description of the CMP zones and subzones and adds § 622.369 to the codified text to describe the zones and Appendix G to part 622 to represent the zones in figures. In addition, this rule clarifies that spearguns and powerheads are allowable gear for cobia in Federal waters of the South Atlantic and Mid-Atlantic regions.
NMFS received a total of 11 submissions from the public, 3 of which were duplicates. Within the 8 unique submissions, some comments addressed issues beyond the scope of the proposed rule. NMFS identified 4 issues related to Amendment 20B and its proposed rule. These comments and NMFS' respective responses are summarized below.
A final rule for CMP Framework Amendment 1, effective on December 22, 2014 (79 FR 69058, November 20, 2014), increased the ACLs for Atlantic migratory group Spanish mackerel, based on the results of the most recent stock assessments for Atlantic and Gulf migratory group Spanish mackerel. Therefore, this final rule applied the allocation formula in Amendment 20B to the revised ACLs, resulting in quotas for the northern and southern zone for Atlantic migratory group Spanish mackerel that are greater than those proposed.
The Regional Administrator, Southeast Region, NMFS, has determined that this final rule is necessary for the conservation and management of Atlantic and Gulf migratory groups of king mackerel, Spanish mackerel, and cobia and is consistent with Amendment 20B, the FMP, the Magnuson-Stevens Act and other applicable law.
This final rule has been determined to be not significant for purposes of Executive Order 12866.
The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration during the proposed rule stage that this rule would not have a significant economic impact on a substantial number of small entities. The factual basis for this determination was published in the proposed rule and is not repeated here. Comments on the effects of setting different start dates for the Florida west coast Northern Subzone and the Western Zone, and the market incentives of the season start date are addressed in the comments and responses section of this final rule. No changes to the final rule were made in response to these comments. As a result, a final regulatory flexibility analysis was not required and none was prepared.
Atlantic, Coastal Migratory Pelagic Resources, Cobia, Fisheries, Fishing, Gulf, King mackerel, Spanish mackerel.
For the reasons set out in the preamble, 50 CFR part 622 is amended as follows:
16 U.S.C. 1801
(b) * * *
(1)
(ii)
(a)
(1)
(i)
(ii)
(A)
(
(
(B)
(2)
(i)
(ii)
(b)
(2)
(i)
(ii)
(c)
(i)
(ii)
(2)
(a)
(i)
(B) South of 34°37.3′ N. lat.—automatic reel, bandit gear, handline, and rod and reel.
(ii)
(iii)
(iv)
(2)
(i)
(ii)
(a)
(b) [Reserved]
See § 622.8 for general provisions regarding quota applicability and closure and reopening procedures. See § 622.369 for the descriptions of the zones. This section provides quotas and specific quota closure restrictions for coastal migratory pelagic fish. All weights are in round and eviscerated weight combined, unless specified otherwise.
(a) King and Spanish mackerel quotas apply to persons who fish under commercial vessel permits for king or Spanish mackerel, as required under § 622.370(a)(1) or (3). A fish is counted against the quota for the area where it is caught, not where it is landed.
(b)
(i)
(A)
(B)
(
(ii)
(2)
(i)
(ii)
(iii)
(A) Within 10 working days following the receipt of the letter from the state requesting the transfer, the RA shall notify the appropriate state officials of the disposition of the request. In evaluating requests to transfer a quota, the RA shall consider whether:
(
(
(B) The transfer of quota will be valid only for the fishing year for which the request was made and does not permanently alter the quotas specified in paragraphs (b)(2)(i) and (b)(2)(ii) of this section.
(3)
(i) A gillnet must be left on the drum. Any additional gillnets not attached to the drum must be stowed below deck.
(ii) A rod and reel must be removed from the rod holder and stowed securely on or below deck. Terminal gear (
(c)
(2)
(i)
(ii)
(iii)
(A) Within 10 working days following the receipt of the letter from the states involved, the RA shall notify the appropriate state officials of the disposition of the request. In evaluating requests to transfer a quota, the RA shall consider whether:
(
(
(B) The transfer of quota will be valid only for the fishing year for which the request was made and does not permanently alter any zone's quota specified in paragraph (c)(2)(i) or (c)(2)(ii) of this section.
(d)
(ii)
(2)
The revisions and addition read as follows:
(a) * * *
(1)
(2)
(ii) * * *
(B)
(
(
(iii)
(b) * * *
(1)
(a)
(ii) The commercial ACL for the Gulf migratory group of king mackerel is 3.456 million lb (1.568 million kg). This ACL is further divided into a commercial ACL for vessels fishing with hook-and-line and a commercial ACL for vessels fishing with run-around gillnets. The hook-and-line ACL (which applies to the entire Gulf) is 2,904,552 lb (1,317,483 kg) and the run-around gillnet ACL (which applies to the Gulf eastern zone Florida west coast southern subzone) is 551,448 lb (250,133 kg).
(3) For purposes of tracking the ACL, recreational landings will be monitored based on the commercial fishing year.
(b)
(ii) In addition to the measures specified in paragraph (b)(1)(i) of this section, if the sum of the commercial and recreational landings, as estimated by the SRD, exceeds the stock ACL, as specified in paragraph (b)(3) of this section, and Atlantic migratory group king mackerel are overfished, based on the most recent status of U.S. Fisheries Report to Congress, the AA will file a notification with the Office of the Federal Register, at or near the beginning of the following fishing year
(iii) The commercial ACL for the Atlantic migratory group of king mackerel is 3.88 million lb (1.76 million kg).
(d)
(ii) In addition to the measures specified in paragraph (d)(1)(i) of this section, if the sum of the commercial and recreational landings, as estimated by the SRD, exceeds the stock ACL, as specified in paragraph (d)(3) of this section, and Atlantic migratory group Spanish mackerel are overfished, based on the most recent status of U.S. Fisheries Report to Congress, the AA will file a notification with the Office of the Federal Register, at or near the beginning of the following fishing year to reduce the commercial quota for that zone for that following year by the amount of any commercial sector overage in the prior fishing year for that zone.
(iii) The commercial ACL for the Atlantic migratory group Spanish mackerel is 3.13 million lb (1.42 million kg).
(e)
(ii) The stock ACLs for Gulf migratory group cobia in the Gulf zone are 1,570,000 lb (712,140 kg) for 2014, 1,610,000 lb (730,284 kg) for 2015, and 1,660,000 lb (752,963 kg) for 2016 and subsequent fishing years.
(2)
(B) In addition to the measures specified in paragraph (e)(2)(i)(A) of this section, if the sum of cobia landings that are sold and not sold in or from the Florida east coast zone, as estimated by the SRD, exceeds the stock ACL for the Florida east coast zone, as specified in paragraph (e)(2)(iii) of this section, and Gulf migratory group cobia are overfished, based on the most recent status of U.S. Fisheries Report to Congress, the AA will file a notification with the Office of the Federal Register, at or near the beginning of the following fishing year to reduce the quota (ACL) for the Florida east coast zone cobia that are sold for that following year by the amount of any overage in the prior fishing year.
(ii)
(B) In addition to the measures specified in paragraph (e)(2)(ii)(A) of this section, if the sum of the cobia landings that are sold and not sold in or from the Florida east coast zone, as estimated by the SRD, exceeds the stock ACL, as specified in paragraph (e)(2)(iii) of this section, and Gulf migratory group cobia are overfished, based on the most recent status of U.S. Fisheries Report to Congress, the AA will file a notification with the Office of the Federal Register, at or near the beginning of the following fishing year to reduce the applicable ACL and applicable ACT for the Florida east coast zone for that following year by the amount of any ACL overage in the prior fishing year.
(C) Landings will be evaluated relative to the ACL based on a moving multi-year average of landings, as described in the FMP.
(iii) The stock ACLs for Florida east coast zone cobia are 880,000 lb (399,161 kg) for 2014, 900,000 lb (408,233 kg) for 2015, and 930,000 lb (421,841 kg) for 2016 and subsequent fishing years.
(f)
(ii) In addition to the measures specified in paragraph (f)(1)(i) of this section, if the sum of the cobia landings that are sold and not sold in or from the Atlantic migratory group, as estimated by the SRD, exceeds the stock ACL, as specified in paragraph (f)(3) of this section, and Atlantic migratory group cobia are overfished, based on the most recent status of U.S. Fisheries Report to Congress, the AA will file a notification with the Office of the Federal Register, at or near the beginning of the following fishing year to reduce the applicable quota (ACL), as specified in paragraph (f)(1)(i) of this section, for that following year by the amount of any applicable sector-specific ACL overage in the prior fishing year.
(2) The following ACLs and AMs apply to cobia that are not sold.
(i) If the sum of the cobia landings that are sold and not sold, as estimated by the SRD, exceeds the stock ACL, as specified in paragraph (f)(3) of this section, the AA will file a notification with the Office of the Federal Register, at or near the beginning of the following fishing year to reduce the length of the following fishing season by the amount necessary to ensure landings may achieve the applicable ACT, but do not exceed the applicable ACL in the following fishing year. Further, during
(ii) In addition to the measures specified in paragraph (f)(2)(i) of this section, if the sum of cobia landings that are sold and not sold, as estimated by the SRD, exceeds the stock ACL, as specified in paragraph (f)(3) of this section, and Atlantic migratory group cobia are overfished, based on the most recent status of U.S. Fisheries Report to Congress, the AA will file a notification with the Office of the Federal Register, at or near the beginning of the following fishing year to reduce the applicable ACL and ACT, as specified in paragraph (f)(2)(i) of this section, for that following year by the amount of any applicable sector-specific overage in the prior fishing year.
(iii) Landings will be evaluated relative to the ACL based on a moving multi-year average of landings, as described in the FMP.
(3) The stock ACLs for Atlantic migratory group cobia are 730,000 lb (331,122 kg) for 2014, 690,000 lb (312,979 kg) for 2015, and 670,000 lb (303,907 kg) for 2016 and subsequent fishing years.
In accordance with the framework procedures of the FMP for Coastal Migratory Pelagic Resources, the RA may establish or modify, and the applicable council is required to approve, the following items specified in paragraph (a) of this section for coastal migratory pelagic fish. (Note: The applicable council refers to the council whose jurisdiction applies to the management measures.)
(a) For a species or species group: Reporting and monitoring requirements, permitting requirements, bag and possession limits (including a bag limit of zero), size limits, vessel trip limits, closed seasons or areas and reopenings, acceptable biological catches (ABCs) and ABC control rules, annual catch limits (ACLs) and ACL control rules, accountability measures (AMs), annual catch targets (ACTs), quotas (including a quota of zero), MSY (or proxy), OY, management parameters such as overfished and overfishing definitions, gear restrictions (ranging from regulation to complete prohibition), gear markings and identification, vessel markings and identification, rebuilding plans, and restrictions relative to conditions of harvested fish (maintaining fish in whole condition, use as bait).
(b) [Reserved]
Office of General Counsel, U.S. Department of Energy.
Notice of Public Meeting.
This notice provides information on a public workshop, scheduled for February 20, 2015, that will discuss the U.S. Department of Energy's December 17, 2014 notice of proposed rulemaking to establish a retrospective risk pooling program under section 934 of the Energy Independence and Security Act of 2007. There will be an opportunity for public comment before and after the public workshop.
DOE will hold a public workshop on February 20, 2015 from 9 a.m. to 5 p.m. in Washington, DC. DOE will accept comments, data, and information on the December 17, 2014 notice of proposed rulemaking (NOPR) (79 FR 75076) before and after the public workshop, but no later than March 17, 2015, which is the close of the comment period on the NOPR.
The public workshop will be held at the U.S. Department of Energy, Forrestal Building, Room 1E-245, 1000 Independence Avenue SW., Washington, DC 20585-0121. The workshop can also be attended via webinar. For details regarding attendance at the workshop or webinar see the Public Participation section of this notice.
Any comments submitted on the proposed rulemaking must identify the NOPR for the Convention on Supplementary Compensation for Nuclear Damage Contingent Cost Allocation and provide docket number DOE-HQ-2014-0021 and/or regulatory information number (RIN) 1990-AA39. Comments may be submitted using any of the following methods:
1.
2.
3.
Sophia Angelini, Attorney-Adviser, Office of General Counsel for Civilian Nuclear Programs, GC-72, U.S. Department of Energy, 1000 Independence Avenue SW., Washington, DC 20585; Telephone (202) 586-0319.
If you plan to attend the public workshop, please notify Ms. Brenda Edwards at (202) 586-2945 or by email:
Due to the REAL ID Act implemented by the Department of Homeland Security (DHS), there have been recent changes regarding ID requirements for individuals wishing to enter Federal buildings from specific states and U.S. territories. Drivers' licenses from the following states or territory will not be accepted for building entry and one of the alternate forms of ID listed below will be required. DHS has determined that regular drivers' licenses (and ID cards) from the following jurisdictions are not acceptable for entry into DOE facilities: Alaska, American Samoa, Arizona, Louisiana, Maine, Massachusetts, Minnesota, New York, Oklahoma and Washington. Acceptable alternate forms of Photo-ID include: U.S. Passport or Passport Card; an Enhanced ID-Card issued by the states of Minnesota, New York, or Washington (Enhanced licenses issued by these states are clearly marked Enhanced or Enhanced Drivers' License); or a military ID or other Federal government issued Photo-ID card.
DOE requires visitors with laptop computers to be checked upon entry into the building. Any person wishing to bring these devices into the Forrestal Building will be required to obtain a property pass. Visitors should avoid bringing these devices, or allow an extra 45 minutes to check in. Please report to the Visitors' Desk to have these devices checked before proceeding through security.
In addition, you can attend the public workshop via webinar. Webinar information, participant instructions, and information about the capabilities available to webinar participants will be published on DOE's Web site specifically established for this proceeding at
The Department will designate a DOE official to preside at the public workshop and may also use a professional facilitator to aid discussion. A court reporter will be present to record the proceeding and prepare a transcript. DOE reserves the right to schedule the order of presentations and to establish the procedures governing the conduct of the public workshop. Interested parties may submit comments on the proceedings and any aspect of the rulemaking at any point until the end of the comment period.
The meeting will be conducted in an informal, conference style. DOE will allow time for prepared general statements by participants, and encourage all interested parties to share
In addition, DOE will accept for consideration questions or suggestions on topics for comment in advance of the workshop, by February 10, 2015. DOE may use the questions or topic suggestions to structure the discussion and enhance participation. A transcript of the public meeting will be included in the docket, which can be viewed as described in the
Persons who plan to present a prepared general statement may request that copies of the statement be made available at the public workshop. Such persons may submit requests, along with an advance electronic copy of their statement in PDF to the appropriate address shown in the
Persons who plan to submit questions and topic suggestions for the meeting must do so by February 10, 2015, via email or by mail, to the appropriate address shown in the
DOE will continue to accept comments, data, and information concerning this NOPR before and after the workshop, but no later than March 17, 2015. Interested parties may submit comments using any of the methods described in the
Bureau of Economic Analysis, Commerce.
Notice of proposed rulemaking.
This proposed rule would amend regulations of the Bureau of Economic Analysis (BEA), Department of Commerce, to reinstate reporting requirements for the BE-180, Benchmark Survey of Financial Services Transactions between U.S. Financial Services Providers and Foreign Persons. Benchmark surveys are conducted every five years; the prior survey covered 2009. For the 2014 benchmark survey, BEA proposes one change in the data items collected. This mandatory survey would be conducted under the authority of the International Investment and Trade in Services Survey Act (the Act). Unlike most other BEA surveys conducted pursuant to the Act, a response would be required from persons subject to the reporting requirements of the BE-180, Benchmark Survey of Financial Services Transactions between U.S. Financial Services Providers and Foreign Persons, whether or not they are contacted by BEA, to ensure complete coverage of financial services transactions between U.S. financial services providers and foreign persons.
Comments on this proposed rule will receive consideration if submitted in writing on or before 5 p.m., March 30, 2015.
You may submit comments, identified by RIN 0691-AA84, and referencing the agency name (Bureau of Economic Analysis), by any of the following methods:
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Written comments regarding the burden-hour estimates or other aspects of the collection-of-information requirements contained in the proposed rule should be sent to both BEA through any of the methods above and to the Office of Management and Budget (OMB), OIRA, Paperwork Reduction Project 0608-0062, Attention PRA Desk Officer for BEA, via email at
Christopher Stein, Chief, Services Surveys Branch (BE-50), Balance of Payments Division, Bureau of Economic Analysis, U.S. Department of Commerce, Washington, DC 20230; phone (202) 606-9850.
The BE-180, Benchmark Survey of Financial Services Transactions between U.S. Financial Services Providers and Foreign Persons, is a mandatory survey and is conducted once every five years by BEA under the authority provided by the International Investment and Trade in Services Survey Act, 22 U.S.C. 3101-3108 (the Act), and by Section 5408 of the Omnibus Trade and Competitiveness Act of 1988.
By rule issued in 2012 (77 FR 24373), BEA established guidelines for collecting data on international trade in services and direct investment through notices, rather than through rulemaking. This proposed rule would amend the regulations to require a response from persons subject to the reporting requirements of the BE-180, whether or not they are contacted by BEA, to ensure complete coverage of financial services transactions between U.S. financial services providers and foreign persons.
The proposed BE-180 survey is intended to cover financial services transactions with foreign persons. In nonbenchmark years, the universe estimates covering these transactions are derived from the sample data reported on BEA's BE-185, Quarterly Survey of Financial Services Transactions between U.S. Financial Services Providers and Foreign Persons.
The data are used by BEA to estimate the financial services component of the U.S. International Transactions Accounts and other economic accounts compiled by BEA. The data are needed to monitor U.S. exports and imports of financial services; analyze their impact on the U.S. and foreign economies; support U.S. international trade policy on financial services; and assess and promote U.S. competitiveness in international trade in services. In addition, they will improve the ability of U.S. businesses to identify and evaluate market opportunities.
The services covered by the BE-180 would include the following transactions: (1) Brokerage services related to equity transactions; (2) other brokerage services; (3) underwriting and private placement services; (4) financial management services; (5) credit-related services, except credit card services; (6) credit card services; (7) financial advisory and custody services; (8) securities lending services; (9) electronic funds transfer services; and (10) other financial services.
This proposed rule would amend 15 CFR part 801 by adding a new section 801.9 to set forth the reporting requirements for the BE-180, Benchmark Survey of Financial Services Transactions between U.S. Financial Services Providers and Foreign Persons. As part of its continuing effort to reduce paperwork and respondent burden, the Department of Commerce invites the general public and other Federal agencies to comment on proposed and/or continuing information collections, as required by the Paperwork Reduction Act of 1995, 44 U.S.C. 3501-3520 (PRA).
The proposed changes would amend the regulations and the survey form for the BE-180 Benchmark Survey of Financial Services Transactions between U.S. Financial Services Providers and Foreign Persons. These amendments include changes in the data items collected and questionnaire design.
If the proposed rule is made final, unlike most other BEA surveys conducted pursuant to the Act, persons subject to the reporting requirements of the BE-180 would be required to respond whether or not they are contacted by BEA.
BEA proposes to add one item to the benchmark survey form based upon information obtained from reporting companies that suggests this additional information is readily available in existing financial records. Specifically, questions would be added to collect equity- and debt-related underwriting transactions separately on the 2014 BE-180. A number of reporters include language in their financial statements that suggests equity- and debt-related underwriting transactions are readily obtainable from their accounting records.
In addition, BEA proposes to redesign the format and wording of the survey questionnaires. The new design would incorporate improvements made to other BEA surveys. Survey instructions and data item descriptions would be changed to improve clarity and to make the benchmark survey forms more consistent with those of other BEA surveys.
This proposed rule has been determined to be not significant for purposes of E.O. 12866.
This proposed rule does not contain policies with Federalism implications sufficient to warrant preparation of a Federalism assessment under E.O. 13132.
This proposed rule contains a collection-of-information requirement subject to review and approval by the Office of Management and Budget (OMB) under the Paperwork Reduction Act (PRA). The requirement will be submitted to OMB for approval as a reinstatement, with change, of a previously approved collection for which approval has expired under OMB control number 0608-0062.
Notwithstanding any other provisions of law, no person is required to respond to, nor shall any person be subject to a penalty for failure to comply with, a collection of information subject to the requirements of the PRA unless that collection displays a currently valid OMB control number.
The BE-180 survey, as proposed, is expected to result in the filing of reports from approximately 8,750 respondents. Approximately 1,250 respondents would report mandatory or voluntary data on the survey and approximately 7,500 would file exemption claims. The respondent burden for this collection of information would vary from one respondent to another, but is estimated to average ten hours for the respondents that file mandatory or voluntary data—including time for reviewing instructions, searching existing data sources, gathering and maintaining the data needed, and completing and reviewing the collection of information—and two hours for other responses. Thus the total respondent burden for this survey is estimated at 27,500 hours, compared to 24,000 hours for the previous BE-180 benchmark survey in 2009. The increase in burden hours is due to an increase in the size of the respondent universe.
Comments are requested concerning: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (b) The accuracy of the burden estimate; (c) Ways to enhance the quality, utility, and clarity of the information collected; and (d) Ways to minimize the burden of the collection of information on the respondents, including the use of automated collection techniques or other forms of information technology.
Written comments regarding the burden-hour estimates or other aspects of the collection-of-information requirements contained in the proposed rule should be sent to both BEA and OMB following the instructions given in the
The Chief Counsel for Regulation, Department of Commerce, has certified to the Chief Counsel for Advocacy, Small Business Administration, under the provisions of the Regulatory
A BE-180 report would be required of any U.S. company that is a financial services provider or intermediary that had sales to, or purchases from, foreign persons. While the survey would not collect data on total sales or other measures of the overall size of the businesses that respond to the survey, historically the respondents to the existing quarterly survey of financial services transactions and to the previous benchmark surveys have been comprised mainly of major U.S. corporations. The proposed benchmark survey would be required from U.S. financial companies whose sales or purchases of the covered financial services with foreign persons exceeded $3 million for fiscal year 2014. This exemption level would exclude most small businesses from mandatory coverage. Any small businesses that may be required to report would likely have engaged in only a few covered transactions, and is therefore expected to be below the expected average burden of 10 hours per response. Even if the responses for small businesses took the expected average burden of 10 hours per response, that would not constitute a significant impact on any small business or other entity. Because this rule would not have a significant impact on any small entities, an Initial Regulatory Flexibility Analysis is not required and none has been prepared.
International transactions, Economic statistics, Foreign trade, Penalties, Reporting and recordkeeping requirements.
For reasons set forth in the preamble, BEA proposes to amend 15 CFR part 801 as follows:
5 U.S.C. 301; 15 U.S.C. 4908; 22 U.S.C. 3101-3108; E.O. 11961 (3 CFR, 1977 Comp., p. 86), as amended by E.O. 12318 (3 CFR, 1981 Comp. p. 173); and E.O. 12518 (3 CFR, 1985 Comp. p. 348).
Except for surveys subject to rulemaking in §§ 801.7, 801.8 and 801.9, reporting requirements for all other surveys conducted by the Bureau of Economic Analysis shall be as follows:
(a) Notice of specific reporting requirements, including who is required to report, the information to be reported, the manner of reporting, and the time and place of filing reports, will be published by the Director of the Bureau of Economic Analysis in the
(b) In accordance with section 3104(b)(2) of title 22 of the United States Code, persons notified of these surveys and subject to the jurisdiction of the United States shall furnish, under oath, any report containing information which is determined to be necessary to carry out the surveys and studies provided for by the Act; and
(c) Persons not notified in writing of their filing obligation by the Bureau of Economic Analysis are not required to complete the survey.
A BE-180, Benchmark Survey of Financial Services Transactions Between U.S. Financial Services Providers and Foreign Persons will be conducted covering 2014. All legal authorities, provisions, definitions, and requirements contained in §§ 801.1 through 801.2 and §§ 801.4 through 801.6 are applicable to this survey. Specific additional rules and regulations for the BE-180 survey are given in paragraphs (a) through (e) of this section. More detailed instructions are given on the report forms and in instructions accompanying the report forms.
(a)
(1) Completing and returning the BE-180 by the due date of the survey; or,
(2) If exempt, by completing pages one through five of the BE-180 survey and returning them to BEA.
(b)
(i) The determination of whether a U.S. financial services provider or intermediary is subject to this mandatory reporting requirement may be based on the judgment of knowledgeable persons in a company who can identify reportable transactions on a recall basis, with a reasonable degree of certainty, without conducting a detailed manual records search.
(ii) Reporters that file pursuant to this mandatory reporting requirement must provide data on total sales and/or purchases of each of the covered types of financial services transactions and must disaggregate the totals by country and by relationship to the foreign transactor (foreign affiliate, foreign parent group, or unaffiliated).
(2)
(3)
(c)
(d)
(e)
Federal Energy Regulatory Commission, DOE.
Proposed policy statement.
The Commission proposes, as a statement of policy, the following clarifications regarding hold harmless commitments offered by applicants as ratepayer protection mechanisms to mitigate adverse effects on rates that may result from transactions subject to section 203 of the Federal Power Act (FPA). First, the Commission proposes to clarify the scope and definition of the costs that should be subject to hold harmless commitments. Second, the Commission proposes to clarify that applicants offering hold harmless commitments must implement controls and procedures to track the costs from which customers will be held harmless. The Commission also proposes to clarify the types of controls and procedures that applicants offering hold harmless commitments must implement. Third, the Commission proposes to no longer accept hold harmless commitments that are limited in duration. Fourth, the Commission proposes to clarify that applicants may demonstrate that, under certain circumstances, transactions will not have an adverse effect on rates without relying on hold harmless commitments or other ratepayer protection mechanisms.
Comments on the proposed policy statement are due within March 30, 2015.
1. We propose, as a statement of policy, the following clarifications regarding hold harmless commitments offered by applicants as ratepayer protection mechanisms to mitigate adverse effects on rates that may result from transactions that are subject to section 203 of the Federal Power Act (FPA).
2. FPA section 203(a)(4) requires the Commission to approve a transaction if it determines that the transaction will be consistent with the public interest.
3. This proposed policy statement focuses on the second prong of the Commission's FPA section 203 analysis, the effect of a proposed transaction on rates. The Commission has stated that, when considering a proposed transaction's effect on rates, its focus “is on the effect that a proposed transaction itself will have on rates, whether that effect is adverse, and whether any adverse effect will be offset or mitigated by benefits that are likely to result from the proposed transaction.”
4. If an applicant's only customers are wholesale power sales customers served under market-based rates, then the transaction will have no adverse effect on rates for such customers.
5. If a proposed transaction has the potential to increase wholesale rates, but there is no showing of quantifiable offsetting economic benefits, the Commission must determine whether ratepayers are sufficiently protected from the potential rate increase, or whether there are other non-quantifiable, offsetting benefits that would, nevertheless, support a finding that the proposed transaction is consistent with the public interest, regardless of the potential for a rate increase.
6. Prior to the issuance of the Merger Policy Statement, the Commission had required applicants and intervenors to estimate the future costs and benefits of a transaction and then litigate the validity of those estimates. The Commission, however, eliminated those requirements in the Merger Policy Statement and established various mechanisms that applicants could implement to show that a merger would have no adverse effect on rates.
Merger applicants should propose ratepayer protection mechanisms to assure that customers are protected if the expected benefits do not materialize. The applicant bears the burden of proof to demonstrate that the customer will be protected. This puts the risk that the benefits will not materialize where it belongs—on the applicants.
Furthermore, we believe that the most promising and expeditious means of addressing ratepayer protection is for the parties to negotiate an agreement on ratepayer protection mechanisms. The applicants should attempt to resolve the issue with customers even before filing, and should propose a mechanism as part of their filing. Even if these negotiations have not succeeded by the time of filing, the parties should continue to try to reach a settlement. What constitutes adequate ratepayer protection necessarily will depend on the particular circumstances of the merging utilities and their ratepayers, and we strongly encourage parties to minimize contentious issues and to resolve them without the time and expense of a formal hearing. Parties may not be able to reach an agreement on an appropriate ratepayer protection and the Commission may still be able to approve the merger. As mentioned earlier, this could occur either after a hearing or on the basis of parties' filings if we determine that the applicants' proposal sufficiently insulates the ratepayers from harm.
7. The Commission then explained that it had previously accepted “a variety of hold harmless provisions,” and that parties could consider those as well as “other mechanisms if they appropriately address ratepayer concerns.”
8. The Commission concluded that, although each mechanism would provide some benefit to ratepayers, in the majority of circumstances the most meaningful (and the most likely to give wholesale customers the earliest opportunity to take advantage of emerging competitive wholesale markets) was an open season provision.
9. Subsequently, in Order No. 642, the Commission promulgated regulations governing FPA section 203 applications and described the information applicants must submit regarding the effect of a proposed transaction on rates. In relevant part, the Commission stated:
In the [Merger] Policy Statement, we determined that ratepayer protection mechanisms (
Thus, in the [Notice of Proposed Rulemaking] we proposed that all merger applicants demonstrate how wholesale ratepayers will be protected and that applicants will have the burden of proving that their proposed ratepayer protections are adequate. Specifically, we proposed that applicants must clearly identify what customer groups are covered (
10. The Commission adopted the proposals set forth in the Notice of Proposed Rulemaking and emphasized that if applicants did not offer any ratepayer protection mechanisms, they must explain how the proposed merger would provide adequate ratepayer protection.
11. Over the last decade hold harmless commitments have become a common feature of FPA section 203 applications involving mergers of traditional franchised utilities or their upstream holding companies.
12. The Commission has consistently accepted hold harmless commitments in which FPA section 203 applicants commit not to seek recovery of transaction-related costs in jurisdictional rates except to the extent that such costs are offset by transaction-related savings.
13. Although the Commission has relied on commitments to hold customers harmless from transaction-related costs to support findings of no adverse effects on rates, in many of these cases, these commitments have not included detailed definitions of transaction-related costs or savings.
14. With respect to recovering transaction-related costs, as noted earlier, the standard hold harmless commitment provides that applicants may not seek to recover in rates any transaction-related costs except to the extent that such costs are exceeded by demonstrated transaction-related savings. The Commission recently clarified its policy on the recovery of transaction-related costs.
15. Upon consideration of the Commission's experience regarding hold harmless commitments since issuance of the Merger Policy Statement, we believe that clarifying the Commission's policy regarding hold harmless commitments, a frequently proposed ratepayer protection mechanism in FPA section 203 applications, would be beneficial to applicants, customers, and interested persons. We note, however, that unless specifically discussed herein, we reaffirm the guidance provided in the Merger Policy Statement and subsequent precedent, and reiterate that applicants under FPA section 203 should propose ratepayer protection mechanisms that ensure that customers are protected from the adverse rate effects of a proposed transaction. Furthermore, the guidance here should not discourage applicants from working with interested parties to resolve contentious issues regarding appropriate ratepayer protection mechanisms prior to the submission of an application under FPA section 203. As the Commission stated in the Merger Policy Statement, “the most promising and expeditious means of addressing ratepayer protection is for the parties to negotiate an agreement on ratepayer protection mechanisms.”
16. In this proposed policy statement, we propose to provide greater clarity to and seek comment from interested persons regarding the following issues related to hold harmless commitments. First, we propose to clarify those costs to which hold harmless commitments will apply. Although the Commission has provided broad guidance regarding the costs that should be covered under hold harmless commitments, it has never defined those costs with much specificity, leading to inconsistency with respect to this issue. Below, we propose to provide additional guidance by clarifying the costs that the Commission considers to be transaction-related costs. These are also the transaction-related costs that the Commission will review if and when applicants make the requisite filing under FPA section 205 to attempt to recover those costs by showing that they have been offset by savings due to the transaction. Finally, although we identify specific categories of costs below, we continue to believe that the Commission's policy must remain flexible enough to permit a case-by-case determination of transaction-related costs, and that an attempt to articulate those costs precisely could have unintended consequences.
17. Second, we propose to clarify that applicants offering hold harmless commitments must implement
18. Third, we propose that, in order for a hold harmless commitment to provide adequate ratepayer protection, it should not be limited in duration. As discussed in further detail below, we are concerned that limiting the hold harmless commitment to a certain period (generally five years) raises the risk that transaction-related costs could be included in future formula rate billings without applicants making the showing of offsetting savings. Eliminating the time limit will ensure that transaction-related costs cannot be recovered from ratepayers at any time, unless applicants can demonstrate that there are offsetting transaction-related savings. This revised approach is consistent with the Merger Policy Statement, which emphasized that the burden of proof to demonstrate that customers will be protected should be on applicants and that applicants should also bear the risk that benefits will not materialize.
19. Finally, we propose to clarify that applicants may demonstrate that, under certain circumstances, transactions will not have an adverse effect on rates without relying on hold harmless commitments or other ratepayer protection mechanisms. As noted above, some applicants have made hold harmless commitments in connection with transactions involving the acquisition or disposition of existing jurisdictional facilities where the acquiring entity was a traditional franchised utility and entering into the transaction in order to satisfy resource adequacy requirements at the state level, to improve system reliability, and/or meet other regulatory requirements.
20. Our intent is to apply any changes to our policy on hold harmless commitments on a prospective basis, for applications submitted after the Commission has issued a policy statement, and not alter existing hold harmless commitments accepted by the Commission or submitted in applications pending at the time the Commission issues the policy statement. We seek comments from interested persons on these proposals.
21. We propose to designate the following categories of costs as the transaction-related costs that should be subject to any hold harmless commitment. Accordingly, the costs set out below are those transaction-related costs from which customers must be held harmless and that may not be recovered from customers except to the extent exceeded by demonstrated savings.
22. First, we propose that transaction-related costs include, but are not limited to, the following costs incurred to explore, agree to, and consummate a transaction:
• The costs of securing an appraisal, formal written evaluation, or fairness opinions related to the transaction;
• The costs of structuring the transaction, negotiating the structure of the transaction, and obtaining tax advice on the structure of the transaction;
• The costs of preparing and reviewing the documents effectuating the transaction (
• The internal labor costs of employees
• The costs of obtaining shareholder approval (
• Professional service fees incurred in the transaction (
• Installation, integration, testing, and set up costs related to ensuring the operability of facilities subject to the transaction
23. Moreover, for transactions that are pursued but never completed (transactions that ultimately fail), their costs should not be recovered from ratepayers. In addition, we recognize that not every cost listed above will be found in every transaction.
24. The second category of transaction-related costs relates to mergers, where, in addition to the transaction-related costs described above, parties typically also incur costs to integrate individuals and assets into the acquiring utility and costs to achieve merger synergies.
• Engineering studies needed both prior to and after closing the merger;
• Severance payments;
• Operational integration costs;
• Accounting and operating systems integration costs;
• Costs to terminate any duplicative leases, contracts, and operations; and
• Financing costs to refinance existing obligations in order to achieve operational and financial synergies.
25. As above, this list of transition costs is not exhaustive, and may not include some material costs involved in the integration of two utilities after a merger. We propose to consider transition costs as transaction-related costs that should be subject to hold harmless commitments. We propose to assume that such transaction-related costs should be covered under hold harmless protection, though applicants will have an opportunity on a case-by-case basis to show why certain of those costs should not have to be covered under their hold harmless commitment based on their particular circumstances. Also, we propose to consider, on a case-by-case basis, whether other costs not discussed herein should be subject to hold harmless commitments.
26. Additionally, we note that accounting journal entries related to a merger transaction may affect expense, asset, liability, or proprietary capital accounts used in the development of a public utility's rates. These accounting journal entries may originate from transaction-related costs recorded as an expense or capitalized as an asset. Additional accounting journal entries may originate from goodwill and fair value adjustments related to the purchase price paid for the acquired company. Merger transactions are accounted for by applying purchase accounting, which adjusts the assets and liabilities of the acquired entity to fair value and recognizes goodwill for the amount paid in excess of fair value.
27. Similarly, in the context of the acquisition of discrete assets by a utility, under the Commission's accounting regulations and rate precedent the excess purchase cost of utility plant over its depreciated original cost is an acquisition premium and is excluded from recovery through rates unless a showing of offsetting benefits is demonstrated in an FPA section 205 filing. In the past, applicants have proposed to include acquisition premiums as transaction-related costs subject to their proposed hold harmless commitments,
28. We seek comments from interested persons on these proposals. In particular, we seek comments on the categories of costs, including transition costs, that are proposed to be transaction-related costs which should be subject to hold harmless protection. We also seek comments on the costs that should not be subject to hold harmless commitments.
29. As noted above, applicants are required to describe in their FPA section 203 applications how they intend to protect ratepayers from transaction-related costs, consistent with their obligation to show that their transaction is consistent with the public interest.
30. First, we propose to clarify that all applicants offering hold harmless commitments should implement appropriate internal controls and procedures to ensure the proper identification, accounting, and rate treatment of all transaction-related costs incurred prior to and subsequent to the announcement of a proposed transaction, including all transition costs.
31. Second, we propose that applicants offering hold harmless commitments should include, as part of their FPA section 203 applications and any separate FPA section 205 filings, a detailed description of how they define, designate, accrue, and allocate transaction-related costs, and explain the criteria used to determine which costs are transaction-related. Applicants should specifically identify and describe their direct and indirect cost classifications, and the processes they use to functionalize, classify and allocate transaction-related costs. In addition, applicants should explain the types of transaction-related costs that will be recorded on their public utilities' books; how they determined the portion of these costs assigned to their public utilities; and how they classify these costs as non-operating, transmission, distribution, production, and other. Applicants should also describe their accounting procedures and practices, and how they maintain the underlying accounting data so that the allocation of transaction-related costs to the operating and non-operating accounts of their public utilities is readily available and easily verifiable.
32. We note that the Commission has, in the past, required applicants to submit their final accounting entries associated with transactions within six months of the date that the transaction is consummated.
33. We seek comments on these proposals.
34. The Commission previously stated in the Merger Policy Statement that a hold harmless commitment need only protect customers “for a significant period of time following the merger.”
35. Specifically, we are concerned that limiting the applicability of hold harmless commitments to specific time periods may create incentives for applicants to modify how they would otherwise seek to recover or account for recovery of certain transaction-related costs based on the time period. For example, an applicant could try to include transaction-related costs in formula rates without making a showing of offsetting savings if the costs, though incurred during the hold harmless period, do not enter the ratemaking process until after the hold harmless period expires. Moreover, whether or not any such incentives exist, certain transaction-related expenditures could be properly capitalized as an asset during the hold harmless period, but the recovery of the costs associated with that asset would occur only as the asset is depreciated over future periods that extend beyond the hold harmless period.
36. Similarly, limiting the applicability of hold harmless commitments to specific time periods may incentivize applicants to delay incurring some types of transaction-related costs until after the hold harmless period expires. By waiting to incur costs subject to hold harmless commitments until after the expiration of the hold harmless period, applicants could attempt to include such costs in their future formula rate billings without making the showing of
37. We seek comments on this proposal.
38. As explained above, applicants under FPA section 203 must demonstrate that proposed transactions do not have an adverse effect on rates. In order to make this showing, applicants sometimes propose, and the Commission has accepted, hold harmless commitments. Pursuant to these hold harmless commitments, the Commission has held that customers must be held harmless from transaction-related costs unless and until applicants demonstrate offsetting transaction-related benefits—whether quantifiable cost savings or other non-quantifiable benefits.
39. As noted above, some applicants have made hold harmless commitments in connection with transactions involving the acquisition or disposition of existing jurisdictional facilities where the acquiring entity was a traditional franchised utility and entering into the transaction in order to satisfy resource adequacy requirements at the state level, to improve system reliability, and/or meet other regulatory requirements.
40. Accordingly, we propose to clarify that applicants undertaking certain transactions to fulfill documented utility service needs need not propose ratepayer protection mechanisms such as a hold harmless commitment in an application under FPA section 203 in order to show that the transaction will not have an adverse effect on rates. We believe that applicants engaging in these types of transactions can make the requisite showing that, even though the proposed transaction may have an effect on rates, such effect on rates is not adverse.
41. Examples of the transactions in which applicants may demonstrate no adverse effect on rates without offering a hold harmless commitment or other ratepayer protection mechanism would include the purchase of an existing generating plant or transmission facility that is needed to serve the acquiring company's customers or forecasted load within a public utility's existing footprint, in compliance with a resource planning process, or to meet specified North American Electric Reliability Corporation (NERC) standards. We propose that applicants seeking to demonstrate that a transaction will not have an adverse effect on rates for these or other reasons should provide supporting evidence and documentation which could include an explanation that the transaction is intended to serve existing customers or forecasted load within an existing footprint; to address a state commission order or directive requiring acquisition of specific assets; to address a need for a transmission facility, as established through a regional transmission planning process or as required to satisfy a NERC standard; or to address other state or federal regulatory requirements. For instance, in
42. Applicants may make a showing that a particular transaction does not have an adverse effect on rates based on other grounds, but the burden remains on applicants to show in their application for authorization under FPA section 203 that the costs, or a portion of the costs, related to such a transaction should be passed on to ratepayers. Further, applicants may provide the Commission with information to show the need to meet other regulatory requirements as a means to demonstrate that the effect on rates due to the transaction is not adverse. The Commission will carefully review such a showing before determining that a proposed transaction without any proposed ratepayer protection mechanism has no adverse effect on rates. We believe this approach is consistent with both the Merger Policy Statement and the Commission's policy that ratepayers should bear the costs of utility service. We seek comments on this proposal.
43. We invite comments on this proposed policy statement within March 30, 2015.
44. In addition to publishing the full text of this document in the
45. From the Commission's Home Page on the Internet, this information is available on eLibrary. The full text of this document is available on eLibrary in PDF and Microsoft Word format for viewing, printing, and/or downloading. To access this document in eLibrary, type the docket number excluding the last three digits of this document in the docket number field.
46. User assistance is available for eLibrary and the Commission's Web site during normal business hours from FERC Online Support at (202) 502-6652 (toll free at 1-866-208-3676) or email at
47. The Paperwork Reduction Act (PRA)
The following table shows the Commission's estimates for the additional burden and cost, as contained in the Proposed Policy Statement:
The estimates for cost per response are derived using the following formula: Average Burden Hours per Response * $70.50 per Hour = Average Cost per Response.
Interested persons may obtain information on the reporting requirements by contacting: Federal Energy Regulatory Commission, 888 First Street NE., Washington, DC 20426 [Attention: Ellen Brown, Office of the Executive Director, email:
By the Commission. Commissioner Honorable is voting present.
Federal Communications Commission.
Petition for reconsideration.
In this document, a Petition for Reconsideration (Petition) has been filed in the Commission's Rulemaking proceeding by Danielle Coffey, on behalf of Telecommunications Industry Association.
Oppositions to the Petition must be filed on or before February 11, 2015. Replies to an opposition must be filed on or before February 23, 2015.
You may submit comments, identified by PS Docket Nos. 13-87, 06-229; WT Docket No. 96-86, by any of the following methods:
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John A. Evanoff, Esq., Public Safety and Homeland Security Bureau, (202) 418-0848, email
This is a summary of Commission's document, Report No. 3013, released January 14, 2015. The full text of this document is available for viewing and copying in Room CY-B402, 445 12th Street SW., Washington, DC or may be purchased from the Commission's copy contractor, Best Copy and Printing, Inc. (BCPI) (1-800-378-3160). The Commission will not send a copy of this
Subject: Proposed Amendments to the Service Rules Governing Public Safety Narrowband Operations in the 769-775/799-805 MHz Bands (PS Docket No. 13-87); National Public Safety Telecommunications Council Petition for Rulemaking on Aircraft Voice Operations at 700 MHz (RM-11433); National Public Safety Telecommunications Council Petition for Rulemaking to Revise 700 MHz Narrowband Channel Plan (RM-11433); Region 24 700 MHz Regional Planning Committee Petition for Rulemaking (WT Docket No. 96-86 and PS Docket No. 06-229); and State of Louisiana Petition for Rulemaking (RM-11577), published at 79 FR 71321, December 2, 2014, and published pursuant to 47 CFR 1.429(e).
National Marine Fisheries Service (NMFS), National Oceanic and Atmospheric Administration (NOAA), Commerce.
Proposed rule; request for comments.
NMFS proposes to implement management measures described in a framework action to the Fishery Management Plan for the Reef Fish Resources of the Gulf of Mexico (FMP), as prepared by the Gulf of Mexico Fishery Management Council (Council). If implemented, this rule would revise the daily bag limit for red grouper in the Gulf of Mexico (Gulf) and remove the recreational post-season bag-limit reduction accountability measure (AM) for Gulf red grouper. Additionally, this rule would correct an error in the Gulf individual fishing quota (IFQ) multi-use provisions for the Grouper/Tilefish IFQ program. The purpose of this rule is to modify the Gulf red grouper recreational management measures to improve recreational fishing opportunities by achieving optimal yield for the red grouper resource.
Written comments must be received on or before February 26, 2015.
You may submit comments on the proposed rule, identified by “NOAA-NMFS-2014-0153” by any of the following methods:
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Electronic copies of the framework action, which includes an environmental assessment, a regulatory impact review, and a Regulatory Flexibility Act analysis may be obtained from the Southeast Regional Office Web site at
Richard Malinowski, Southeast Regional Office, NMFS, telephone: 727-824-5305, email:
The Gulf reef fish fishery is managed under the FMP. The FMP was prepared by the Council and is implemented through regulations at 50 CFR part 622 under the authority of the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act).
In April 2014, NMFS announced that the Gulf red grouper recreational annual catch limit (ACL) was exceeded in 2013. In accordance with recreational AMs adopted in Amendment 32 to the FMP (77 FR 6988, February 10, 2012), this triggered a reduction in the bag limit in 2014 from four fish to three fish, and a recreational closure was implemented on October 4, 2014, to ensure that landings did not exceed the recreational annual catch target (ACT). In response to the in-season recreational closure, the Council, at its June 2014 meeting, directed staff to begin development of a framework action to potentially reduce the recreational bag limit, and adjust the recreational AMs in an effort to extend the red grouper recreational fishing season.
Prior to implementation of Amendment 32 to the FMP, the red grouper recreational allocation had not been met in recent years. The red grouper recreational allocation of the total allowable catch (TAC) was initially set at 1.25 million lb (0.567 million kg), gutted weight, in 2004, was increased to 1.82 million lb (0.826 million kg), gutted weight, in 2009, and was then reduced to 1.36 million lb (0.617 million kg), gutted weight, in 2011. In 2012, Amendment 32 to the FMP replaced the red grouper TAC with an ACL and ACT, and management measures intended to allow harvest to achieve the ACT. The red grouper recreational ACL and ACT were set for 2012 and beyond at 1.9 million lb (0.862 million kg), gutted weight, and 1.73 million lb (0.785 million kg), gutted weight, respectively. Also in 2012, the red grouper bag limit was increased from two fish to four fish per person, under the four-fish aggregate grouper bag limit, to allow the recreational sector to fully harvest its allocation and achieve optimum yield. The post-season AM that was implemented in 2012, was a reduction in the bag limit by one fish, if at the end of any season, NMFS determined that the recreational sector has exceeded its red grouper ACL. Therefore, the bag limit would be reduced to three fish in the following season, and could be reduced to two fish the season after that, if the ACL was again exceeded. The bag limit would not be reduced below two fish.
This rule would reduce the Gulf red grouper recreational bag limit from four fish to two fish within the four-fish aggregate grouper bag limit, and remove the post-season AM that reduces the daily bag limit the next fishing season when the previous fishing year's ACL is exceeded. The other post-season AMs currently codified in the regulations would remain in effect without change. The first post-season AM currently codified in the regulations applies regardless of whether red grouper are overfished and requires that NMFS will publish a notification to reduce the length of the recreational red grouper fishing season the following fishing year by the amount necessary to ensure red grouper recreational landings do not exceed the recreational ACT. The second post-season AM currently codified in the regulations applies if red grouper are overfished, and requires NMFS to reduce the recreational ACL and recreational ACT the following fishing year by the prior fishing year's recreational ACL overage.
Amendment 32 to the FMP established a formula-based method for setting gag and red grouper multi-use allocations for the Gulf Grouper/Tilefish IFQ program to allow for flexibility in harvesting practices and address potential bycatch associated with co-occurring species (77 FR 6988, February 2, 2012). At the beginning of each fishing year, a percentage of the gag and red grouper allocation is designated as multi-use allocation valid for harvesting either gag or red grouper. However, gag multi-use allocation is not available if red grouper is under a rebuilding plan and red grouper multi-use allocation is not available if gag is under a rebuilding plan. For example, gag multi-use allocation would be set to zero percent if red grouper is under a rebuilding plan.
The final rule for Amendment 32 erroneously stated that if red grouper is under a rebuilding plan, then red grouper multi-use allocation should be set to zero. NMFS corrects this mistake and changes “red grouper multi-use allocation” to “gag multi-use allocation” in this instance.
Pursuant to section 304(b)(1)(A) of the Magnuson-Stevens Act, the Assistant Administrator has determined that this proposed rule is consistent with the framework action, the FMP, the Magnuson-Stevens Act and other applicable law, subject to further consideration after public comment.
This proposed rule has been determined to be not significant for purposes of Executive Order 12866.
The Chief Counsel for Regulation of the Department of Commerce certified to the Chief Counsel for Advocacy of the Small Business Administration (SBA) that this proposed rule, if implemented, would not have a significant economic impact on a substantial number of small entities. The factual basis for this determination is as follows:
The objective of this proposed rule is to change the red grouper recreational management measures in the Gulf to improve recreational fishing opportunities by extending the number of days in the fishing season. The Magnuson-Stevens Act provides the statutory basis for this proposed rule.
This proposed rule, if implemented, would not be expected to directly affect any small entities. This proposed rule would change the red grouper recreational bag limit in the Gulf. Only recreational anglers, who may fish from private, rental, charter vessels, or headboats, are allowed a bag or possession limit of red grouper in the Gulf. Captains or crew members on charter vessels or headboats, cannot harvest or possess red grouper under the recreational bag limit. Because only recreational anglers are allowed a bag or possession limit, only recreational anglers would be directly affected by the proposed changes to the red grouper recreational bag limit. Recreational anglers, however, are not small entities under the Regulatory Flexibility Act (RFA) and the economic effects of this proposed rule on these anglers are outside the scope of the RFA.
Charter vessels and headboats (for-hire vessels) sell fishing services to recreational anglers. These vessels provide a platform for the opportunity to fish and not a guarantee to catch or harvest any species, though expectations of successful fishing, however defined, likely factor into the decision to purchase these services. Bag limit restrictions only define what can be kept and do not explicitly prevent the continued offer of for-hire fishing services. In response to a reduced bag limit, including a zero-fish limit, catch and release fishing for a target species could continue, as could fishing for other species. Because the proposed change in the red grouper bag limit would not directly alter the service sold by these vessels, this proposed rule would not directly apply to or regulate their operations. For-hire vessels would continue to be able to offer their core service, which is an attempt to “put anglers on fish,” provide the opportunity for anglers to catch whatever their skills enable them to catch, and keep those fish that they desire to keep and are legal to keep. Any change in demand for these fishing services, and associated economic affects, as a result of changing the bag limit would be a consequence of behavioral change by anglers, secondary to any direct effect on anglers and, therefore, an indirect effect of the proposed rule. Because the effects on for-hire vessels would be indirect, they fall outside the scope of the RFA.
In addition, no small entities would be expected to be directly affected by the proposed corrections of the multi-use allocation regulatory text because the conditions that may have allowed inappropriate use of the allocation due to the error in the implementation of Amendment 32 to the FMP have not occurred since the implementation.
This proposed rule would not require any new reporting, record-keeping, or other compliance requirements associated with reporting or record-keeping that may require professional skills.
Fisheries, Fishing, Gulf, Recreational, Red grouper.
For the reasons set out in the preamble, 50 CFR part 622 is proposed to be amended as follows:
16 U.S.C. 1801
(a) * * *
(5) * * *
(ii) * * *
(B) * * * However, if red grouper is under a rebuilding plan, the percentage of gag multi-use allocation is equal to zero.
(b) * * *
(2)
(e) * * *
(2) * * *
(ii) * * * In addition, the notification will reduce the length of the recreational red grouper fishing season the following fishing year by the amount necessary to ensure red grouper recreational landings do not exceed the recreational ACT in the following fishing year. * * *
Notice is hereby given, pursuant to the provisions of the rules and regulations of the U.S. Commission on Civil Rights (Commission) and the Federal Advisory Committee Act (FACA) that a meeting of the Nevada Advisory Committee (Committee) to the Commission will be held on Friday, February 27, 2015, at the Department of Employment, Training and Rehabilitation, 2800 East St. Louis Avenue, Conference Room C, Las Vegas, NV 89104.
The meeting is scheduled to begin at 2:30 p.m. and adjourn at approximately 4 p.m. The purpose of the meeting is for the Committee to consider and discuss a draft report on the militarization of police.
Members of the public are entitled to submit written comments. The comments must be received in the Western Regional Office of the Commission by March 27, 2015. The address is Western Regional Office, U.S. Commission on Civil Rights, 300 N. Los Angeles Street, Suite 2010, Los Angeles, CA 90012. Persons wishing to email their comments may do so by sending them to Angelica Trevino, Civil Rights Analyst, Western Regional Office, at
Records generated from this meeting may be inspected and reproduced at the Western Regional Office, as they become available, both before and after the meeting. Persons interested in the work of this advisory committee are advised to go to the Commission's Web site,
Notice is hereby given, pursuant to the provisions of the rules and regulations of the U.S. Commission on Civil Rights (Commission), and the Federal Advisory Committee Act (FACA), that an orientation and planning meeting of the Montana Advisory Committee to the Commission will convene at 1 p.m. (MDT) on Thursday, February 12, 2015, in the Community Room of the Billings Public Library, 510 North Broadway, Billings, MT 59101. The purpose of the orientation meeting is to inform the newly appointed Committee members about the rules of operation of Federal advisory committees and to select additional officers, as determined by the Committee. The purpose of the planning meeting is to discuss potential topics that the Committee may wish to study.
Persons who desire additional information may contact the Rocky Mountain Regional Office, U.S. Commission on Civil Rights, 1961 Stout Street, Suite 13-201, Denver, CO 80294, phone 303-866-1040 and fax 303-866-1050, or email to Evelyn Bohor at
Persons needing accessibility services should contact the Rocky Mountain Regional Office at least 10 working days before the scheduled date of the meeting.
Records generated from this meeting may be inspected and reproduced at the Rocky Mountain Regional Office, as they become available, both before and after the meeting. Persons interested in the word of this advisory committee are advised to go to the Commission's Web site,
The meeting will be conducted pursuant to the provision of the rules and regulations of the Commission and FACA.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
On December 31, 2014, the United States Court of International Trade (CIT) entered its final judgment in
Stephanie Moore or George McMahon, AD/CVD Operations, Office III, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230; telephone: (202) 482-3692 and (202) 482-1167, respectively.
On April 20, 2011, the Department published its
In its decision in
Because there is now a final court decision, we are amending the
Accordingly, the Department will continue the suspension of liquidation of the subject merchandise pending the expiration of the period of appeal, or, if appealed, pending a final and conclusive court decision. In the event the CIT's final judgment is not appealed, or if appealed, upheld by the CAFC, the Department will instruct U.S. Customs and Border Protection to liquidate unliquidated entries of the subject merchandise exported by Koehler during the POR without regard to duties because Koehler's revised rate, as determined in the
Since the
This notice is issued and published in accordance with sections 516A(e)(1), 751(a)(1), and 777(i)(1) of the Act.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
On July 23, 2014, the Department of Commerce (the Department) published the preliminary results and partial rescission of the 26th administrative review and the preliminary results of one new shipper review (NSR) of the antidumping duty order on tapered roller bearings and parts thereof, finished and unfinished (TRBs), from the People's Republic of China (PRC).
Blaine Wiltse or Steve Bailey, AD/CVD Operations, Office II, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230; telephone: (202) 482-6345 or (202) 482-0193, respectively.
These final results of administrative review cover two exporters
On July 23, 2014, the Department published the
The Department has conducted these reviews in accordance with section 751 of the Tariff Act of 1930, as amended (the Act).
The merchandise covered by the Order
In the
For the exporters subject to a review that are determined to be eligible for a separate rate, but are not selected as individually examined respondents, the Department generally weight averages the rates calculated for the individually examined respondents, excluding any rates that are zero,
All issues which have been raised in the case briefs by parties to this administrative review and this NSR are addressed in the Issues and Decision Memo. A list of the issues which parties raised and to which we respond in the Issues and Decision Memo is attached to this notice as an Appendix. The Issues and Decision Memo is a public document and is on file electronically
Based on our analysis of the comments received, we made changes in the margin calculations for CPZ/SKF and Tainai. These changes are discussed in the relevant sections of the Issues and Decision Memo and company-specific analysis memoranda, as appropriate.
The POR is June 1, 2012, through May 31, 2013.
Regarding the administrative review, we are assigning the following weighted-average dumping margins to the firms listed below for the period June 1, 2012, through May 31, 2013:
Regarding the NSR, we are assigning the following weighted-average dumping margin to the exporter/producer combination listed below for the period June 1, 2012, through May 31, 2013:
We intend to disclose the calculations performed within five days of the date of publication of this notice to parties in this proceeding in accordance with 19 CFR 351.224(b).
Pursuant to section 751(a)(2)(C) of the Act, and 19 CFR 351.212(b)(1), the Department has determined, and Customs and Border Protection (CBP) shall assess, antidumping duties on all appropriate entries of subject merchandise, where applicable, in accordance with the final results of these reviews. The Department intends to issue assessment instructions to CBP 15 days after the date of publication of these final results of reviews.
For each individually-examined respondent (either the exporter or producer and exporter combination specified above) whose weighted-average dumping margin is not zero or
On October 24, 2011, the Department announced a refinement to its assessment practice in NME cases. Pursuant to this refinement in practice, for entries that were not reported in the U.S. sales databases submitted by the company individually examined during this review, the Department will instruct CBP to liquidate such entries at the rate applicable to the PRC-wide entity (
The following cash deposit requirements will be effective upon publication of the final results of this administrative review for all shipments of the subject merchandise entered, or withdrawn from warehouse, for consumption on or after the publication date, as provided for by section 751(a)(2)(C) of the Act: (1) For the exporters listed above, the cash deposit rate will be equal to the weighted-average dumping margin established in the final results of this review (except, if the rate is
With respect to the NSR, consistent with the Department's practice,
These deposit requirements, when imposed, shall remain in effect until further notice.
This notice also serves as a final reminder to importers of their responsibility under 19 CFR 351.402(f) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in the Secretary's presumption that reimbursement of antidumping duties occurred and the
This notice serves as the only reminder to parties subject to administrative protective order (APO) of their responsibility concerning the disposition of proprietary information disclosed under APO in accordance with 19 CFR 351.305(a)(3). Timely written notification of return or destruction of APO materials, or conversion to judicial protective order, is hereby requested. Failure to comply with the regulations and the terms of an APO is a sanctionable violation.
We are issuing and publishing these results of review in accordance with sections 751(a)(1), 751(a)(2)(B) and 777(i)(1) of the Act.
Enforcement of Compliance, International Trade Administration, Department of Commerce.
On September 30, 2014, the Department of Commerce (“Department”) published its preliminary intent to rescind the new shipper review (“NSR”) of the antidumping duty order on drawn stainless steel sinks (“drawn sinks”) from the People's Republic of China (“PRC”) covering the period of review (“POR”) of October 4, 2012 through October 14, 2013 for Hubei Foshan Success Imp. & Exp. Co. Ltd. (“Foshan Success”).
Joy Zhang or Erin Begnal, AD/CVD Operations, Office III, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230; telephone: (202) 482-1168 or (202) 482-1442, respectively.
On September 30, 2014, the Department published the
The products covered by the scope of the order are drawn stainless steel sinks with single or multiple drawn bowls, with or without drain boards, whether finished or unfinished, regardless of type of finish, gauge, or grade of stainless steel. The products covered by this order are currently classified in the Harmonized Tariff Schedule of the United States (“HTSUS”) under statistical reporting numbers 7324.10.0000 and 7324.10.00.10. Although the HTSUS subheadings are provided for convenience and customs purposes, the written description of the scope is dispositive.
As we explain in the Issues and Decision Memorandum and in the proprietary Foshan Success
All issues raised in the case and rebuttal briefs are addressed in the Issues and Decision Memorandum, which is dated concurrently and is hereby adopted by this notice. A list of the issues raised in the briefs and addressed in the Issues and Decision Memorandum is appended to this notice. The Issues and Decision Memorandum is a public document and is on file electronically via Enforcement and Compliance's centralized electronic service system (“ACCESS”).
Effective upon publication of the final rescission of the NSR of Foshan Success, the Department will instruct CBP to discontinue the option of posting a bond or security in lieu of a cash
As the result of the rescission of NSR of Foshan Success, the entries of Foshan Success covered by this NSR will be assessed at the PRC-wide rate.
This notice serves as a reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping and/or countervailing duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in the Secretary of Commerce's presumption that reimbursement of the antidumping and/or countervailing duties occurred and the subsequent assessment of double antidumping duties.
This notice serves as a reminder to parties subject to the administrative protective order (“APO”) of their responsibility concerning the disposition of proprietary information disclosed under the APO in accordance with 19 CFR 351.305(a)(3). Timely written notification of return or destruction of APO materials, or conversion to judicial protective order, is hereby requested. Failure to comply with the regulations and the terms of an APO is a sanctionable violation.
This notice is issued and published in accordance with sections 751(a)(2)(B) and 777(i) of the Act, and 19 CFR 351.214.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
On September 23, 2014, the Department of Commerce (the Department) published the preliminary results of the administrative reviews of the antidumping duty orders on ball bearings and parts thereof from Japan and the United Kingdom.
Thomas Schauer, AD/CVD Operations, Office I, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230; telephone: (202) 482-0410.
On September 23, 2014, the Department published, and invited interested parties to comment on, the
The products covered by the Orders are ball bearings and parts thereof. These products include all antifriction bearings that employ balls as the rolling element. Imports of these products are classified under the following categories: antifriction balls, ball bearings with integral shafts, ball bearings (including radial ball bearings) and parts thereof, and housed or mounted ball bearing units and parts thereof.
Imports of these products are classified under the following Harmonized Tariff Schedule of the United States (HTSUS) subheadings: 3926.90.45, 4016.93.10, 4016.93.50, 6909.19.50.10, 8414.90.41.75, 8431.20.00, 8431.39.00.10, 8482.10.10, 8482.10.50, 8482.80.00, 8482.91.00, 8482.99.05, 8482.99.35, 8482.99.25.80, 8482.99.65.95, 8483.20.40, 8483.20.80, 8483.30.40, 8483.30.80, 8483.50.90, 8483.90.20, 8483.90.30, 8483.90.70, 8708.50.50, 8708.60.50, 8708.60.80, 8708.93.30, 8708.93.60.00, 8708.99.06, 8708.99.31.00, 8708.99.40.00, 8708.99.49.60, 8708.99.58, 8708.99.80.15, 8708.99.80.80, 8803.10.00, 8803.20.00, 8803.30.00, 8803.90.30, 8803.90.90, 8708.30.50.90, 8708.40.75.70, 8708.40.75.80, 8708.50.79.00, 8708.50.89.00, 8708.50.91.50, 8708.50.99.00, 8708.70.60.60, 8708.80.65.90, 8708.93.75.00, 8708.94.75, 8708.95.20.00, 8708.99.55.00, 8708.99.68, and 8708.99.81.80.
Although the HTSUS item numbers above are provided for convenience and customs purposes, the written description of the scope of the orders remains dispositive.
The size or precision grade of a bearing does not influence whether the bearing is covered by one of the orders. The orders cover all the subject bearings and parts thereof (inner race, outer race, cage, rollers, balls, seals, shields,
All issues raised in the case briefs by parties to the United Kingdom administrative review are addressed in the Issues and Decision Memorandum.
We made no changes since the
We determine that weighted-average dumping margins on ball bearings and parts thereof exist for the period May 1, 2010, through April 30, 2011, at the following rates:
The Department shall determine, and U.S. Customs and Border Protection (CBP) shall assess, antidumping duties on all appropriate entries. In accordance with 19 CFR 351.212(b)(1), for NSK we calculated an importer-specific assessment rate by dividing the total amount of dumping for the reviewed sales by the total entered vale of those reviewed sales for each importer.
The Department clarified its “automatic assessment” regulation on May 6, 2003. This clarification will apply to entries of subject merchandise during the POR produced by NSK, for which it did not know its merchandise was destined for the United States. We will instruct CBP to liquidate unreviewed entries at the country-specific all-others rate if there is no rate for the intermediate company(ies) involved in the transaction.
For the companies which were not selected for individual examination and for the companies to which we are applying adverse facts available, we will instruct CBP to assess antidumping duties at a rate equal to the weighted-average dumping margin listed above to all entries of subject merchandise produced and/or exported by such firms.
We intend to issue liquidation instructions to CBP 15 days after publication of the final results of these administrative reviews.
Because we revoked the antidumping duty orders on ball bearings and parts thereof from Japan and the United Kingdom effective September 15, 2011, no cash deposits for estimated antidumping duties on future entries of subject merchandise will be required.
This notice serves as a final reminder to importers of their responsibility under 19 CFR 351.402(f)(2) to file a certificate regarding the reimbursement of antidumping duties prior to liquidation of the relevant entries during this review period. Failure to comply with this requirement could result in the Department's presumption that reimbursement of antidumping duties occurred and the subsequent assessment of doubled antidumping duties.
This notice also serves as a reminder to parties subject to administrative protective order (APO) of their responsibility concerning the disposition of proprietary information disclosed under APO in accordance with 19 CFR 351.305(a)(3). Timely written notification of the return or the destruction of APO materials or conversion to judicial protective order is
These final results of administrative reviews are issued and published in accordance with sections 751(a)(1) and 777(i)(1) of the Act.
Enforcement and Compliance, International Trade Administration, Department of Commerce.
The Department of Commerce (Department) preliminarily determines that certain Passenger Vehicle and Light Truck Tires (passenger tires) from the People's Republic of China (PRC) are being, or are likely to be, sold in the United States at less than fair value (LTFV), as provided in section 733(b) of the Tariff Act of 1930, as amended (the Act). The period of investigation (POI) is October 1, 2013, through March 31, 2014. The estimated weighted-average dumping margins of sales at LTFV are shown in the “Preliminary Determination” section of this notice. Interested parties are invited to comment on this preliminary determination.
Toni Page, Lingjun Wang, or Jun Jack Zhao, AD/CVD Operations, Office VII, Enforcement and Compliance, International Trade Administration, U.S. Department of Commerce, 14th Street and Constitution Avenue NW., Washington, DC 20230; telephone: (202) 482-1398, (202) 482-2316, or (202) 482-1396, respectively.
The Department published the notice of initiation of this investigation on July 21, 2014.
On December 30, 2014, the Department published an amended preliminary determination in the companion countervailing duty (CVD) investigation of passenger tires from the PRC, which contains an amended scope of this investigation.
The Department conducted this investigation in accordance with section 731 of the Act. We calculated export prices and constructed export prices in accordance with section 772 of the Act. Because the PRC is a non-market economy within the meaning of section 771(18) of the Act, we calculated normal value (NV) in accordance with section 773(c) of the Act.
For a full description of the methodology underlying our conclusions,
In the
The Department preliminarily determines that the following weighted-average dumping margins exist for the exporter-producer combinations listed below during the period October 1, 2013, through March 31, 2014:
As detailed in the Preliminary Decision Memorandum, Yongsheng Rubber Group Co., Ltd. (Yongsheng), a mandatory respondent in this investigation, did not demonstrate that it is entitled to a separate rate. Accordingly, we consider Yongsheng to be part of the PRC-Wide Entity.
On September 12, 2014, United Steel, Paper, and Forestry, Rubber, Manufacturing, Energy, Allied Industrial and Service Workers International Union, AFL-CIO, CLC (Petitioner), timely filed a critical circumstances allegation, pursuant to section 733(e) of the Act and 19 CFR 351.206, alleging that critical circumstances exist with respect to imports of passenger tires from the PRC.
The Department intends to disclose calculations performed for this preliminary determination to parties in this proceeding within five days of the date of publication of this notice in accordance with 19 CFR 351.224(b). Case briefs or other written comments may be submitted to the Assistant Secretary for Enforcement and Compliance, through Enforcement and Compliance's electronic records system, ACCESS, no later than seven days after the date on which the final verification report is issued in this proceeding.
Pursuant to 19 CFR 351.310(c), interested parties who wish to request a hearing, or to participate in a hearing if one is requested, must submit a written request to the Assistant Secretary for Enforcement and Compliance, U.S. Department of Commerce, filed electronically through ACCESS. Electronically filed case briefs/written comments and hearing requests must be received successfully in their entirety by the Department's electronic records system, ACCESS, by 5:00 p.m. Eastern Standard Time. Hearing requests must be received by the Department within 30 days after the date of publication of this notice
In accordance with section 733(d)(2) of the Act, the Department will instruct U.S. Customs and Border Protection (CBP) to suspend liquidation of all entries of passenger tires from the PRC, as described in the “Scope of the Investigation” at Appendix I, entered, or withdrawn from warehouse, for consumption on or after the date of
Section 733(e)(2) of the Act provides that, given an affirmative determination of critical circumstances, any suspension of liquidation shall apply to unliquidated entries of merchandise entered, or withdrawn from warehouse, for consumption on or after the later of (a) the date which is 90 days before the date on which the suspension of liquidation was first ordered, or (b) the date on which notice of initiation of the investigation was published. As described above, we preliminarily find that critical circumstances exist for imports of passenger tires from the PRC produced or exported by the non-individually investigated companies and the PRC-wide entity. Accordingly, for the non-individually investigated companies and the PRC-wide entity, in accordance with section 733(e)(2)(A) of the Act, the suspension of liquidation shall apply to unliquidated entries of merchandise entered, or withdrawn from warehouse, for consumption on or after the date which is 90 days before the publication of this notice.
Pursuant to 19 CFR 351.205(d), the Department will instruct CBP to require a cash deposit
As stated previously, we will adjust cash deposit rates by the amount of export subsidies, where appropriate. In the companion CVD investigation, GITI received a calculated export subsidy rate of 0.45 percent while the all-others companies received a calculated export subsidy rate of 0.28 percent.
Pursuant to 777A(f) of the Act, we are also adjusting preliminary cash deposit rates for estimated domestic subsidy pass-through, where appropriate. We will adjust Cooper's, the Sailun Group's, and the Separate Rate recipients' cash deposit rates by 6.97 percent to account for estimated domestic subsidy pass-through.
Pursuant to request from the mandatory respondent GITI,
In accordance with section 733(f) of the Act, we notified the ITC of our preliminary affirmative determination of sales at LTFV. Because the preliminary determination in this investigation is affirmative, section 735(b)(2) of the Act requires the ITC to make its final determination as to whether the domestic industry in the United States is materially injured, threatened with material injury, or is materially retarded, by reason of imports of passenger tires from the PRC, or sales (or the likelihood of sales) for importation, of the merchandise under consideration before the later of 120 days after the date of this preliminary determination or 45 days after our final determination. Because we are postponing the deadline for our final determination to 135 days from the date of publication of this preliminary determination, the ITC will make its final determination no later than 45 days after our final determination.
This determination is issued and published in accordance with sections 733(f) and 777(i)(1) of the Act and 19 CFR 351.205(c).
The scope of this investigation is passenger vehicle and light truck tires. Passenger vehicle and light truck tires are new pneumatic tires, of rubber, with a passenger vehicle or light truck size designation. Tires covered by this investigation may be tube-type, tubeless, radial, or non-radial, and they may be intended for sale to original equipment manufacturers or the replacement market.
Subject tires have, at the time of importation, the symbol “DOT” on the
Prefix designations:
Suffix letter designations:
All tires with a “P” or “LT” prefix, and all tires with an “LT” suffix in their sidewall markings are covered by this investigation regardless of their intended use.
In addition, all tires that lack a “P” or “LT” prefix or suffix in their sidewall markings, as well as all tires that include any other prefix or suffix in their sidewall markings, are included in the scope, regardless of their intended use, as long as the tire is of a size that is among the numerical size designations listed in the passenger car section or light truck section of the
Passenger vehicle and light truck tires, whether or not attached to wheels or rims, are included in the scope. However, if a subject tire is imported attached to a wheel or rim, only the tire is covered by the scope.
Specifically excluded from the scope of this investigation are the following types of tires:
(1) Racing car tires; such tires do not bear the symbol “DOT” on the sidewall and may be marked with “ZR” in size designation;
(2) new pneumatic tires, of rubber, of a size that is not listed in the passenger car section or light truck section of the
(3) pneumatic tires, of rubber, that are not new, including recycled and retreaded tires;
(4) non-pneumatic tires, such as solid rubber tires;
(5) tires designed and marketed exclusively as temporary use spare tires for passenger vehicles which, in addition, exhibit each of the following physical characteristics:
(a) the size designation and load index combination molded on the tire's sidewall are listed in Table PCT-1B (“T” Type Spare Tires for Temporary Use on Passenger Vehicles) of the
(b) the designation “T” is molded into the tire's sidewall as part of the size designation, and,
(c) the tire's speed rating is molded on the sidewall, indicating the rated speed in MPH or a letter rating as listed by
(6) tires designed and marketed exclusively for specialty tire (ST) use which, in addition, exhibit each of the following physical characteristics:*
(a) the size designation molded on the tire's sidewall is listed in the ST sections of the
(b) the designation “ST” is molded into the tire's sidewall as part of the size designation,
(c) the tire incorporates a warning, prominently molded on the sidewall, that the tire is “For Trailer Service Only” or “For Trailer Use Only”,
(d) the load index molded on the tire's sidewall meets or exceeds those load indexes listed in the
(e) the tire's speed rating is molded on the sidewall, indicating the rated speed in MPH or a letter rating as listed by TRA, and the rated speed does not exceed 81 MPH or an “M” rating;
(7) tires designed and marketed exclusively for off-road use and which, in addition, exhibit each of the following physical characteristics:
(a) the size designation and load index combination molded on the tire's sidewall are listed in the off-the-road, agricultural, industrial or ATV section of the
(b) in addition to any size designation markings, the tire incorporates a warning, prominently molded on the sidewall, that the tire is “Not For Highway Service” or “Not for Highway Use”,
(c) the tire's speed rating is molded on the sidewall, indicating the rated speed in MPH or a letter rating as listed by the
(d) the tire features a recognizable off-road tread design.
The products covered by the investigation are currently classified under the following Harmonized Tariff Schedule of the United States (HTSUS) subheadings: 4011.10.10.10, 4011.10.10.20, 4011.10.10.30, 4011.10.10.40, 4011.10.10.50, 4011.10.10.60, 4011.10.10.70, 4011.10.50.00, 4011.20.10.05, and 4011.20.50.10. Tires meeting the scope description may also enter under the following HTSUS subheadings: 4011.99.45.10, 4011.99.45.50, 4011.99.85.10, 4011.99.85.50, 8708.70.45.45, 8708.70.45.60, 8708.70.60.30, 8708.70.60.45, and 8708.70.60.60. While HTSUS subheadings are provided for convenience and for customs purposes, the written description of the subject merchandise is dispositive.
* We are currently suspending requirements (6)(d) and (e); therefore, tires entered, or withdrawn from warehouse for consumption that meet exclusion requirements (6)(a)-(c) above are excluded from the scope of this investigation.
The United States Patent and Trademark Office (USPTO) will submit to the Office of Management and Budget (OMB) for clearance the following proposal for collection of information under the provisions of the Paperwork Reduction Act (44 U.S.C. 35).
Form Number(s):
• PTO/SB/20(GLBL/AT/AU/BR/CA/CN/CO/CZ/DE/DK/EP/ES/FI/HU/IL/IS/JP/KR/MX/NI/NO/PH/PL/PT/RU/SG/TW/UK).
• PTO/SB/20(PCT-AT/PCT-AU/PCT-CA/PCT-CN/PCT-EP/PCT-ES/PCT-FI/PCT-IL/PCT-JP/PCT-KR/PCT-NPI/PCT-RU/PCT-SE/PCT-US).
The forms in this collection allow participants to file in a U.S. application a request to make the U.S. application special under a PPH or PCT-PPH program.
This information collection request may be viewed at reginfo.gov. Follow the instructions to view Department of Commerce collections currently under review by OMB.
Written comments may be submitted by any of the following methods:
• Email:
•
•
Bureau of Consumer Financial Protection.
Notice and request for information.
The Consumer Financial Protection Bureau (Bureau or CFPB) seeks feedback on a draft
Comments must be received on or before March 9, 2015.
You may submit comments, identified by Docket No. CFPB-2015-0001, by any of the following methods:
•
•
•
•
All comments, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Sensitive personal information, such as account numbers or social security numbers, should not be included. Comments generally will not be edited to remove any identifying or contact information.
For general inquiries, submission process questions or any additional information, please contact Monica Jackson, Office of the Executive Secretary, at 202-435-7275.
12 U.S.C. 5511(c).
Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank Act) that established the Bureau, part of the Bureau's mission is to empower consumers to take control over their economic lives. The Bureau is specifically charged with promoting financial education, researching developments in markets for consumer financial services and products, and providing information, guidance, and technical assistance regarding the offering and provision of consumer financial products or services to traditionally underserved consumers and communities.
Section 1021 of the Dodd-Frank Act charges the Bureau with “collecting, researching, monitoring and publishing information” about consumer financial products and services. The Bureau seeks feedback on a potential
The Bureau is interested in receiving comments to develop a
• Student and parent consumers;
• Student associations and consumer organizations;
• Institutions of higher education and affiliated parties;
• Providers of financial aid disbursement services;
• Financial institutions; and
• Other interested parties.
Please note that the Bureau is not soliciting individual student account information in response to this notice and request for information, nor is the Bureau seeking personally identifiable information (PII) regarding student accounts from the parties or any third party.
All comments, including attachments and other supporting materials, will become part of the public record and subject to public disclosure. Sensitive personal information, such as account numbers or social security numbers, should not be included. Comments generally will not be edited to remove any identifying or contact information.
Colleges and universities have long played a role in the offering of financial products to students. Institutions of higher education have partnered with banks and nonbanks to offer a variety of financial products and services, including loans under the now-discontinued Federal Family Educational Loan (FFEL) Program, private student loans, credit cards, student checking accounts, and closed-loop stored value card services tied to student ID cards.
In February 2013, the Bureau published a Notice and Request for Information on Financial Products Marketed to Students Enrolled in Institutions of Higher Education.
The Bureau found that financial product marketing partnerships have shifted from credit cards and preferred student lender agreements toward student debit and prepaid cards. There are now more agreements to market student checking, debit, and prepaid
According to the Government Accountability Office (GAO), at least 852 schools had agreements to provide debit or prepaid card services to their students as of July 2013. Enrollment at these schools accounts for about 40 percent of all postsecondary students.
Institutions of higher education have developed commercial arrangements with financial institutions to market a range of products to students. For example, some of these arrangements are limited to leasing university-owned property while others may be a sponsorship agreement or affiliated with the institution of higher education's athletics program. In many cases, these arrangements provide financial institutions unique or special marketing access to students.
While partnerships between financial institutions and universities have the potential to provide benefits to students, there have also been challenges.
In 2007, the New York Attorney General reported questionable conduct by school officials, including university personnel who were accepting compensation and gifts from lenders included on school preferred lender lists and officials who owned stock in companies offering loans to students.
Many colleges and universities have also formed credit card marketing agreements with financial institutions, which in some cases have resulted in targeted marketing and incentive payments to the school. The Credit CARD Act of 2009
The CFPB has called on financial institutions to voluntarily disclose agreements with institutions of higher education to market products to students.
The GAO also noted that “increased transparency for college card agreements could help ensure that the terms are fair and reasonable for students and the agreements are free from conflicts of interest.”
According to a NACUBO survey of school officials, 69 percent of debit card arrangements are already available to the public.
Institutions of higher education use a variety of mechanisms to develop partnerships with financial institutions. Many colleges solicit marketing partners by publishing a Request for Proposal (RFP) as part of a formal process to seek information from financial institutions. According to a NACUBO survey, 60 percent of schools use a competitive bidding process for establishing their relationships with vendors.
The Bureau's scan of publicly available RFPs showed that RFPs from institutions of higher education generally solicit proposals on a wide range of banking services and student banking affinity arrangements are usually only one component of those services. It appears that when evaluating these arrangements, scores generally do not heavily weigh student account features. Evaluation criteria rarely included a consideration of product features and costs. Some of the RFPs included a scoring system, where financial compensation to the school was heavily weighted.
In light of recent concerns about the quality of banking products being offered to students through official partnerships, institutions of higher education have sought advice from the Bureau about how to ensure that
The Bureau is seeking public input on material that institutions of higher education can choose to include in their RFPs when soliciting marketing partnerships with financial institutions. The scorecard, once finalized, can help committees evaluating contract proposals to determine whether product offerings have safe features and offer superior value to students, as well as whether financial institutions are able to adhere to certain guidelines for transparency and for marketing practices. The goal of the
For the purposes of soliciting detailed comments from the public on a scorecard, the Bureau drafted a sample version based on the FDIC's Model Safe Accounts Template.
The FDIC's template describes “electronic, card-based accounts that limit acquisition and maintenance costs. Transaction accounts are checkless, allowing withdrawals only through automated teller machines, point-of-sale-terminals, automated clearinghouse pre-authorizations, and other automated means.” The Bureau recognizes that the FDIC's template was not developed specifically for accounts to be utilized by students enrolled in institutions of higher education. In addition, the template may need to be adapted if institutions of higher education choose to enter marketing partnerships to offer other types of accounts.
In developing the draft for comment, the Bureau also considered public comments and testimony received as part of its 2013 Request for Information,
Below are some general areas for which information is being sought. Please respond to any or all of the questions below:
1. How can institutions of higher education and students benefit from soliciting information on the features and cost of financial products marketed through a partnership with a financial institution?
2. How can the draft scorecard based on the FDIC Model Safe Accounts template be adapted to meet the needs of this specific market and to other types of products that institutions of higher education seek to offer to their students?
3. What are the potential advantages and disadvantages of separately negotiating arrangements with prospective financial institutions to market financial products to students, compared to including these arrangements as part of a broader relationship with a financial institution encompassing other services?
4. What factors would institutions of higher education consider when determining whether or not to include additional information on product features and cost as part of a Request for Proposal?
5. What other information would be useful for institutions of higher education to solicit from potential marketing partners to assist them in determining whether financial product offerings are safe and affordable for their students?
6. What tools or information would be helpful for institutions of higher education when comparing proposals from potential marketing partners and selecting the proposal offering the safest, most affordable products for students?
7. For existing arrangements between institutions of higher education and financial institutions to market student checking accounts, prepaid cards, and other financial products, what fees do students most frequently incur? To what degree do transaction patterns and fees vary among different student populations? How does this compare to the frequency of fee assessments on accounts unrelated to these marketing arrangements?
8. For which student financial products would a
Federal Deposit Insurance Corporation,
Corporation for National and Community Service.
Notice.
The Corporation for National and Community Service (CNCS) has submitted a public information collection request (ICR) entitled 2015 Pay for Success Grant Opportunity for review and approval in accordance with the Paperwork Reduction Act of 1995, Public Law 104-13, (44 U.S.C. Chapter 35). Copies of this ICR, with applicable supporting documentation, may be obtained by calling the Corporation for National and Community Service, Jennifer Stoff, at 202-606-7570 or email to
Comments may be submitted, identified by the title of the information collection activity, to the Office of Information and Regulatory Affairs, Attn: Ms. Sharon Mar, OMB Desk Officer for the Corporation for National and Community Service, by any of the following two methods within 30 days from the date of publication in the
(1) By fax to: 202-395-6974, Attention: Ms. Sharon Mar, OMB Desk Officer for the Corporation for National and Community Service; or
(2) By email to:
The OMB is particularly interested in comments which:
• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of CNCS, including whether the information will have practical utility;
• Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Propose ways to enhance the quality, utility, and clarity of the information to be collected; and
• Propose ways to minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.
Department of Defense, DoD.
Notice of Federal Advisory Committee meeting.
The Department of Defense is publishing this notice to announce that the following Federal Advisory Committee meeting of the Defense Health Board will take place. This meeting is open to the public.
Defense Health Headquarters (DHHQ), Pavilion Salons B-C, 7700 Arlington Blvd., Falls Church, Virginia 22042 (escort required; see guidance in
The Executive Director of the Defense Health Board is Ms. Christine Bader, 7700 Arlington Boulevard, Suite 5101, Falls Church, Virginia 22042, (703) 681-6653, Fax: (703) 681-9539,
This meeting is being held under the
Additional information, including the agenda and electronic registration, is available at the DHB Web site,
The purpose of the meeting is to conduct decision briefings for deliberation and provide progress updates on specific taskings before the DHB. In addition, the DHB will receive information briefings on current issues or lessons learned related to military operational programs, health policy, health research, disease/injury prevention, health promotion, and healthcare delivery.
Pursuant to 5 U.S.C. 552b, as amended, and 41 CFR 102-3.140 through 102-3.165 and subject to availability of space, the DHB meeting is open to the public from 8:30 a.m. to 12 p.m. and 1 p.m. to 5 p.m. on February 11, 2015. The DHB anticipates deliberating decision briefings from the Health Care Delivery Subcommittee on Sustaining and Advancing Amputee Care and from the Medical Ethics Subcommittee on Ethical Guidelines and Practices for U.S. Military Medical Professionals. The DHB also anticipates receiving progress updates from the Neuro/Behavioral Health Subcommittee on Population Normative Values for Post-Concussive Computerized Neurocognitive Assessments and from the subgroup reviewing Continuing Health Education for Military and Civilian Health Professionals. In addition, information briefings will be provided on accomplishments of the Defense Health Agency and lessons learned from Afghanistan reconstruction efforts.
Pursuant to 5 U.S.C. 552b, as amended, and 41 CFR 102-3.140 through 102-3.165 and subject to availability of space, this meeting is open to the public. Seating is limited and is on a first-come basis. All members of the public who wish to attend the public meeting must contact Ms. Kendal Brown at the number listed in the section
Individuals requiring special accommodations to access the public meeting should contact Ms. Kendal Brown at least five (5) business days prior to the meeting so that appropriate arrangements can be made.
Any member of the public wishing to provide comments to the DHB may do so in accordance with 41 CFR 102-3.105(j) and 102-3.140 and section 10(a)(3) of the Federal Advisory Committee Act, and the procedures described in this notice.
Individuals desiring to provide comments to the DHB may do so by submitting a written statement to the DHB Designated Federal Officer (DFO) (see
If the written statement is not received at least five (5) business days prior to the meeting, the DFO may choose to postpone consideration of the statement until the next open meeting.
The DFO will review all timely submissions with the DHB President and ensure they are provided to members of the DHB before the meeting that is subject to this notice. After reviewing the written comments, the President and the DFO may choose to invite the submitter to orally present their issue during an open portion of this meeting or at a future meeting. The DFO, in consultation with the DHB President, may allot time for members of the public to present their issues for review and discussion by the Defense Health Board.
Federal Student Aid (FSA), Department of Education (ED).
Notice.
In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
Interested persons are invited to submit comments on or before February 26, 2015.
Comments submitted in response to this notice should be submitted electronically through the Federal eRulemaking Portal at
For specific questions related to collection activities, please contact Beth Grebeldinger, 202-377-4018.
The Department of Education (ED), in accordance with the Paperwork Reduction Act of 1995 (PRA) (44 U.S.C. 3506(c)(2)(A)), provides the general public and Federal agencies with an opportunity to comment on proposed, revised, and continuing collections of information. This helps the Department assess the impact of its information collection requirements and minimize the public's reporting burden. It also helps the public understand the Department's information collection requirements and provide the requested
National Advisory Committee on Institutional Quality and Integrity, Office of Postsecondary Education, Department of Education
List the members of the National Advisory Committee on Institutional Quality and Integrity (NACIQI). This notice is required under Section 114(e)(1) of the Higher Education Act (HEA) of 1965, as amended.
The NACIQI is established under Section 114 of the HEA, and is composed of 18 members appointed—
(A) On the basis of the individuals' experience, integrity, impartiality, and good judgment;
(B) From among individuals who are representatives of, or knowledgeable concerning, education and training beyond secondary education, representing all sectors and types of institutions of higher education; and,
(C) On the basis of the individuals' technical qualifications, professional standing, and demonstrated knowledge in the fields of accreditation and administration of higher education.
The NACIQI meets at least twice a year and provides recommendations to the Secretary of Education pertaining to:
• The establishment and enforcement of the standards of accrediting agencies or associations under subpart 2 of part H of Title IV, HEA.
• The recognition of specific accrediting agencies or associations.
• The preparation and publication of the list of nationally recognized accrediting agencies and associations.
• The eligibility and certification process for institutions of higher education under Title IV of the HEA.
• The relationship between (1) accreditation of institutions of higher education and the certification and eligibility of such institutions, and (2) State licensing responsibilities with respect to such institutions.
• Any other advisory functions relating to accreditation and institutional eligibility that the Secretary may prescribe by regulation.
U.S. Department of Education, Office of Postsecondary Education, 1990 K Street NW., Room 8072, Washington, DC 20006.
Carol Griffiths, Executive Director, NACIQI, U.S. Department of Education, 1990 K Street NW., Room 8073, Washington, DC 20006-8129, telephone: (202) 219-7035, fax: (202) 502-7874, or email
The term of office of each member is six years. Any member appointed to fill a vacancy occurring prior to the expiration of the term for which the member's predecessor was appointed is appointed for the remainder of the term.
The current members of the NACIQI are:
• Susan D. Phillips, Ph.D., NACIQI Chair, Vice President for Strategic Partnerships, University at Albany. Senior Vice President for Academic Affairs, SUNY Health Science Center at Brooklyn, New York.
• Simon J. Boehme, Mitchell Scholar studying for a Master's degree at Maynooth University in Maynooth, Ireland.
• Roberta L. Derlin, Ph.D., Associate Provost, New Mexico State University, Las Cruces, New Mexico.
• John Etchemendy, Ph.D., Provost, Stanford University, Stanford, California.
• Frank H. Wu, J.D., Chancellor and Dean, University of California, Hastings College of the Law, San Francisco, California.
• Federico Zaragoza, Ph.D., Vice Chancellor of Economic and Workforce Development, Alamo Community College District, San Antonio, Texas.
• Arthur Keiser, Ph.D., NACIQI Vice-Chair, Chancellor, Keiser University, Fort Lauderdale, Florida.
• William Pepicello, Ph.D., President Emeritus, University of Phoenix, Phoenix, Arizona.
• Arthur J. Rothkopf, J.D., President Emeritus, Lafayette College, Easton, Pennsylvania.
• Jill Derby, Ph.D., Governance Consultant, Association of Governing
• Anne D. Neal, J.D., President, American Council of Trustees and Alumni, Washington, D.C.
• Richard F. O'Donnell, Chief Revenue Officer, The Fullbridge Program, Cambridge, Massachusetts.
• Cameron C. Staples, J.D., President and Chief Executive Officer (CEO), New England Association of Schools and Colleges, Bedford, Massachusetts.
20 U.S.C. 1011c.
Office of Postsecondary Education, Department of Education.
Notice.
On December 18, 2014, we published a notice in the
ReShone Moore, Ph.D., U.S. Department of Education, 1990 K Street NW., Room 7000, Washington, DC 20006-8510. Telephone: (202) 502-7893 or by email:
If you use a TDD or a TTY, call the FRS, toll free, at 1-800-877-8339.
On December 18, 2014, we published a notice in the
Lastly, it also has come to the Department's attention that the links to two studies associated with the CCPs are inoperable. Therefore, to assist potential applicants in responding to the CPPs, we are providing updated links to the two studies. The updated links are listed below:
You may also access documents of the Department published in the
U.S. Department of Energy.
Notice and Request for OMB Review and Comment.
The Department of Energy (DOE) has submitted to the Office of Management and Budget (OMB) for clearance, a proposal for collection of information under the provisions of the Paperwork Reduction Act of 1995. The
Comments regarding this collection must be received on or before February 26, 2015. If you anticipate that you will be submitting comments, but find it difficult to do so within the period of time allowed by this notice, please advise the DOE Desk Officer at OMB of your intention to make a submission as soon as possible. The Desk Officer may be telephoned at 202-395-4718.
Written comments should be sent to the DOE Desk Officer, Office of Information and Regulatory Affairs, Office of Management and Budget, New Executive Office Building, Room 10102, 735 17th Street NW., Washington, DC 20503.
And to Mr. Dennis A. Smith, U.S. Department of Energy, EE-2G, 1000 Independence Avenue SW., Washington, DC 20585-0121, Phone: 202-586-1791, Fax: 202-586-2476, Email:
Mr. Dennis A. Smith, Office of Energy Efficiency and Renewable Energy, U.S. Department of Energy, EE-2G, 1000 Independence Avenue SW., Washington, DC 20585-0121, by phone at 202-586-1791, or by fax at 202-586-2476, or by email at
This information collection request contains: (1) OMB No. New; (2)
42 U.S.C. 13233; 42 U.S.C. 13252(a)-(b); 42 U.S.C. 16191; 49 U.S.C. 32908(g)-(2)-(A).
Office of Electricity Delivery and Energy Reliability, DOE.
Notice of application.
Chubu TT Energy Management Inc. (Chubu TT) has applied for authority to transmit electric energy from the United States to Canada pursuant to section 202(e) of the Federal Power Act.
Comments, protests, or motions to intervene must be submitted on or before February 26, 2015.
Comments, protests, motions to intervene, or requests for more information should be addressed to: Office of Electricity Delivery and Energy Reliability, Mail Code: OE-20, U.S. Department of Energy, 1000 Independence Avenue SW., Washington, DC 20585-0350. Because of delays in handling conventional mail, it is recommended that documents be transmitted by overnight mail, by electronic mail to
Exports of electricity from the United States to a foreign country are regulated by the Department of Energy (DOE) pursuant to sections 301(b) and 402(f) of the Department of Energy Organization Act (42 U.S.C. 7151(b), 7172(f)) and require authorization under section 202(e) of the Federal Power Act (16 U.S.C. 824a(e)).
On January 12, 2015, DOE received an application from Chubu TT for authority to transmit electric energy from the United States to Canada for five years using existing international transmission facilities. Chubu TT is in the process of becoming a licensed competitive electricity provider in Ontario, Canada. Chubu TT is also in the process of applying for market-based rate authority from the Federal Energy Regulatory Commission (“FERC”) in order to trade and market electricity in the United States. Chubu TT states that it will make all of the necessary commercial arrangements and will obtain any and all of the required regulatory approvals in order to effect any power exports.
The electric energy that Chubu TT proposes to export to Canada would be surplus energy purchased from electric utilities and other entities within the United States. The existing international transmission facilities to be utilized by Chubu TT have previously been authorized by Presidential permits issued pursuant to Executive Order 10485, as amended, and are appropriate for open access transmission by third parties.
Comments and other filings concerning the Chubu TT Energy Management Inc. application to export electric energy to Canada should be clearly marked with OE Docket No. EA-404. An additional copy is to be provided directly to both Rob Coulbeck, Chubu TT Energy Management Inc., Goreway Power Station, 8600 Goreway Drive, Brampton, Ontario L6T 0A8 Canada and to Joseph H. Fagan, Day Pitney LLP, 1100 New York Avenue NW., Suite 300 E, Washington, DC 20005.
A final decision will be made on this application after the environmental impacts have been evaluated pursuant to DOE's National Environmental Policy Act Implementing Procedures (10 CFR
Copies of this application will be made available, upon request, for public inspection and copying at the address provided above, by accessing the program Web site at
Office of Electricity Delivery and Energy Reliability, DOE.
Notice of filing.
On December 18, 2014, Calpine Mid Merit II, LLC, York Energy Center—Block 2, as owner and operator of an additional new base load electric powerplant, submitted a coal capability self-certification to the Department of Energy (DOE) pursuant to § 201(d) of the Powerplant and Industrial Fuel Use Act of 1978 (FUA), as amended, and DOE regulations in 10 CFR 501.60, 61. FUA and regulations thereunder require DOE to publish a notice of filing of self-certification in the
Copies of coal capability self-certification filings are available for public inspection, upon request, in the Office of Electricity Delivery and Energy Reliability, Mail Code OE-20, Room 8G-024, Forrestal Building, 1000 Independence Avenue SW., Washington, DC 20585.
Christopher Lawrence at (202) 586-5260.
Title II of FUA, as amended (42 U.S.C. 8301
The following owner of a proposed additional new base load electric powerplant has filed a self-certification of coal-capability with DOE pursuant to FUA section 201(d) and in accordance with DOE regulations in 10 CFR 501.60, 61:
Environmental Protection Agency.
Notice.
This document announces the availability of the U.S. Environmental Protection Agency's (EPA) updated Federal Guidance Report No. 14: Radiation Protection Guidance for Diagnostic and Interventional X-Ray Procedures (EPA 402-R-10003, November 2014). Federal Guidance Report No. 14 provides federal facilities that use diagnostic and interventional x-ray equipment with recommendations for keeping patient doses as low as reasonably achievable without compromising the quality of patient care.
Mike Boyd, Radiation Protection Division (6608J), Environmental Protection Agency, 1200 Pennsylvania Ave. NW., Washington, DC 20460; telephone, 202-343-9353; fax, 202-343-2304; electronic mail,
1.
2.
Federal Guidance Report No. 14: Radiation Protection Guidance for Diagnostic and Interventional X-Ray Procedures is an update to the 1976 x-ray guidance in Federal Guidance Report No. 9, which provides federal facilities that use diagnostic and interventional x-ray equipment with recommendations for keeping patient doses as low as reasonably achievable without compromising the quality of patient care.
The EPA-led Interagency Steering Committee on Radiation Standards (ISCORS) Work Group that developed Federal Guidance Report No. 14 included medical and radiation protection professionals from EPA, the Department of Health and Human Services, the Department of Veterans Affairs, the Department of Defense (Departments of the Army, Navy, and Air Force), the Occupational Safety and Health Administration and the Commonwealth of Pennsylvania.
On April 3, 2013, a proposed version of this guidance was published in the
This guidance will be issued to all federal facilities that perform diagnostic or interventional x-ray procedures. The recommendations in this guidance are not binding on any agency, but, at an agency's discretion, may be incorporated in whole or in part into their standard operating procedures or orders. Likewise, EPA hopes that the states and the private sector will find this guidance to be a useful reference, but there is no legal obligation for them to make use of it in any way; however, if followed, this guidance will improve the safety of diagnostic and interventional imaging.
The complete Federal Guidance Report No. 14: Radiation Protection Guidance for Diagnostic and Interventional X-Ray Procedures (EPA 402-R-10003, November 2014), can be accessed at
Federal Communications Commission.
Notice.
This notice serves as final opportunity for ACT Telecommunications, Inc. (ACT) to respond to the Department of Justice, the Federal Bureau of Investigation, and the Department of Homeland Security (Agencies) request that the Commission terminate and declare null, void and no longer in effect, the international 214 authorization issued to ACT by the Commission. The Agencies state that ACT has failed to comply with commitments and undertakings with these Agencies, which is a condition on the 214 authorization issued by the Commission. The FCC now provides final notice to ACT that it intends to declare ACT's international 214 authorization terminated for failure to comply with conditions of its authorization.
Submit comments on or before February 11, 2015.
ACT should address its response to the Chief, International Bureau and file it in File No. ITC-214-20081201-00519 via IBFS at
David Krech, Policy Division, International Bureau, at (202) 418-7443 or
The proceeding in this Notice is treated as a “permit-but-disclose” proceeding in accordance with the Commission's ex parte rules.
Federal Communications Commission.
Notice.
This notice serves as final opportunity for Wypoint Telecom, Inc. (Wypoint) to respond to the Department of Justice, the Federal Bureau of Investigation, and the Department of Homeland Security (Agencies) request that the Commission terminate and declare null, void and no longer in effect, the international 214 authorization issued to Wypoint by the Commission. The Agencies state that Wypoint has failed to comply with commitments and undertakings with these Agencies, which is a condition on the 214 authorization issued by the Commission. The FCC now provides final notice to Wypoint that it intends to declare Wypoint's international 214 authorization terminated for failure to comply with conditions of its authorization.
Submit comments on or before February 11, 2015.
Wypoint should address its response to the Chief, International Bureau and file it in File No. ITC-214-20070601-00211 via IBFS at
David Krech, Policy Division, International Bureau, at (202) 418-7443 or
The proceeding in this Notice is treated as a “permit-but-disclose” proceeding in accordance with the Commission's ex parte rules.
Federal Trade Commission (FTC or Commission).
Notice.
The information collection requirements described below will be submitted to the Office of Management and Budget (OMB) for review, as required by the Paperwork Reduction Act (PRA). The FTC seeks public comments on its proposal to extend, for three years, the current PRA clearance for information collection requirements contained in the rules and regulations under the Fur Products Labeling Act (“Fur Rules”), 16 CFR 301. This clearance expires on April 30, 2015.
Comments must be received on or before March 30, 2015.
Interested parties may file a comment online or on paper by following the instructions in the Request for Comments part of the
Requests for copies of the collection of information and supporting documentation should be addressed to Robert M. Frisby, 202-326-2098, or
Under the Paperwork Reduction Act (PRA), 44 U.S.C. 3501-3520, federal agencies must get OMB approval for each collection of information they conduct, sponsor, or require. “Collection of information” means agency requests or requirements to submit reports, keep records, or provide information to a third party. 44 U.S.C. 3502(3); 5 CFR 1320.3(c). As required by Section 3506(c)(2)(A) of the PRA, the FTC is providing this opportunity for public comment before requesting that OMB extend the existing PRA clearance for the information collection requirements associated with the Commission's rules and regulations under the Fur Products Labeling Act (“Fur Rules”), 16 CFR part 301 (OMB Control Number 3084-0099).
The FTC invites comments on: (1) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (2) the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on those who are to respond. All comments must be received on or before March 30, 2015.
Staff's burden estimates are based on data from the Department of Labor's Bureau of Labor Statistics (“BLS”) and data or other input from the Fur Industry Council of America. The relevant information collection requirements in these rules and staff's corresponding burden estimates follow. The estimates address the number of hours needed and the labor costs incurred to comply with the requirements.
The Fur Products Labeling Act (“Fur Act”)
The Commission expects that recent amendments to the Fur Act have increased the cost of complying with the Fur Rules as amended.
Estimated annual hours burden: 249,541 hours (64,440 hours for recordkeeping + 185,101 hours for disclosure).
Staff estimates that the incremental burden associated with the Fur Rules' invoice disclosure requirement, beyond the time that would be devoted to preparing invoices in the absence of the Rules, is approximately one minute per invoice for garments and thirty seconds per invoice for pelts.
Staff estimates that the Fur Rules' advertising disclosure requirements impose an average burden of 40 hours per year for each of the approximately 1,230 domestic fur retailers, or a total of 49,200 hours.
Thus, staff estimates the total disclosure burden to be approximately 185,101 hours (107,585 hours for labeling + 28,316 hours for invoices + 49,200 hours for advertising).
Estimated annual cost burden: $4,657,902 (solely relating to labor costs). The chart below summarizes the total estimated costs.
Staff
You can file a comment online or on paper. Write “Fur Rules: FTC File No. P074201” on your comment. Your comment—including your name and your state—will be placed on the public record of this proceeding, including, to the extent practicable, on the public Commission Web site, at
Because your comment will be made public, you are solely responsible for making sure that your comment does not include any sensitive personal information, such as a Social Security number, date of birth, driver's license number or other state identification number or foreign country equivalent, passport number, financial account number, or credit or debit card number. You are also solely responsible for making sure that your comment does not include any sensitive health information, such as medical records or other individually identifiable health information. In addition, do not include any “[t]rade secret or any commercial or financial information which is . . . privileged or confidential,” as discussed in Section 6(f) of the FTC Act, 15 U.S.C. 46(f), and FTC Rule 4.10(a)(2), 16 CFR 4.10(a)(2). In particular, do not include competitively sensitive information such as costs, sales statistics, inventories, formulas, patterns, devices, manufacturing processes, or customer names.
If you want the Commission to give your comment confidential treatment, you must file it in paper form, with a request for confidential treatment, and you must follow the procedure explained in FTC Rule 4.9(c), 16 CFR 4.9(c). Your comment will be kept confidential only if the FTC General Counsel, in his or her sole discretion, grants your request in accordance with the law and the public interest. Postal mail addressed to the Commission is subject to delay due to heightened security screening. As a result, the Commission encourages you to submit your comments online. To make sure that the Commission considers your online comment, you must file it at
If you file your comment on paper, write “Fur Rules: FTC File No. P074201” on your comment and on the envelope, and mail it to the following address: Federal Trade Commission, Office of the Secretary, 600 Pennsylvania Avenue NW., Suite CC-5610, (Annex J), Washington, DC 20580, or deliver your comment to the following address: Federal Trade Commission, Office of the Secretary, Constitution Center, 400 7th Street SW., 5th Floor, Suite 5610, (Annex J), Washington, DC 20024. If possible, submit your paper comment to the Commission by courier or overnight service.
The FTC Act and other laws that the Commission administers permit the collection of public comments to consider and use in this proceeding as appropriate. The Commission will consider all timely and responsive public comments that it receives on or before March 30, 2015. You can find more information, including routine uses permitted by the Privacy Act, in the Commission's privacy policy, at
Notice and request for comments.
The Financial Stability Oversight Council (the “Council”) invites members of the public and affected agencies to comment on continuing information collections, as required by the Paperwork Reduction Act of 1995, Public Law 104-13 (44 U.S.C. 3506(c)(2)(A)). The Council is soliciting comments concerning its extension of a currently approved collection of information related to its authority to determine that certain nonbank financial companies shall be subject to supervision by the Board of Governors of the Federal Reserve System (Board of Governors) and enhanced prudential standards. Section 113 of the Dodd-Frank Wall Street Reform and Consumer Protection Act (the “Dodd-Frank Act”) provides the Council the authority to determine that a nonbank financial company shall be subject to Board of Governors supervison and enhanced prudential standards if the Council determines that material financial stress at the nonbank financial company, or the nature, scope, size, scale, concentration,
Written comments must be received on or before March 30, 2015 to be assured of consideration.
You may submit comments by any of the following methods:
Requests for additional information about the filings or procedures should be directed to Executive Director, Financial Stability Oversight Council, Department of the Treasury, 1500 Pennsylvania Avenue NW., Washington, DC 20220.
Office of the Secretary, HHS.
Notice.
Notice is hereby given that the Office of Research Integrity (ORI) has taken final action in the following case:
ORI found that Respondent engaged in research misconduct by reporting falsified data in Figures 1, 4, 5, S2, and S3 in the following paper published online:
• Gao, Y., Zeng, Y., Tian, J., Kslam, M.S., Jiang, G., & Xiao, D., “Gugglesterone inhibits prostate cancer growth via inactivation of Akt regulated by ATP citrate signaling.”
Specifically, in the
Dr. Xiao has entered into a Voluntary Settlement Agreement (Agreement) and has voluntarily agreed for a period of three (3) years, beginning on December 23, 2014:
(1) To have his research supervised; Respondent agreed to ensure that prior to the submission of an application for U.S. Public Health Service (PHS) support for a research project on which the Respondent's participation is proposed and prior to Respondent's participation in any capacity on PHS-supported research, the institution employing him must submit a plan for supervision of his duties to ORI for approval; the plan for supervision must be designed to ensure the scientific integrity of Respondent's research contribution; Respondent agreed that he will not participate in any PHS-supported research until such a supervision plan is submitted to and approved by ORI; Respondent agreed to maintain responsibility for compliance with the agreed upon plan for supervision;
(2) that any institution employing him must submit, in conjunction with each application for PHS funds, or report, manuscript, or abstract involving PHS-supported research in which Respondent is involved, a certification to ORI that the data provided by Respondent are based on actual experiments or are otherwise legitimately derived and that the data, procedures, and methodology are accurately reported in the application, report, manuscript, or abstract; and
(3) to exclude himself voluntarily from serving in any advisory capacity to PHS including, but not limited to, service on any PHS advisory committee, board, and/or peer review committee, or as a consultant.
Acting Director, Office of Research Integrity, 1101 Wootton Parkway, Suite 750, Rockville, MD 20852, (240) 453-8200.
Section 30.18 of the Department of Health and Human Services' claims collection regulations (45 CFR part 30) provides that the Secretary shall charge an annual rate of interest, which is determined and fixed by the Secretary of the Treasury after considering private consumer rates of interest on the date that the Department of Health and Human Services becomes entitled to recovery. The rate cannot be lower than the Department of Treasury's current value of funds rate or the applicable rate determined from the “Schedule of Certified Interest Rates with Range of Maturities” unless the Secretary waives interest in whole or part, or a different rate is prescribed by statute, contract, or repayment agreement. The Secretary of the Treasury may revise this rate quarterly. The Department of Health and Human Services publishes this rate in the
The current rate of 10
Office of the Assistant Secretary for Health, Office of the Secretary, Department of Health and Human Services.
Notice.
As stipulated by the Federal Advisory Committee Act, the U.S. Department of Health and Human Service (DHHS) is hereby giving notice that the Presidential Advisory Council on HIV/AIDS (PACHA) will hold a meeting to discuss essential health benefits and provider networks, the integration of the Affordable Care Act (ACA) qualified health plan and the Ryan White Program; an update on the National HIV/AIDS Strategy; and a discussion on surveillance data. The meeting will be open to the public.
The meeting will be held on February 12, 2015, from 9 a.m. to approximately 5 p.m. (ET) and February 13, 2015, from 9:30 a.m. to approximately 12:30 p.m. (ET).
Renaissance Washington DC, Downtown Hotel, 999 Ninth Street NW., Washington, DC 20001.
Ms. Caroline Talev, Public Health Analyst, Presidential Advisory Council on HIV/AIDS, U.S. Department of Health and Human Services, 200 Independence Avenue SW., Room 443H, Washington, DC 20201; (202) 205-1178. More detailed information about PACHA can be obtained by accessing the PACHA Web page on the AIDS.Gov Web site at
PACHA was established by Executive Order 12963, dated June 14, 1995, as amended by Executive Order 13009, dated June 14, 1996. The Council was established to provide advice, information, and recommendations to the Secretary regarding programs and policies intended to promote effective prevention of HIV disease and AIDS. The functions of the Council are solely advisory in nature.
The Council consists of not more than 25 members. Council members are selected from prominent community leaders with particular expertise in, or knowledge of, matters concerning HIV and AIDS, public health, global health, philanthropy, marketing or business, as well as other national leaders held in high esteem from other sectors of society. Council members are appointed by the Secretary or designee, in consultation with the White House Office on National AIDS Policy. The agenda for the upcoming meeting will be posted on the Council's Web site at
Public attendance at the meeting is limited to space available. Individuals who plan to attend and need special assistance, such as sign language interpretation or other reasonable accommodations, should notify the designated contact person. Due to space constraints, pre-registration for public attendance is advisable and can be accomplished by contacting Caroline Talev at
This gives notice under the Federal Advisory Committee Act (Pub. L. 92-463) of October 6, 1972, that the Healthcare Infection Control Practices Advisory Committee, Department of Health and Human Services, has been renewed for a 2-year period through January 19, 2017.
For information, contact Jeffrey Hageman, M.H.S., Executive Secretary, Healthcare Infection Control Practices Advisory Committee, Department of Health and Human Services, 1600 Clifton Road NE., Mailstop A35, Atlanta, Georgia 30333, telephone 404/639-4951 or fax 404/639-2647.
The Director, Management Analysis and Services Office, has been delegated the authority to sign
In accordance with section 10(a)(2) of the Federal Advisory Committee Act (Pub. L. 92-463), the Centers for Disease Control and Prevention (CDC) announces the following meeting for the aforementioned subcommittee:
In December 2000, the President delegated responsibility for funding, staffing, and operating the Advisory Board to HHS, which subsequently delegated this authority to CDC. NIOSH implements this responsibility for CDC. The charter was issued on August 3, 2001, renewed at appropriate intervals, and will expire on August 3, 2015.
The agenda is subject to change as priorities dictate.
The Director, Management Analysis and Services Office, has been delegated the authority to sign
In accordance with section 10(a)(2) of the Federal Advisory Committee Act (Pub. L. 92-463), the Centers for Disease Control and Prevention (CDC) announces the following committee meeting.
It is the intent of NIOSH to support broad-based research endeavors in keeping with the Institute's program goals. This will lead to improved understanding and appreciation for the magnitude of the aggregate health burden associated with occupational injuries and illnesses, as well as to support more focused research projects, which will lead to improvements in the delivery of occupational safety and health services, and the prevention of work-related injury and illness. It is anticipated that research funded will promote these program goals.
These portions of the meeting will be closed to the public in accordance with provisions set forth in Section 552b(c)(4) and (6), Title 5 U.S.C., and the Determination of the Director, Management Analysis and Services Office, Centers for Disease Control and Prevention, pursuant to Section 10(d) Public Law 92-463.
Agenda items are subject to change as priorities dictate.
The Director, Management Analysis and Services Office, has been delegated the authority to sign
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In compliance with the requirements of Section 506(c)(2)(A) of the Paperwork Reduction Act of 1995, the Administration for Children and Families is soliciting public comment on the specific aspects of the information collection described above. Copies of the proposed collection of information can be obtained and comments may be forwarded by writing to the Administration for Children and Families, Office of Planning, Research and Evaluation, 370 L'Enfant Promenade SW., Washington, DC 20447, Attn: ACF Reports Clearance Officer. Email address:
The Department specifically requests comments on: (a) Whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information shall have practical utility; (b) the accuracy of the agency's estimate of the burden of the proposed collection of information; (c) the quality, utility, and clarity of the information to be collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted within 60 days of this publication.
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA) is announcing an opportunity for public comment on the proposed collection of certain information by the Agency. Under the Paperwork Reduction Act of 1995 (the PRA), Federal Agencies are required to publish notice in the
Submit either electronic or written comments on the collection of information by March 30, 2015.
Submit electronic comments on the collection of information to
FDA PRA Staff, Office of Operations, Food and Drug Administration, 8455 Colesville Rd., COLE-14526, Silver Spring, MD 20993-0002,
Under the PRA (44 U.S.C. 3501-3520), Federal Agencies must obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct or sponsor. “Collection of information” is defined in 44 U.S.C. 3502(3) and 5 CFR 1320.3(c) and includes Agency requests or requirements that members of the public submit reports, keep records, or provide information to a third party. Section 3506(c)(2)(A) of the PRA (44 U.S.C. 3506(c)(2)(A)) requires Federal Agencies to provide a 60-day notice in the
With respect to the following collection of information, FDA invites comments on these topics: (1) Whether the proposed collection of information is necessary for the proper performance of FDA's functions, including whether the information will have practical utility; (2) the accuracy of FDA's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques, when appropriate, and other forms of information technology.
The Patient Protection and Affordable Care Act (Pub. L. 111-148) contains a subtitle called the Biologics Price Competition and Innovation Act of 2009 (Title VII Subtitle A) (BPCI Act) that amends the Public Health Service Act (42 U.S.C. 262) (PHS Act) and other statutes to create an abbreviated approval pathway for biological products shown to be biosimilar to or interchangeable with an FDA-licensed reference biological product. Section 351(k) of the PHS Act, added by the BPCI Act, allows a company to submit an application for licensure of a biosimilar or interchangeable biological product. The BPCI Act also amends section 735 of the Federal Food, Drug, and Cosmetic Act (21 U.S.C. 379g) to include 351(k) applications in the definition of “human drug application” for the purposes of the prescription drug user fee provisions. The BPCI Act directs FDA to develop recommendations for a biosimilar biological product user fee program for fiscal years 2013 through 2017. FDA's recommendations for a biosimilar biological product user fee program were submitted to Congress on January 13, 2012.
FDA's biosimilar biological product user fee program requires FDA to assess and collect user fees for certain meetings concerning biosimilar biological product development (BPD meetings), investigational new drug applications (INDs) intended to support a biosimilar biological product application, and biosimilar biological product applications and supplements. Form FDA 3792, the Biosimilars User Fee Cover Sheet, requests the minimum necessary information to determine the amount of the fee required, and to account for and track user fees. The form provides a cross-reference of the fees submitted for a submission with the actual submission by using a unique number tracking system. The information collected is used by FDA's Center for Drug Evaluation and Research and Center for Biologics Evaluation and Research to initiate the administrative screening of biosimilar biological product INDs, applications, and supplements, and to account for and track user fees associated with BPD meetings.
Respondents to this collection of information are manufacturers of biosimilar biological product candidates. Based on the number of Form FDA 3792s we have received, we estimate the burden of this collection of information as follows:
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA) is announcing that a proposed collection of information has been submitted to the Office of Management and Budget (OMB) for review and clearance under the Paperwork Reduction Act of 1995.
Fax written comments on the collection of information by February 26, 2015.
To ensure that comments on the information collection are received, OMB recommends that written comments be faxed to the Office of Information and Regulatory Affairs, OMB, Attn: FDA Desk Officer, FAX: 202-395-7285, or emailed to
FDA PRA Staff, Office of Operations, Food and Drug Administration, 8455 Colesville Rd., COLE-14526, Silver Spring, MD 20993-0002,
In compliance with 44 U.S.C. 3507, FDA has submitted the following proposed collection of information to OMB for review and clearance.
Under the Medical Device Amendments of 1976 (Pub. L. 94-295), class II devices were defined as those devices for which there was insufficient information to show that general controls themselves would provide a reasonable assurance of safety and effectiveness but for which there was sufficient information to establish performance standards to provide such assurance.
Condoms without spermicidal lubricant containing nonoxynol 9 are
In December 2000, Congress enacted Public Law 106-554, which directed FDA to “reexamine existing condom labels” and “determine whether the labels are medically accurate regarding the overall effectiveness or lack of effectiveness in preventing sexually transmitted diseases * * *.” In response, FDA recommended labeling intended to provide important information for condom users, including the extent of protection provided by condoms against various types of sexually transmitted diseases.
Respondents to this collection of information are manufacturers and repackagers of male condoms made of natural rubber latex without spermicidal lubricant. FDA expects approximately five new manufacturers or repackagers to enter the market yearly and to collectively have a third-party disclosure burden of 60 hours. The number of respondents cited in table 1 of this document is based on FDA's database of premarket submissions and the electronic registration and listing database. The average burden per disclosure was derived from a study performed for FDA by Eastern Research Group, Inc., an economic consulting firm, to estimate the impact of the 1999 over-the-counter (OTC) human drug labeling requirements final rule (64 FR 13254, March 17, 1999). Because the packaging requirements for condoms are similar to those of many OTC drugs, we believe the burden to design the labeling for OTC drugs is an appropriate proxy for the estimated burden to design condom labeling.
The special controls guidance document also refers to previously approved collections of information found in FDA regulations. The collections of information in 21 CFR part 801 have been approved under OMB control number 0910-0485; the collections of information in 21 CFR part 807 subpart E have been approved under OMB control number 0910-0120; and the collections of information in 21 CFR part 820 have been approved under OMB control number 0910-0073.
The collection of information under 21 CFR 801.437 does not constitute a “collection of information” under the Paperwork Reduction Act of 1995. Rather, it is a “public disclosure of information originally supplied by the Federal Government to the recipient for the purpose of disclosure to the public” (5 CFR 1320.3(c)(2)).
In the
FDA estimates the burden of this collection of information as follows:
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA) is announcing a publication containing modifications the Agency is making to the list of standards FDA recognizes for use in premarket reviews (FDA Recognized Consensus Standards). This publication, entitled “Modifications to the List of Recognized Standards, Recognition List Number: 038” (Recognition List Number: 038), will assist manufacturers who elect to declare conformity with consensus standards to meet certain requirements for medical devices.
Submit either electronic or written comments concerning this document at any time. See section VII of this document for the effective date of the recognition of standards announced in this document.
An electronic copy of Recognition List Number: 038 is available on the Internet at
Submit written requests for a single copy of the document entitled “Modifications to the List of Recognized Standards, Recognition List Number: 038” to the Division of Industry and Consumer Education, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, Rm. 4613, Silver Spring, MD 20993-0002. Send one self-addressed adhesive label to assist that office in processing your request, or fax your request to 301-847-8149.
Submit electronic comments on this document to
Scott A. Colburn, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, Rm. 3632, Silver Spring,
Section 204 of the Food and Drug Administration Modernization Act of 1997 (FDAMA) (Pub. L. 105-115) amended section 514 of the Federal Food, Drug, and Cosmetic Act (the FD&C Act) (21 U.S.C. 360d). Amended section 514 allows FDA to recognize consensus standards developed by international and national organizations for use in satisfying portions of device premarket review submissions or other requirements.
In a notice published in the
Modifications to the initial list of recognized standards, as published in the
These notices describe the addition, withdrawal, and revision of certain standards recognized by FDA. The Agency maintains hypertext markup language (HTML) and portable document format (PDF) versions of the list of FDA Recognized Consensus Standards. Both versions are publicly accessible at the Agency's Internet site. See section VI for electronic access information. Interested persons should review the supplementary information sheet for the standard to understand fully the extent to which FDA recognizes the standard.
FDA is announcing the addition, withdrawal, correction, and revision of certain consensus standards the Agency will recognize for use in premarket submissions and other requirements for devices. FDA will incorporate these modifications in the list of FDA Recognized Consensus Standards in the Agency's searchable database. FDA will use the term “Recognition List Number: 038” to identify these current modifications.
In table 1, FDA describes the following modifications: (1) The withdrawal of standards and their replacement by others, if applicable; (2) the correction of errors made by FDA in listing previously recognized standards; and (3) the changes to the supplementary information sheets of recognized standards that describe revisions to the applicability of the standards.
In section III, FDA lists modifications the Agency is making that involve the initial addition of standards not previously recognized by FDA.
In table 2, FDA provides the listing of new entries and consensus standards added as modifications to the list of recognized standards under Recognition List Number: 038.
FDA maintains the Agency's current list of FDA Recognized Consensus Standards in a searchable database that may be accessed directly at FDA's Internet site at
Any person may recommend consensus standards as candidates for recognition under section 514 of the FD&C Act by submitting such recommendations, with reasons for the recommendation to
You may obtain a copy of “Guidance on the Recognition and Use of Consensus Standards” by using the Internet. The Center for Devices and Radiological Health (CDRH) maintains a site on the Internet for easy access to information including text, graphics, and files that you may download to a personal computer with access to the Internet. Updated on a regular basis, the CDRH home page,
Interested persons may submit either electronic comments regarding this document to
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA) is announcing the availability of a draft guidance for industry and FDA staff entitled “Current Good Manufacturing Practice Requirements for Combination Products.” The guidance describes and explains the final rule on current good manufacturing practice (CGMP) requirements for combination products, including presenting general considerations for CGMP compliance as well as analysis of hypothetical scenarios.
Although you can comment on any guidance at any time (see 21 CFR 10.115(g)(5)), to ensure that the Agency considers your comment on this draft guidance before it begins work on the final version of the guidance, submit either electronic or written comments on the draft guidance by March 30, 2015.
Submit written requests for single copies of the draft guidance document entitled “Current Good Manufacturing Practice Requirements for Combination Products” to the Office of Combination Products, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 32, Rm. 5129, Silver Spring, MD 20993-0002. Send one self-addressed adhesive label to assist that office in processing your request. See the
Submit electronic comments on the draft guidance to
John Barlow Weiner, Office of Combination Products, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 32, Rm. 5129, Silver Spring, MD 20993-0002, 301-796-8930.
FDA is announcing the availability of a draft guidance for industry and FDA staff entitled “Current Good Manufacturing Practice Requirements for Combination Products.” The guidance provides background on combination products, including an overview of the final rule on CGMP requirements for combination products (78 FR 4307, January 22, 2013) (21 CFR part 4) and the role of the lead center and other Agency components with respect to combination product CGMP issues. The guidance addresses general considerations for CGMP requirements for combination products and the purpose and content of specific CGMP provisions addressed in part 4. The guidance also contains hypothetical scenarios intended to clarify how to
This draft guidance is being issued consistent with FDA's good guidance practices regulation (21 CFR 10.115). The draft guidance, when finalized, will represent the Agency's current thinking on CGMP requirements for combination products. It does not create or confer any rights for or on any person and does not operate to bind FDA or the public. An alternative approach may be used if such approach satisfies the requirements of the applicable statute and regulations.
This draft guidance refers to previously approved collections of information found in FDA regulations. These collections of information are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). We note that the information collected under the underlying CGMP regulations for drugs, devices, and biological products, including current good tissue practices for HCT/Ps, found at 21 CFR parts 211, 820, 600 through 680, and 1271, have already been approved and are in effect. The provisions of part 211 are approved under the Office of Management and Budget (OMB) control number 0910-0139. The provisions of part 820 are approved under OMB control number 0910-0073. The provisions of parts 606, 640, and 660 are approved under OMB control number 0910-0116. The provisions of part 610 are approved under OMB control number 0910-0116 and OMB control number 0910-0338 (also for part 680). The provisions of part 1271, subparts C and D, are approved under OMB control number 0910-0543.
Interested persons may submit either electronic comments regarding this document to
Persons with access to the Internet may obtain the document at either
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA) is announcing the availability of the draft guidance entitled “Medical Devices and Clinical Trial Design for the Treatment or Improvement in the Appearance of Fungally-Infected Nails.” This guidance is intended to provide recommendations when finalized regarding clinical trial design for medical devices intended either to provide improvement in the appearance of nails affected by onychomycosis or to treat onychomycosis (fungal nail infection). This draft guidance is not final nor is it in effect at this time.
Although you can comment on any guidance at any time (see 21 CFR 10.115(g)(5)), to ensure that the Agency considers your comment of this draft guidance before it begins work on the final version of the guidance, submit either electronic or written comments on the draft guidance by April 27, 2015.
An electronic copy of the guidance document is available for download from the Internet. See the
Submit electronic comments on the draft guidance to
Neil Ogden, Center for Devices and Radiological Health, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 66, Rm. G414, Silver Spring, MD 20993-0002, 301-796-6397.
FDA is announcing the availability of a draft guidance for industry and FDA staff entitled “Medical Devices and Clinical Trial Design for the Treatment or Improvement in the Appearance of Fungally-Infected Nails.” This guidance is intended to provide recommendations when finalized regarding clinical trial design for medical devices intended either: (1) To provide improvement in the appearance of nails affected by onychomycosis, that is, to affect the structure/function of the nails or (2) to treat onychomycosis (fungal nail infection).
The FDA distinguishes these two conditions as target outcomes. The treatment of onychomycosis (an infectious disease) requires proof of stable elimination of the fungal organism, which is a medical endpoint. This outcome is distinct from outcomes limited to “temporary increase in clear nail” in nails which are fungally infected, which is considered an aesthetic endpoint, and does not connote successful eradication of fungal infection. The need for clinical performance data will be dependent on
This draft guidance is being issued consistent with FDA's good guidance practices regulation (21 CFR 10.115). The draft guidance, when finalized, will represent the Agency's current thinking on clinical trial design for the treatment or improvement in the appearance of fungally infected nails. It does not create or confer any rights for or on any person and does not operate to bind FDA or the public. An alternative approach may be used if such approach satisfies the requirements of the applicable statute and regulations.
Persons interested in obtaining a copy of the draft guidance may do so by downloading an electronic copy from the Internet. A search capability for all Center for Devices and Radiological Health guidance documents is available at
This guidance refers to previously approved collections of information found in FDA regulations. These collections of information are subject to review by the Office of Management and Budget (OMB) under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). The collections of information in 21 CFR part 812 have been approved under OMB control number 0910-0078; the collections of information in 21 CFR part 807, subpart E have been approved under OMB control number 0910-0120; the collections of information in 21 CFR part 814 have been approved under OMB control number 0910-0231; the collections of information regarding adverse events have been approved under OMB control number 0910-0471; and the collections of information in 21 CFR part 801 have been approved under OMB control number 0910-0485.
The labeling recommendations of this draft guidance are not subject to review by the Office of Management and Budget because they do not constitute a “collection of information” under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520). Rather, the recommended labeling is a “public disclosure of information originally supplied by the Federal Government to the recipient for the purpose of disclosure to the public.” (see 5 CFR 1320.3(c)(2)).
Interested persons may submit either electronic comments regarding this document to
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA) is announcing the availability of a guidance for industry entitled “S10 Photosafety Evaluation of Pharmaceuticals.” The guidance was prepared under the auspices of the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH). This guidance outlines details on when photosafety testing is warranted and on possible assessment strategies; it should be read in conjunction with the ICH M3(R2) guidance, section XIV(14) Photosafety Testing. The purpose of the guidance is to recommend international standards for photosafety assessment and to harmonize such assessments that support human clinical trials and marketing authorization for pharmaceuticals. This guidance finalizes the draft guidance issued on February 4, 2013.
Submit either electronic or written comments on Agency guidances at any time.
Submit written requests for single copies of the guidance to the Division of Drug Information, Center for Drug Evaluation and Research (CDER), Food and Drug Administration, 10001 New Hampshire Ave., Hillandale Building, 4th Floor, Silver Spring, MD 20993; or the Office of Communication, Outreach and Development, Center for Biologics Evaluation and Research (CBER), Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 71, Rm. 3128, Silver Spring, MD 20993-0002. Send one self-addressed adhesive label to assist the office in processing your requests. See the
Submit electronic comments on the guidance to
In recent years, many important initiatives have been undertaken by regulatory authorities and industry associations to promote international harmonization of regulatory requirements. FDA has participated in many meetings designed to enhance harmonization and is committed to seeking scientifically based harmonized technical procedures for pharmaceutical development. One of the goals of harmonization is to identify and then reduce differences in technical requirements for drug development among regulatory Agencies.
ICH was organized to provide an opportunity for tripartite harmonization
The ICH Steering Committee includes representatives from each of the ICH sponsors and the IFPMA, as well as observers from the World Health Organization, Health Canada, and the European Free Trade Area.
In the
• The guidance further emphasizes the flexibility and optional nature of assessments for photosafety. This is reflected in revisions to Figure 1 and related text.
• The discussion about pharmaceuticals given via ocular routes was reduced because the ICH working group did not have useful guidance to provide for these products.
After consideration of the comments received and revisions to the guidance, a final draft of the guidance was submitted to the ICH Steering Committee and endorsed by the three participating regulatory Agencies in November 2013.
The ICH S10 guidance provides guidance on when photosafety testing is warranted, and on possible testing strategies. It represents the consensus that exists regarding assessment of photosafety to support clinical development and marketing authorization of pharmaceuticals. It supplements the ICH M3(R2) guidance,
The guidance describes a flexible, integrated process that involves photochemical characteristics, data from nonclinical studies, and human safety information. Although the strategy is flexible and the options selected are the developer's choice, characterization of the ultraviolet-visible absorption spectrum is recommended as the initial assessment and can obviate any further photosafety evaluation. Results of the evaluation determine the need for risk minimization measures to prevent adverse events in humans.
This guidance is being issued consistent with FDA's good guidance practices regulation (21 CFR 10.115). The guidance represents the Agency's current thinking on this topic. It does not create or confer any rights for or on any person and does not operate to bind FDA or the public. An alternative approach may be used if such approach satisfies the requirements of the applicable statutes and regulations.
Interested persons may submit either electronic comments regarding this document to
Persons with access to the Internet may obtain the document at
Food and Drug Administration, HHS.
Notice.
The Food and Drug Administration (FDA) is providing interested persons with the opportunity to submit written comments and to request an informal public meeting concerning recommendations by the World Health Organization (WHO) to impose international manufacturing and distributing restrictions, under international treaties, on certain drug substances. The comments received in response to this notice and/or public meeting will be considered in preparing the United States position on these proposals for a meeting of the United Nations Commission on Narcotic Drugs (CND) in Vienna, Austria, in March 2015. This notice is issued under the Controlled Substances Act (the CSA).
Submit either electronic or written comments by February 26, 2015. Submit requests for a public meeting on or before February 6, 2015. (For additional information, see also section IV of this document).
Submit electronic comments to
James R. Hunter, Center for Drug Evaluation and Research, Controlled Substance Staff, Food and Drug Administration, 10903 New Hampshire Ave., Bldg. 51, Rm. 5150, Silver Spring, MD 20993-0002, 301-796-3156,
The United States is a party to the 1971 Convention on Psychotropic Substances (Psychotropic Convention). Section 201(d)(2)(B) of the CSA (21 U.S.C. 811(d)(2)(B)) provides that when the United States is notified under Article 2 of the Psychotropic Convention that the CND proposes to decide whether to add a drug or other substance to one of the schedules of the Psychotropic Convention, transfer a drug or substance from one schedule to another, or delete it from the schedules, the Secretary of State must transmit notice of such information to the Secretary of Health and Human Services (Secretary of HHS). The Secretary of HHS must then publish a summary of such information in the
As detailed in the following paragraphs, the Secretary of State has received notification from the Secretary-General of the United Nations (the Secretary-General) regarding 13 substances to be considered for control under the Psychotropic Convention. This notification reflects the recommendation from the 36th WHO Expert Committee for Drug Dependence (ECDD), which met in June 2014. In the
The full text of the notification from the Secretary-General is provided in section II of this document. Section 201(d)(2)(B) of the CSA requires the Secretary of HHS, after receiving a notification proposing scheduling, to publish a notice in the
The United States is also a party to the 1961 Single Convention on Narcotic Drugs (1961 Single Convention). The Secretary of State has received a notification from the Secretary-General regarding a substance to be considered for control under this convention. The CSA does not require HHS to publish a summary of such information in the
The formal notification from the United Nations that identifies the drug substances and explains the basis for the recommendations is reproduced as follows:
The Secretary-General of the United Nations presents his compliments to the Secretary of State of the United States of America and has the honour to inform the Government that the Director-General of the World Health Organization (WHO), pursuant to article 3, paragraphs 1 and 3 of the Single Convention on Narcotic Drugs of 1961 as amended by the 1972 Protocol (1961 Convention) and article 2, paragraphs 1and 4 of the Convention on Psychotropic Substances of 1971 (1971 Convention) notified the Secretary-General of the following recommendations:
In accordance with the provisions of article 3, paragraph 2 of the 1961 Convention and article 2, paragraph 2 of the 1971 Convention, the Secretary-General hereby transmits the notification as annex I to the present note. Also in accordance with the same provisions, the notification from WHO will be brought to the attention of the fifty-eighth session of the Commission on Narcotic Drugs, 9-17 March 2015.
In connection with the notification, WHO has also submitted the relevant extract from the report of the thirty-sixth session of the WHO Expert Committee on Drug Dependence which is hereby transmitted as annex II.
Reference is made to the notification concerning the proposed recommendation for international control of mephedrone (4-methylmethcathinone) by the Government of the United Kingdom of Great Britain and Northern Ireland and to the respective note NAR/CL.2/2014 of 7 February 2014 of the Secretary-General to all Member States.
Furthermore reference is made to the notification concerning the proposed recommendation for international control of ketamine by the Government of the People's Republic of China and to the respective note NAR/CL.4/2014 of 14 March 2014 by the Secretary-General to all Member States, as well as to the recommendation of the Expert Committee on Drug Dependence related to ketamine (see annex I, page 2).
In order to assist the Commission in reaching a decision, it would be appreciated if the Government could communicate any economic, social, legal, administrative or other factors that it considers relevant to the possible scheduling of the afore-mentioned substances under the 1961 Convention and the 1971 Convention, at the latest by 30 January 2015 to the Executive Director of the United Nations Office on Drugs and Crime, c/o Secretary, Commission on Narcotic Drugs, P.O. Box 500, 1400 Vienna, Austria, fax: +43-1-26060-5885, email:
“With reference to Article 2, paragraphs 1, 4 and 6 of the Convention on Psychotropic Substances (1971) and Article 3, paragraphs 1, 3 and 5 of the Single Convention on Narcotic Drugs (1961), as amended by the 1972 Protocol, and following the 36th meeting of the Expert Committee on Drug Dependence in June 2014, I am pleased to submit recommendations of the World Health Organization.
The recommendations are that:
The recommendations and the assessments and findings on which they are based are set out in detail in the Report of the 36th Expert Committee on Drug Dependence, which is
A notification has been made by the United Kingdom of Great Britain and Northern Ireland, pursuant to article 2, paragraphs 1 and 3 of the Convention on Psychotropic Substances, 1971 concerning a proposed recommendation for international control of mephedrone. The Expert Committee critically reviewed this substance and considered that the degree of risk to public health and society associated with the abuse liability of mephedrone is substantial and therefore considered that the evidence of its abuse warranted its placement under international control, in Schedule II of the Convention on Psychotropic Substances (1971).
Following a notification under Article 2, paragraph 1 of the Convention on Psychotropic Substances (1971) by the Government of the People's Republic of China concerning proposed recommendation for international control of ketamine, the Expert Committee critically reviewed this substance, following its previous critical reviews of ketamine at its 35th and 34th meeting and the pre-review undertaken at its 33rd meeting. The information provided by China with its notification to the Secretary-General was brought to the Expert Committee's attention. The Expert Committee's assessment was that ketamine “is widely used as an anaesthetic in human and veterinary medicine, and is included in the WHO Model List of Essential Medicines and the WHO Model List of Essential Medicines for Children as well as in many national lists of essential medicines”. The Expert Committee found that it was presented with “compelling evidence [. . .] about the prominent place of ketamine as an anaesthetic in developing countries and crisis situations”. While the Expert Committee “acknowledged the concerns raised by some countries and UN organizations”, it stated that “ketamine abuse currently does not appear to pose a sufficient public-health risk of global scale to warrant scheduling” and recommended “that ketamine not be placed under international control at this time”. “Countries with serious abuse problems may decide to introduce or maintain control measures, but should ensure ready access to ketamine for surgery and anaesthesia for human and veterinary care”.
During its meeting, the Expert Committee also discussed the importance of having reliable and sufficient data that could inform the review process in particular for New Psychoactive Substances (NPS), acknowledging the fact that more and more NPS will likely be reviewed in the future, for which data will not always be readily available. UNODC and WHO will hold an international experts consultation in December 2014 to identify selection criteria for prioritisation of NPS to be reviewed by the Committee as well as relevant indicators, methods and tools for data collection on NPS.
I am very pleased with the ongoing collaboration between WHO, UNODC and INCB for improving access to controlled medicines while preventing misuse and trafficking and for preparing the Special Session of the United Nations General Assembly on the World Drug Problem in 2016.”
Substance recommended to be scheduled in Schedule I of the Single Convention on Narcotic Drugs (1961), as amended by the 1972 Protocol:
AH-7921 is an
AH-7921 had not been previously pre-reviewed or critically reviewed. A direct critical review was proposed based on information brought to WHO's attention that AH-7921 is clandestinely manufactured, of especially serious risk to public health and society, and of no recognized therapeutic use by any party. Preliminary data collected from literature and different countries indicated that this substance may cause substantial harm and that it has no medical use.
AH-7921 is an opioid with “morphine-like” effects. The Committee considered that the degree of risk to public health and society associated with the abuse liability and accompanying evidence warranted its placement under international control. The Committee recommended that AH-7921 be placed in Schedule I of the Single Convention on Narcotic Drugs (1961), as amended by the 1972 Protocol.
Substances recommended to be scheduled in Schedule I of the Convention on Psychotropic Substances (1971):
During the discussion of GHB at the 34th Meeting of the WHO Expert Committee on Drug Dependence (ECDD), the Committee “noted information relating to the abuse of GBL itself (convertible to GHB in the body) and suggested this substance for pre-review”. Based on the evidence presented in the pre-review of GBL during its 35th Meeting, given its close association with GHB, and the recommendation made by the Committee to reschedule GHB from Schedule IV to Schedule II of the Convention on Psychotropic Substances (1971), the Committee recommended that a critical review of GBL be undertaken.
The Committee considered that the degree of risk to public health and society associated with the abuse liability of GBL is especially serious. Whilst the Committee recognized widespread and important industrial use, it has no defined therapeutic usefulness. The Committee considered that the evidence of its abuse warranted its placement under international control within Schedule I of the Convention on Psychotropic Substances (1971).
During the discussion of gamma-hydroxybutyric acid (GHB) at its 34th Meeting, the Committee “noted information relating to the abuse of 1,4-BD itself (convertible to GHB in the body) and suggested this substance for pre-review”. Based on the evidence presented in the pre-review of GBL during its 35th Meeting, given its close association with GHB, and the recommendation made by the Committee to reschedule GHB from Schedule IV to Schedule II of the Convention on Psychotropic Substances (1971), the Committee recommended that a critical review of 1,4-BD be undertaken.
1,4-butanediol produces its effects in the body through the in vivo formation of the scheduled substance GHB. The Committee considered that the degree of risk to public health and society associated with the abuse liability of 1,4-butanediol is especially serious. Whilst the Committee recognized widespread and important industrial use, it has no defined therapeutic usefulness. The Committee considered that the evidence of its abuse warranted its placement under international control within Schedule I of the Convention on Psychotropic Substances (1971).
25B-NBOMe had not been previously pre-reviewed or critically reviewed. A direct critical review was proposed based on information brought to WHO's attention that 25B-NBOMe is clandestinely manufactured, of especially serious risk to public health and society, and of no recognized therapeutic use by any party. Preliminary data collected from literature and different countries indicated that this substance may cause substantial harm and that it has no medical use.
The Committee noted the challenges associated with the evidence base concerning the substance. The Committee considered that the degree of risk to public health and society associated with the abuse liability of 25B-NBOMe is especially serious. Whilst the Committee noted its use in medical research, it has no recorded therapeutic use.
The Committee considered that the evidence of its abuse warranted its placement under international control and recommended that 25B-NBOMe be placed in Schedule I of the Convention on Psychotropic Substances (1971).
25C-NBOMe had not been previously pre-reviewed or critically reviewed. A direct critical review was proposed based on information brought to WHO's attention that 25C-NBOMe is clandestinely manufactured, of especially serious risk to public health and society, and of no recognized therapeutic use
The Committee noted the challenges associated with the evidence base concerning the substance. The Committee considered that the degree of risk to public health and society associated with the abuse liability of 25C-NBOMe is especially serious. Whilst the Committee noted its use in medical research, it has no recorded therapeutic use. The Committee considered that the evidence of its abuse warranted its placement under international control and recommended that 25C-NBOMe be placed in Schedule I of the Convention on Psychotropic Substances (1971).
25I-NBOMe had not been previously pre-reviewed or critically reviewed. A direct critical review was proposed based on information brought to WHO's attention that 25I-NBOMe is clandestinely manufactured, of especially serious risk to public health and society, and of no recognized therapeutic use by any party. Preliminary data collected from literature and different countries indicated that this substance may cause substantial harm and that it has no medical use.
The Committee noted the challenges associated with the evidence base concerning the substance. The Committee considered that the degree of risk to public health and society associated with the abuse liability of 25I-NBOMe is especially serious. Whilst the Committee noted its use in medical research, it has no recorded therapeutic use. The Committee considered that the evidence of its abuse warranted its placement under international control and recommended that 25I-NBOMe be placed in Schedule I of the Convention on Psychotropic Substances (1971).
Substances recommended to be scheduled in Schedule II of the Convention on Psychotropic Substances (1971):
BZP was pre-reviewed at the 35th ECDD meeting and based on the reported psychostimulant effects, evidence of abuse and adverse effects, the Expert Committee concluded that a critical review was warranted.
BZP has been shown to have effects similar to amphetamine. The Committee considered that the degree of risk to public health and society associated with the abuse liability of BZP is substantial. Its therapeutic usefulness has been assessed to be little, as it is not currently licensed for use. The Committee considered that the evidence of its abuse warranted its placement under international control. The Committee recommended that BZP be placed in Schedule II of the Convention on Psychotropic Substances (1971).
JWH-018 had not been previously pre-reviewed or critically reviewed. A direct critical review was proposed based on information brought to WHO's attention that JWH-018 is clandestinely manufactured, of especially serious risk to public health and society, and of no recognized therapeutic use by any party. Preliminary data collected from literature and different countries indicated that this substance may cause substantial harm and that it has no medical use.
The Committee noted the challenges associated with the evidence base concerning the substance. The Committee noted analytically confirmed cases of non-fatal and fatal intoxications involving JWH-018. The Committee therefore considered that the degree of risk to public health associated with the abuse liability of JWH-018 is substantial. Its therapeutic usefulness has been assessed to be none. As per the Guidance on the WHO review of psychoactive substances for international control, higher regard was made to the substantial public health risk as opposed to the lack of therapeutic usefulness [p.18, paragraph 56, penultimate sentence]. The Committee recommended that JWH-018 be placed under international control in Schedule II of the Convention on Psychotropic Substances (1971).
AM-2201 had not been previously pre-reviewed or critically reviewed. A direct critical review was proposed based on information brought to WHO's attention that AM-2201 is clandestinely manufactured, of especially serious risk to public health and society, and of no recognized therapeutic use by any party. Preliminary data collected from literature and different countries indicated that this substance may cause substantial harm and that it has no medical use.
The Committee noted the challenges associated with the evidence base concerning the substance. The Committee noted analytically confirmed cases of non-fatal and fatal intoxications involving AM-2201. The Committee therefore considered that the degree of risk to public health associated with the abuse liability of AM-2201 is substantial. Its therapeutic usefulness has been assessed to be none. As per the Guidance on the WHO review of psychoactive substances for international control, higher regard was made to the substantial public health risk as opposed to the lack of therapeutic usefulness [p.18, paragraph 56, penultimate sentence]. The Committee recommended that AM-2201 be placed under international control in Schedule II of the Convention on Psychotropic Substances (1971).
MDPV had not been previously pre-reviewed or critically reviewed. A direct critical review was proposed based on information brought to WHO's attention that MDPV is clandestinely manufactured, of especially serious risk to public health and society, and of no recognized therapeutic use by any party. Preliminary data collected from literature and different countries indicated that this substance may cause substantial harm and that it has no medical use.
The Committee considered that the degree of risk to public health and society associated with the abuse liability of MDPV is substantial. Its therapeutic usefulness has been assessed to be none. The Committee considered that the evidence of its abuse warranted its placement under international control. As per the Guidance on the WHO review of psychoactive substances for international control, higher regard was made to the substantial public health risk as opposed to the lack of therapeutic usefulness [p.18 paragraph 56, penultimate sentence]. The Committee recommended that MDPV be placed in Schedule II of the Convention on Psychotropic Substances (1971).
Methylone had not been previously pre-reviewed or critically reviewed. A direct critical review was proposed based on information brought to WHO's attention that methylone is clandestinely manufactured, of especially serious risk to public health and society, and of no recognized therapeutic use by any party. Preliminary data collected from literature and different countries indicated that this substance may cause substantial harm and that it has no medical use.
The Committee considered that the degree of risk to public health and society associated with the abuse liability of methylone is substantial. Its therapeutic usefulness has been assessed to be none. The Committee considered that the evidence of its abuse warranted its placement under international control. As per the Guidance on the WHO review of psychoactive substances for international control, higher regard was made to the substantial public health risk as opposed to the lack of therapeutic usefulness [p.18, paragraph 56, penultimate sentence]. The Committee recommended that methylone be placed in Schedule II of the Convention on Psychotropic Substances (1971).
Mephedrone had not been previously pre-reviewed or critically reviewed. A direct critical review was proposed based on information brought to WHO's attention that mephedrone is clandestinely manufactured, of especially serious risk to public health and society, and of no recognized therapeutic use by any party. Preliminary data collected from literature and different countries indicated that this substance may cause substantial harm. A critical review was further undertaken by the Committee given that the Government of the United Kingdom of Great Britain and Northern Ireland had made a notification concerning a proposed recommendation for international control of mephedrone (4-methylmethcathinone), under
The Committee considered that the degree of risk to public health and society associated with the abuse liability of mephedrone is substantial. Its therapeutic usefulness has been assessed to be none. The Committee considered that the evidence of its abuse warranted its placement under international control. As per the Guidance on the WHO review of psychoactive substances for international control, higher regard was made to the substantial public health risk as opposed to the lack of therapeutic usefulness [p.18, paragraph 56, penultimate sentence].
The Committee recommended that mephedrone be placed in Schedule II of the Convention on Psychotropic Substances (1971).
Although WHO has made specific scheduling recommendations for each of the drug substances, the CND is not obliged to follow the WHO recommendations. Options available to the CND for substances considered for control under the Psychotropic Convention include the following: (1) Accept the WHO recommendations; (2) accept the recommendations to control, but control the drug substance in a schedule other than that recommended; or (3) reject the recommendations entirely.
AH-7921, or 1-(3,4-dichlorobenzamidomethyl)cyclohexyldimethylamine, is an opioid analgesic drug substance selective for the µ-opioid receptor. The WHO ECDD met in June 2014 and recommended that AH-7921 be placed in Schedule I of the 1961 Single Convention. AH-7921 is not controlled under the CSA in the United States. As such, additional controls will be necessary to fulfill U.S. obligations if AH-7921 is controlled under Schedule I of the 1961 Single Convention.
Gamma-butyrolactone (GBL) is used as an industrial solvent. GBL can be converted in the body to the central nervous system depressant drug gamma-hydroxybutyric acid (GHB). GBL is controlled as a List I chemical in the United States under the CSA. The WHO ECDD met in June 2014 and recommended that GBL be placed in Schedule I of the Psychotropic Convention. Additional controls will be necessary to fulfill U.S. obligations if GBL is controlled under Schedule I of the Psychotropic Convention.
1,4-Butanediol is used as an industrial solvent for manufacturing and also used for the synthesis of GBL. 1,4-Butanediol can also be converted to the central nervous depressant drug GHB. It has no medical use in the United States. 1,4-Butanediol is not controlled under the CSA in the United States, but it is subject to controls in several States under state law. 1,4-Butanediol was reviewed by the WHO ECDD at its 36th meeting, at which the WHO ECDD recommended that 1,4-butanediol be placed in Schedule I of the Psychotropic Convention. Additional controls will be necessary to fulfill U.S. obligations if 1,4-butanediol is controlled under Schedule I of the Psychotropic Convention.
The substances 25B-NBOMe (2C-B-NBOMe), 25C-NBOMe (2C-C-NBOMe), and 25I-NBOMe (2C-I-NBOMe) are synthetic 2C phenethylamine substances and were developed for use in mapping and investigating the serotonin receptors in the mammalian brain. The WHO ECDD at its 36th meeting recommended that 25B-NBOMe, 25C-NBOMe, and 25I-NBOMe be placed in Schedule I of the Psychotropic Convention. On November 15, 2013, 25B-NBOMe, 25C-NBOMe, and 25I-NBOMe were temporarily placed in Schedule I of the CSA under the temporary scheduling provision of section 201(h) of the CSA. These provisions provide the Attorney General with the authority to temporarily place a substance into Schedule I of the CSA for 2 years, without regard to the requirements of 21 U.S.C. 811(b), if he finds that such action is necessary to avoid an imminent hazard to the public safety. In addition, if proceedings to control a substance are initiated under 21 U.S.C. 811(a)(1), the Attorney General may extend the temporary scheduling for up to 1 year (21 U.S.C. 811(h)(2)). Therefore, considering the previously mentioned time limitations of temporary scheduling under section 201(h) of the CSA, additional controls will be necessary to fulfill U.S. obligations if 25B-NBOMe, 25C-NBOMe, and 25I-NBOMe are controlled under Schedule I of the Psychotropic Convention.
The substances 1-pentyl-1H-indol-3-yl)-1-naphthalenyl-methanone (JWH-018) and [1-(5-fluoropentyl)-1H-indol-3-yl]-1-naphthalenyl-methanone (AM-2201) are classified as synthetic cannabinoids with pharmacological properties like tetrahydrocannabinol. The WHO ECDD at its 36th meeting recommended that JWH-018 and AM-2201 be placed in Schedule II of the Psychotropic Convention. These two substances are controlled in Schedule I under the CSA in the United States. As such, no additional controls will be necessary to fulfill U.S. obligations if JWH-018 and AM-2201 are controlled under Schedule II of the Psychotropic Convention.
The substances 3,4-methylenedioxypyrovalerone (MDPV), 3,4-methylenedioxy-N-methylcathinone (beta-keto-MDMA; methylone), and 4-methylmethcathinone (4-MMC; mephedrone) are classified as synthetic cathinones in the phenethylamine class and are structurally and pharmacologically similar to amphetamine. The WHO ECDD at its 36th meeting recommended that MDPV, methylone, and mephedrone be placed in Schedule II of the Psychotropic Convention. MDPV, methylone, and mephedrone are controlled in Schedule I under the CSA in the United States. As such, no additional controls will be necessary to fulfill U.S. obligations if these three substances are controlled under Schedule II of the Psychotropic Convention.
In addition to the above substances recommended for international control by the WHO Expert Committee at its 36th meeting, the United Nations Economic and Social Council published recommendations for action to be taken by the CND at the March 2015 meeting (
Ketamine is classified as a rapid-acting general anesthetic agent used for short diagnostic and surgical procedures that do not require skeletal muscle relaxation. It is marketed in the United States as an injectable. Ketamine is controlled in Schedule III of the CSA in
Comments regarding the WHO recommendations for control of AH-7921 under the 1961 Single Convention will also be forwarded to the relevant Agencies for consideration in developing the U.S. position regarding narcotic substances at the CND meeting.
Interested persons may submit either electronic comments regarding this document to
FDA does not presently plan to hold a public meeting. If any person believes that, in addition to written comments, a public meeting would contribute to the development of the U.S. position on the substances to be considered for control under the Psychotropic Convention, a request for a public meeting and the reasons for such a request should be sent to James R. Hunter (see
The short time period for the submission of comments and requests for a public meeting is needed to ensure that HHS may, in a timely fashion, carry out the required action and be responsive to the United Nations.
Food and Drug Administration, HHS.
Notice of public workshop.
The Food and Drug Administration (FDA) is announcing a public workshop entitled “Evaluating and Modernizing our Approaches for Food-Effect Assessment,” cosponsored with the American Association of Pharmaceutical Scientists (AAPS), the American College of Clinical Pharmacology (ACCP), and the American Society for Clinical Pharmacology and Therapeutics (ASCPT). The goals of this public workshop are to facilitate discussion on current scientific approaches on assessing the effect of food on the pharmacokinetics and pharmacodynamics of drugs and to initiate constructive discussion and information sharing among relevant stakeholders on the influence of food-effects on the pharmacokinetic properties of therapeutics in order to optimize dose and dosing regimens.
The registration fee will be waived for 50 FDA employees. If you need special accommodations because of disability, please contact AAPS at
FDA's guidance for industry entitled “Food-Effect Bioavailability and Fed Bioequivalence Studies” (Food-Effect Guidance) is an important tool in the development of new oral therapeutics. Studies are conducted according to the principles described for every new drug that is intended to be administered by the oral route. The Food-Effect Guidance was first published in 2002. Since that time, numerous studies have been reported in the literature in an effort to address a number of different aspects related to assessing the effect of food on the pharmacokinetics and pharmacodynamics of drugs. Predominantly, these studies have addressed the impact of food composition on the physiology of drug absorption. In vitro studies have aimed at elucidating the individual mechanism(s) of drug absorption, and a number of in vivo studies have addressed the effects of different meal compositions on the pharmacokinetics of drugs.
FDA has undertaken an effort to revise the 2002 Food-Effect Guidance and is seeking feedback from academia, industry, and other stakeholders on several issues. FDA, AAPS, ACCP, and ASCPT agreed to cosponsor this workshop to provide a forum for input on the best available science on this topic from academia, industry, other stakeholders, and regulators.
• To provide a forum for open discussion between industry, academia, other stakeholders, and FDA around proposed changes to the Food-Effect Guidance.
• To seek feedback from industry, academia, and other stakeholders on FDA's proposals and to seek any additional input that will benefit decision making on a guidance revision on the topic.
Food and Drug Administration, HHS.
Notice of public conference.
The Food and Drug Administration (FDA) Cincinnati District, in cosponsorship with Xavier University, is announcing a public conference entitled “FDA/Xavier University PharmaLink Conference: Leadership in a Global Supply Chain.” The PharmaLink conference seeks solutions to important and complicated issues by aligning with the strategic priorities of FDA and includes presentations from key FDA officials, global regulators, and industry experts. Each presentation challenges the status quo and conventional wisdom to create synergies focused on finding solutions which make a difference. The experience level of the audience has fostered engaged dialog that has led to innovative initiatives.
The following forms of payment will be accepted: American Express, Visa, Mastercard, and company checks.
To register online for the public conference, please visit the “Registration” link on the conference Web site at
To register by mail, please send your name, title, firm name, address, telephone and fax numbers, email, and payment information for the fee to Xavier University, Attention: Mason Rick, 3800 Victory Pkwy., Cincinnati, OH 45207-5471. An email will be sent confirming your registration.
Attendees are responsible for their own accommodations. The conference headquarter hotel is the Downtown Cincinnati Hilton Netherlands Plaza, 35 West 5th Street, Cincinnati, OH 45202, 513-421-9100. To make reservations online, please visit the “Venue & Logistics” link at
If you need special accommodations due to a disability, please contact Marla Phillips (see
The public conference helps fulfill the Department of Health and Human Services' and FDA's important mission to protect the public health. The conference will engage those involved in FDA-regulated global supply chain quality and management through the following topics:
The conference includes:
The most pressing challenges of the global pharmaceutical industry require solutions which are inspired by collaboration to ensure the ongoing health and safety of patients. These challenges include designing products with the patient in mind, building quality into the product from the onset, selecting the right suppliers, and considering total product lifecycle systems. Meeting these challenges requires vigilance, innovation, supply chain strategy, relationship management, proactive change management, and a commitment to doing the job right the first time. FDA has made education of the drug and device manufacturing community a high priority to help ensure the quality of FDA-regulated drugs and devices.
The conference helps to achieve objectives set forth in section 406 of the Food and Drug Administration Modernization Act of 1997 (21 U.S.C. 393), which includes working closely with stakeholders and maximizing the availability and clarity of information to stakeholders and the public. The conference also is consistent with the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121) by providing outreach activities by Government Agencies to small businesses.
In accordance with section 10(a)(2) of the Federal Advisory Committee Act (Pub. L. 92-463, codified at 5 U.S.C. App.), notice is hereby given of the following meeting:
The Committee is expected to vote on whether or not to recommend to the Secretary the addition of MPS 1 to the RUSP. Tentatively, the Committee is expected to review and/or vote on the final recommendations on timely newborn screening. Agenda items are subject to change as necessary or appropriate. The agenda, webinar information, Committee Roster, Charter, presentations, and other meeting materials will be located on the Advisory Committee's Web site at
More information on the Advisory Committee is available at
In compliance with the requirement of Section 3506(c)(2)(A) of the Paperwork Reduction Act of 1995, for opportunity for public comment on proposed data collection projects, the National Heart, Lung, and Blood Institute (NHLBI), the National Institutes of Health (NIH), will publish periodic summaries of proposed projects to the Office of Management and Budget (OMB) for review and approval.
Written comments and/or suggestions from the public and affected agencies are invited on one or more of the following points: (1) Whether the proposed collection of information is necessary for the proper performance of the function of the agency, including whether the information will have practical utility; (2) The accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used; (3) Ways to enhance the quality, utility, and clarity of the information to be collected; and (4) Ways to minimize the burden of the collection of information on those who are to respond, including the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology.
OMB approval is requested for 3 years. There are no costs to respondents other than their time. The total estimated annualized burden hours are 48.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The contract proposals and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the contract proposals, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Notice is hereby given of a change in the meeting of the National Advisory Council on Alcohol Abuse and Alcoholism, February 04, 2015, 9 a.m. to February 05, 2015, 2 p.m., National Institutes of Health, 5635 Fishers Lane, Bethesda, MD 20892 which was published in the
The meeting notice is amended to reflect that that the open session of the meeting will be available via
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications, contract proposals, and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications or contract proposals, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable materials, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in section 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The contract proposals and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the contract proposals, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of a meeting of the National Advisory Council on Minority Health and Health Disparities.
The meeting will be open to the public as indicated below, with attendance limited to space available. Individuals who plan to attend and need special assistance, such as sign language interpretation or other reasonable accommodations, should notify the Contact Person listed below in advance of the meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and/or contract proposals and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications and/or contract proposals, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Any member of the public interested in presenting oral comments to the committee may notify the Contact Person listed on this notice at least 10 days in advance of the meeting. Interested individuals and representatives of organizations may submit a letter of intent, a brief description of the organization represented, and a short description of the oral presentation. Only one representative of an organization may be allowed to present oral comments and if accepted by the committee, presentations may be limited to five minutes. Both printed and electronic copies are requested for the record. In addition, any interested person may file written comments with the committee by forwarding their statement to the Contact Person listed on this notice. The statement should include the name, address, telephone number and when applicable, the business or professional affiliation of the interested person.
In the interest of security, NIH has instituted stringent procedures for entrance onto the NIH campus. All visitor vehicles, including taxis, hotel, and airport shuttles, will be inspected before being allowed on campus. Visitors will be asked to show one form of identification (for example, a government-issued photo ID, driver's license, or passport) and to state the purpose of their visit.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The contract proposal and
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meetings.
The meetings will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Pursuant to section 10(d) of the Federal Advisory Committee Act, as amended (5 U.S.C. App.), notice is hereby given of the following meeting.
The meeting will be closed to the public in accordance with the provisions set forth in sections 552b(c)(4) and 552b(c)(6), Title 5 U.S.C., as amended. The grant applications and the discussions could disclose confidential trade secrets or commercial property such as patentable material, and personal information concerning individuals associated with the grant applications, the disclosure of which would constitute a clearly unwarranted invasion of personal privacy.
Federal Emergency Management Agency, DHS.
Notice.
FEMA gives notice that the statewide per capita indicator for recommending cost share adjustments for major disasters declared on or after January 1, 2015, through December 31, 2015, is $136.
This notice applies to major disasters declared on or after January 1, 2015.
William Roche, Recovery Directorate, Federal Emergency Management Agency, 500 C Street SW., Washington, DC 20472, (202) 646-3834.
Pursuant to 44 CFR 206.47, the statewide per capita indicator that is used to recommend an increase of the Federal cost share from seventy-five percent (75%) to not more than ninety percent (90%) of the eligible cost of permanent work under section 406 and emergency work under section 403 and section 407 of the Robert T. Stafford Disaster Relief and Emergency Assistance Act is adjusted annually. The adjustment to the indicator is based on the Consumer Price Index for All Urban Consumers published annually by the U.S. Department of Labor. For disasters declared on January 1, 2015, through December 31, 2015, the qualifying indicator is $136 per capita of state population.
This adjustment is based on an increase of 0.8 percent in the Consumer Price Index for All Urban Consumers for the 12-month period that ended December 2014. The Bureau of Labor Statistics of the U.S. Department of Labor released the information on January 16, 2015.
U.S. Citizenship and Immigration Services, Department of Homeland Security.
60-Day notice.
The Department of Homeland Security (DHS), U.S. Citizenship and Immigration Services (USCIS) invites the general public and other Federal agencies to comment upon this proposed revision of a currently approved collection of information. In accordance with the Paperwork
Comments are encouraged and will be accepted for 60 days until March 30, 2015.
All submissions received must include the OMB Control Number 1615-0075 in the subject box, the agency name and Docket ID USCIS-2007-0029. To avoid duplicate submissions, please use only one of the following methods to submit comments:
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If you need a copy of the information collection instrument with instructions, or additional information, please visit the Federal eRulemaking Portal site at:
Regardless of the method used for submitting comments or material, all submissions will be posted, without change, to the Federal eRulemaking Portal at
The address listed in this notice should only be used to submit comments concerning this information collection. Please do not submit requests for individual case status inquiries to this address. If you are seeking information about the status of your individual case, please check “My Case Status” online at:
Written comments and suggestions from the public and affected agencies should address one or more of the following four points:
(1) Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
(2) Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
(3) Enhance the quality, utility, and clarity of the information to be collected; and
(4) Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology,
Overview of this information collection:
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U.S. Citizenship and Immigration Services, Department of Homeland Security.
30-Day Notice.
The Department of Homeland Security (DHS), U.S. Citizenship and Immigration Services (USCIS) will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995. The information collection notice was previously published in the
The purpose of this notice is to allow an additional 30 days for public comments. Comments are encouraged and will be accepted until February 26, 2015. This process is conducted in accordance with 5 CFR 1320.10.
Written comments and/or suggestions regarding the item(s) contained in this notice, especially regarding the estimated public burden and associated response time, must be directed to the OMB USCIS Desk Officer via email at
You may wish to consider limiting the amount of personal information that you provide in any voluntary submission you make. For additional information please read the Privacy Act notice that is available via the link in the footer of
If you need a copy of the information collection instrument with instructions, or additional information, please visit the Federal eRulemaking Portal site at:
The address listed in this notice should only be used to submit comments concerning this information collection. Please do not submit requests for individual case status inquiries to this address. If you are seeking information about the status of your individual case, please check “My Case Status” online at:
Written comments and suggestions from the public and affected agencies should address one or more of the following four points:
(1) Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
(2) Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
(3) Enhance the quality, utility, and clarity of the information to be collected; and
(4) Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology,
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U.S. Customs and Border Protection, Department of Homeland Security.
30-Day notice and request for comments; extension of an existing collection of information.
U.S. Customs and Border Protection (CBP) of the Department of Homeland Security will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act: Harbor Maintenance Fee. This is a proposed extension of an information collection that was previously approved. CBP is proposing that this information collection be extended with no change to the burden hours or to the information collected. This document is published to obtain comments from the public and affected agencies.
Written comments should be received on or before February 26, 2015 to be assured of consideration.
Interested persons are invited to submit written comments on this proposed information collection to the Office of Information and Regulatory Affairs, Office of Management and Budget. Comments should be addressed to the OMB Desk Officer for Customs and Border Protection, Department of Homeland Security, and sent via electronic mail to
Requests for additional information should be directed to Tracey Denning, U.S. Customs and Border Protection, Regulations and Rulings, Office of International Trade, 90 K Street NE., 10th Floor, Washington, DC 20229-1177, at 202-325-0265.
This proposed information collection was previously published in the
CBP Form 349,
CBP uses the information collected on CBP Forms 349 and 350 to verify that the fee collected is timely and accurately submitted. These forms are authorized by the Water Resources Development Act of 1986 (26 U.S.C. 4461,
U.S. Customs and Border Protection, Department of Homeland Security.
30-Day notice and request for comments; extension of an existing collection of information.
U.S. Customs and Border Protection (CBP) of the Department of Homeland Security will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act: Lien Notice (CBP Form 3485). This is a proposed extension of an information collection that was previously approved. CBP is proposing that this information collection be extended with no change to the burden hours or to the information collected. This document is published to obtain comments from the public and affected agencies.
Written comments should be received on or before February 26, 2015 to be assured of consideration.
Interested persons are invited to submit written comments on this proposed information collection to the Office of Information and Regulatory Affairs, Office of Management and Budget. Comments should be addressed to the OMB Desk Officer for Customs and Border Protection, Department of Homeland Security, and sent via electronic mail to
Requests for additional information should be directed to Tracey Denning, U.S. Customs and Border Protection, Regulations and Rulings, Office of International Trade, 90 K Street NE., 10th Floor, Washington, DC 20229-1177, at 202-325-0265.
This proposed information collection was previously published in the
U.S. Customs and Border Protection, Department of Homeland Security.
Customs broker's license revocation.
This document provides notice of the revocation of a customs broker's license.
This document provides notice that, pursuant to section 641 of the Tariff Act of 1930, as amended (codified at 19 U.S. Code 1641), and section 111.30(d) of title 19 of the Code of Federal Regulations (19 CFR 111.30(d)), the following customs broker's license is revoked by operation of law without prejudice for failure to file a triennial status report.
Fish and Wildlife Service, Interior.
Notice; request for comments.
We (U.S. Fish and Wildlife Service) have sent an Information Collection Request (ICR) to OMB for review and approval. We summarize the ICR below and describe the nature of the collection and the estimated burden and cost. This information collection is scheduled to expire on January 31, 2015. We may not conduct or sponsor and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number. However, under OMB regulations, we may continue to conduct or sponsor this information collection while it is pending at OMB.
You must submit comments on or before February 26, 2015.
Send your comments and suggestions on this information collection to the Desk Officer for the Department of the Interior at OMB-OIRA at (202) 395-5806 (fax) or
To request additional information about this ICR, contact Hope Grey at
NAWCA provides matching grants to organizations and individuals who have developed partnerships to carry out wetlands conservation projects in the United States, Canada, and Mexico for the benefit of wetlands-associated migratory birds and other wildlife. There is a Standard and a Small Grants Program. Both are competitive grants programs and require that grant requests be matched by partner contributions at no less than a 1-to-1 ratio. Funds from U.S. Federal sources may contribute to a project, but are not eligible as a match.
The Standard Grants Program supports projects in Canada, the United States, and Mexico that involve long-term protection, restoration, and enhancement of wetlands and associated uplands habitats. In Mexico, partners may also conduct projects involving technical training, environmental education and outreach, organizational infrastructure development, and sustainable-use studies.
The Small Grants Program operates only in the United States. It supports the same types of projects and adheres to the same selection criteria and administrative guidelines as the U.S. Standard Grants Program. However, project activities are usually smaller in scope and involve fewer project dollars. Grant requests may not exceed $75,000, and funding priority is given to grantees or partners new to the NAWCA Grants Program.
We publish notices of funding availability on Grants.gov (
NMBCA establishes a matching grant program to fund projects that promote the long-term conservation of neotropical migratory birds and their habitats in the United States, Canada, Latin America, and the Caribbean. Principal conservation actions supported are:
• Protection and management of populations.
• Maintenance, management, protection, and restoration of habitat.
• Research and monitoring.
• Law enforcement.
• Community outreach and education.
We publish notices of funding availability on Grants.gov as well as in the Catalog of Federal Domestic Assistance. To compete for grant funds, partnerships submit applications that describe in substantial detail project locations, project resources, future benefits, and other characteristics that meet the standards established by the U.S. Fish and Wildlife Service and the requirements of NMBCA.
Materials that describe the program and assist applicants in formulating project proposals for consideration are available on our Web site at
We again invite comments concerning this information collection on:
• Whether or not the collection of information is necessary, including whether or not the information will have practical utility;
• The accuracy of our estimate of the burden for this collection of information;
• Ways to enhance the quality, utility, and clarity of the information to be collected; and
• Ways to minimize the burden of the collection of information on respondents.
Comments that you submit in response to this notice are a matter of public record. Before including your address, phone number, email address, or other personal identifying information in your comment, you should be aware that your entire comment, including your personal identifying information, may be made publicly available at any time. While you can ask OMB in your comment to withhold your personal identifying information from public review, we cannot guarantee that it will be done.
Fish and Wildlife Service, Interior.
Notice of availability.
We, the U.S. Fish and Wildlife Service (Service), announce the availability of a revised comprehensive conservation plan (plan/CCP) and final environmental impact statement (EIS) for the Arctic National Wildlife Refuge (refuge, NWR) for a 30-day public review. In this revised plan and final EIS, we describe how we propose to manage the refuge for the next 15 years.
The review period will end February 26, 2015. We are not soliciting comments on the plan during this review period.
You may submit questions or requests for more information by any one of the following methods:
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You will find the plan and EIS, as well as information about the planning process and a summary of the revised plan, on the planning Web site:
Stephanie Brady, (907) 306-7448.
With this notice, we continue the comprehensive conservation planning process for Arctic National Wildlife Refuge, which we began by publishing a notice of intent in the
The Alaska National Interest Lands Conservation Act (ANILCA) requires us to develop a CCP for each national wildlife refuge in Alaska. The purpose of developing a CCP is to provide refuge managers with a strategy for achieving refuge purposes and contributing toward the mission of the National Wildlife Refuge System (NWRS), consistent with sound principles of fish and wildlife management, conservation, legal mandates, and Service policies. In addition to outlining broad management direction for conserving wildlife and their habitats, CCPs identify wildlife-dependent recreational opportunities available to the public, including opportunities for hunting, fishing, wildlife observation and photography, and environmental education and interpretation. In general, we review and update CCPs in Alaska every 15 to 20 years.
ANILCA lists specific purposes for each refuge in Alaska. These purposes provide the foundation for developing and prioritizing the management goals and objectives for each Alaskan refuge. The planning process is a way for us and the public to evaluate management goals and objectives that will ensure the best possible approach to wildlife, plant, and habitat conservation while providing for wildlife-dependent recreation opportunities that are compatible with each refuge's establishing purposes and the mission of the NWRS.
The revised plan may be found at
The revised plan and final EIS includes detailed information about the refuge, planning process, issues, and management alternatives considered. The final EIS includes discussions of six alternatives for refuge management. All six alternatives address three significant issues: Wilderness recommendations, Wild and Scenic River recommendations, and Kongakut River visitor use management. The Service's preferred alternative is described in the revised Plan and final EIS.
This alternative reflects the current management direction of Arctic NWR. It provides the baseline against which to compare other alternatives. Under Alternative A, the refuge would continue to be managed according to the direction included in the 1988 plan. Current goals and objectives would not be changed.
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Monitoring of physical and social conditions and visitor impacts would continue to occur occasionally. Air operator permit holders would be required to land on non-vegetated surfaces and asked to follow all Federal Aviation Administration (FAA) advisories during flight operations. The Service would prepare a Public Use Management Plan (as required by the 1988 plan).
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Under Alternative F much of the management direction outlined in Alternative A would continue. The goals and objectives and management policies and guidelines described in the plan would be adopted.
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The Service selected Alternative E as the Preferred Alternative for the revised plan for Arctic Refuge. Alternative E addresses the key issues and concerns identified during the planning process and will best achieve the purposes of the refuge, the mission of the NWRS, and maintain the refuge's special values.
The decision was based on a thorough analysis of the environmental, social, and economic considerations presented in the revised plan and final EIS. The Service reviewed and considered the impacts identified in Chapter 5 of the draft plan/EIS; relevant issues, concerns, and opportunities; input received throughout the planning process, including advice from technical experts and public comments on the draft plan/EIS; and other factors, including refuge purposes and relevant laws, regulations, and policies. The revised plan and final EIS addresses a variety of needs, including protection of fish and wildlife populations and their habitats and providing opportunities for fish and wildlife-dependent recreation, subsistence, and other public uses. Alternative E contributes significantly to achieving refuge purposes and goals. Alternative E also strengthens the monitoring of fish, wildlife, habitat, and public uses on the refuge to provide means to better respond to changing conditions in the surrounding landscape.
We are releasing the revised plan and final EIS for a 30-day public review period. We are not soliciting public comments at this time. The Service has
We began the planning process with formal notification to nine federally recognized tribes, two Native village councils, the State of Alaska, four Federal agencies, two Regional Native corporations, one village corporation, and the North Slope Borough. We prepared the revised Plan/final EIS in coordination with the Alaska Department of Natural Resources, the Alaska Department of Fish and Game, the Arctic Slope Regional Corporation, and the Native Village of Kaktovik, all of which had one or more representatives on the planning team. The National Aeronautics and Space Administration (NASA) joined the planning team as a cooperating agency during preparation of the final EIS. We informally consulted with the Gwichyaa Zhee Gwich'in Tribal Government, the Native Village of Kaktovik, the Native Village of Venetie Tribal Government, the Arctic Village Council, and the Venetie Village Council on several occasions throughout the planning process, encouraging their participation in the revised plan. We formally consulted with the Gwichyaa Zhee Gwich'in Tribal Government, the Native Village of Kaktovik, and the Native Village of Venetie Tribal Government in June 2012. We formally consulted with Regional Native Corporation Doyon Limited in September 2012.
The Service published a notice of intent to prepare the plan/EIS in the
A notice of availability for the draft plan/EIS was published in the
The Service received 612,285 communications (an example of a communication could be an individual piece of mail, Web site submission, form letter, statement at a public hearing, etc.) during the public review period on the draft plan/EIS. We have considered all public comments throughout the process and have incorporated them in various ways, such as in identifying the significant planning issues and the different alternatives addressed in the revised plan/final EIS.
We made the following changes in the revised plan and final EIS from the draft plan/EIS:
Wilderness Terminology—We added a “Note about Wilderness Terminology” to the front pages of Volumes 1, 2, and 3 to explain how we use wilderness-related terms throughout the revised plan. “Wilderness” (with a capital “W”) refers to designated Wilderness lands, and “wilderness” (not capitalized) is used as an adjective to describe wilderness-related qualities across the Refuge, including in Minimal Management areas.
Acreages—Many of the acreages listed in the revised plan/final EIS differ from those published elsewhere, including the draft plan. The revised acreages reflect our ability to more accurately measure land areas using such technologies as Geographic Information Systems (GIS). We added a “Note about Acreages” to the front pages of Volumes 1, 2, and 3 to explain our approach.
ANILCA—ANLICA Section 1004 does not apply to Arctic Refuge, and all references to it were removed from the revised plan/final EIS.
Cooperating Agencies—Since the draft plan was released, we welcomed the National Aeronautics and Space Administration (NASA) as a cooperating agency.
Refuge Purposes—We recently received clarification on how Refuge purposes guide management. Established in 1960, the Arctic National Wildlife Range (Range) was created “for the purpose of preserving unique wildlife, wilderness, and recreational values.” In 1980, ANILCA re-designated the Range as part of the Arctic National Wildlife Refuge and provided four purposes that guide management of the entire Refuge. Under the provisions of Section 305 of ANILCA, the Range purposes from 1960 remain in force and effect on the lands and waters in the original Range only to the extent they are consistent with ANILCA and the Alaska Native Claims Settlement Act (ANCSA). ANILCA purposes apply to the entire Refuge. The revised plan was edited to fully reflect this interpretation of Refuge purposes.
Goals and Objectives—The goals and objectives included in the draft plan were revised based on public comment and Service review. Changes range from minor clarifications to major rewrites of goals and objectives. In some cases, multiple objectives in the draft plan were combined into one. Additionally, several new objectives were added to the revised plan. These objectives discuss restoration and rehabilitation of degraded and/or impaired sites; management of the Refuge's Marine Protected Area; modifications to the Refuge's management approach to climate change providing more flexibility in the range of available responses to climate change; assessment and inventory of water resources; and formal consultation with tribes and Alaska Native Regional Corporations on a wide range of environmental, biological, cultural, and subsistence issues and concerns.
Management Policies and Guidelines—We made several changes to the Refuge's management policies and guidelines, including rewriting the introduction to better explain how the guidelines were developed to meet the needs of Arctic Refuge, clarifying the authorities of the State of Alaska and the Service, expanding the discussion on U.S. government relations with tribal governments, and clarifying our intent to refrain from activities intended to resist the effects of climate change. We expanded the section on human safety and management emergencies to include threats to refuge resources; restriction of domestic animals such as sheep, goats, and camelids (llamas and alpacas) to prevent the spread of disease to wildlife; prohibition of the use of straw and hay for bedding for dogs; and prohibition of all except pelletized weed-free feed for pack animals, to reduce the potential introduction and spread of invasive plants. Finally, we removed the proposed permit and fees for temporary facilities related to the taking of fish and wildlife left in designated Wilderness from one season to the next.
Alternatives—The projected budget to implement each of the alternatives was revised and is now lower than what was published in the draft plan. The options considered for management of visitor use on the Kongakut River were revised. A Public Use or Visitor Use Management Plan would be completed under all the alternatives, including
Other Chapters and Appendices—Various chapters and appendices were revised and reworked since the draft plan and draft EIS. Chapter 1, Introduction, was updated with details about the public comment period on the draft plan and contains a new section entitled “Concerns Regarding Fish, Wildlife, and Habitats,” as required by ANILCA. Chapter 4, Affected Environment, has a new section on soundscape and a new section on cabins; in addition, subsections on climate change were added to the descriptions of water resources, vegetation, fish, birds, and mammals. Socioeconomic data were updated with 2010 Census data, where available, and a new section on the Poker Flat Research Range and NASA's Sounding Rockets Program was added. Chapter 5, Environmental Consequences, was reworked to provide more consistency, and to identify reasonably foreseeable future actions. Additionally, the chapter considers the effects of each proposed action on the Poker Flat Research Range. Step-down plans were reprioritized in Chapter 6, and the compatibility determinations were finalized and signed (Appendix G). The eligibility and suitability studies for the wild and scenic river review (Appendix I) were combined into a single report, and we added information about the Wild and Scenic Rivers Act and its management implications.
Two New Volumes—A major change made since the draft plan is the addition of Volumes 3 and 4. Volume 3 summarizes all the public comments received on the draft plan/EIS, presents the substantive comments we received, and includes the Service's responses to each substantive comment. Volume 4 contains indices to help the reader navigate through Volume 3 and contains full text samples of communications received on the draft plan.
We are not soliciting comments at this time. This release is intended to allow the public a period of review. Appendix J in Volume 2 of the plan includes a summary report of public comments received during the scoping period. Volume 3 of the revised plan contains a summary of public comments received on the draft plan/EIS and the Service's responses to substantive comments. Volume 4 of the revised plan includes samples of public comments received on the draft plan/EIS.
Following conclusion of the 30-day public review period, a Record of Decision (ROD) will be signed in which we disclose the Service's final decision and any conditions of approval. Availability of the ROD will be announced through the
U.S. Geological Survey (USGS), Interior.
Notice of an extension and revision of a currently approved information collection (1028-0053).
We (the U.S. Geological Survey) will ask the Office of Management and Budget (OMB) to approve the information collection (IC) described below. The collection will consist of 27 forms. As part of the requested extension we will make several revisions to the number of the associated collection instruments. These revisions include: (1) Deleting USGS Form 9-4053-A, USGS Form 9-4073-A, and USGS Form 9-4097-A; (2) changing USGS Form 9-4094-A and USGS Form 9-4095-A from monthly and annual to annual-only reporting forms; (3) changing USGS Form 9-4057-A and USGS Form 9-4060-A from quarterly and annual to annual-only reporting forms; and (4) decreasing the average burden time for USGS Form 9-4074-A from 2 hours to 1 hour. As required by the Paperwork Reduction Act (PRA) of 1995, and as part of our continuing efforts to reduce paperwork and respondent burden, we invite the general public and other Federal agencies to take this opportunity to comment on this IC. This collection is scheduled to expire on August 31, 2015.
To ensure that your comments are considered, we must receive them on or before March 30, 2015.
Please submit a copy of your comments to the Information Collection Clearance Officer, U.S. Geological Survey, 807 National Center, 12201 Sunrise Valley Drive, Reston, VA 20192 (mail); 703-648-7195 (fax); or
Elizabeth Sangine at 703-648-7720 (telephone);
Respondents to these forms supply the USGS with domestic production and consumption data for 22 ores, concentrates, and metals, some of which are considered strategic and critical. These data and derived information will be published as chapters in Minerals Yearbooks, monthly and quarterly Mineral Industry Surveys, annual Mineral Commodity Summaries, and special publications, for use by Government agencies, industry, education programs, and the general public.
We are soliciting comments as to: (a) Whether the proposed collection of information is necessary for the agency to perform its duties, including whether the information is useful; (b) the accuracy of the agency's estimate of the burden time to the proposed collection of information; (c) how to enhance the quality, usefulness, and clarity of the information to be collected; and (d) how to minimize the burden on the respondents, including the use of automated collection techniques or other forms of information technology.
Please note that the comments submitted in response to this notice are a matter of public record. Before including your personal mailing address, phone number, email address, or other personally identifiable information in your comment, you should be aware that your entire comment, including your personally identifiable information, may be made publicly available at any time. While you can ask us in your comment to withhold your personally identifiable information from public view, we cannot guarantee that we will be able to do so.
Bureau of Indian Affairs, Interior.
Notice of final agency determination.
This notice provides notification of the Department of the Interior's final agency determination to acquire approximately 226.49 acres, more or less, of land into trust for the Cherokee Nation. This notice is published in the exercise of authority delegated by the Secretary of the Interior to the Assistant Secretary—Indian Affairs by 209 Department Manual 8.1.
Ms. Robin White, Bureau of Indian Affairs, Acting Chief, Division of Real Estate Services, 1849 C Street NW., MS 4642-MIB, Washington, DC 20240, telephone number (202) 208-1110.
On June 15, 1989, and on December 2, 1993, pursuant to authority contained in the Federal Property and Administrative Services Act of 1949, as amended by Public Law 93-599 dated January 2, 1975 (88 Stat. 1954), the below described property was transferred by the Local GSA Regional (7) Administrator of the General Services Administration without compensation or reimbursement to the Secretary of the Department of the Interior, to be held in trust for the benefit and use of the Cherokee Nation.
Description of the real property according to Bureau of Land Management Cadastral Survey Plat approved on April 24, 2007, known as Sequoyah High School (GSA Control No. 7-1-OK-542-A & 7-1-OK-542-B), is as follows:
Lots 5 and 6 less the West 1120 feet thereof in Section 19, Township 16 North, Range 22 East of the Indian Meridian, Cherokee County, Oklahoma, AND
The SE
The SW
The above described lands contain a total 226.49 acres, more or less, which is transferred subject to compliance with the provisions of the National Environmental Policy Act of 1969, as amended; Section 106 of the National Historic Preservation Act of 1966, as amended; Executive Order 11593, Protection and Enhancement of the Cultural Environment; Executive Orders 11988 and 11990, Subject: Floodplain Management and Protection of Wetlands; and other appropriate guidelines, valid rights, reservations, rights-of-way, easements of record, regulations, laws, and Executive Orders pertaining to the future use of this property.
This notice does not affect title to the land described above, nor does it affect any valid existing easements for public roads and highways, public utilities, railroads and pipelines, and any other rights-of-way or reservations of record.
Bureau of Land Management, Interior.
Notice of Public Meeting.
In accordance with the Federal Land Policy and Management Act and the Federal Advisory Committee Act, the Bureau of Land Management's (BLM) Farmington District Resource Advisory Council (RAC) will meet as indicated below.
The RAC will meet on February 25 and 26, 2015, at the Farmington District Office, 6251 College Blvd., Suite A, Farmington, NM 87402, from 9 a.m.-4 p.m. The public may send written comments to the RAC at the BLM Farmington District Office, 6251 College Blvd., Suite A, Farmington, NM 87402.
Christine Horton, BLM Farmington District Office, 6251 College Blvd., Suite A, Farmington, NM 87402, 505-564-7633. Persons who use a telecommunications device for the deaf (TDD) may call the Federal Information Relay Service (FIRS) at 1-800-877-8229 to contact the above individual during normal business hours. The FIRS is available 24 hours a day, 7 days a week, to leave a message or question with the above individual. You will receive a reply during normal business hours.
The 10-member Farmington District RAC advises the Secretary of the Interior, through the BLM, on a variety of planning and management issues associated with public land management in the BLM's Farmington District. Planned agenda items include: opening remarks from the BLM Farmington District Manager; updates on ongoing planning efforts; and briefings on the Mancos/Gallup Shale Environmental Assessment/Environmental Impact Statement and drilling permits, the Glade Run Recreation Area Recreation and Travel Management Plan, the Piñon Pipeline, the Chaco Canyon leases, and the wild
Office of Natural Resources Revenue (ONRR), Interior.
Notice of a renewal for an existing Information Collection.
Final regulations that ONRR published May 13, 1999 (64 FR 26240, RIN 1010-AC21), govern the appeal of orders from Minerals Management Service's Royalty Management Program (now ONRR). To comply with the Paperwork Reduction Act of 1995 (PRA), ONRR is notifying the public that we have submitted to the Office of Management and Budget (OMB) an information collection request (ICR) to renew approval of the paperwork requirements in the regulations under 30 CFR part 1243. This notice provides the public a second opportunity to comment on the burden of these regulatory requirements.
OMB has up to 60 days to approve or disapprove this information collection request but may respond after 30 days; therefore, you should submit your public comments to OMB by February 26, 2015 for the assurance of consideration.
You may submit your written comments directly to the Desk Officer for the Department of the Interior (OMB Control Number 1012-0006), Office of Information and Regulatory Affairs, OMB, by email to
For questions on technical issues, contact Ms. Kimberly Werner, Office of Enforcement and Appeals (OEA), ONRR, telephone (303) 231-3801 or email
If ONRR determines that a lessee has not properly reported or paid Royalties and other mineral revenues, we may issue an order to pay additional royalties, a Notice of Noncompliance, or a Civil Penalty Notice requiring correct reporting or payment. Lessees then have a right to appeal ONRR determinations.
Regulations at 30 CFR part 1243 govern the submission of appropriate surety instruments to suspend compliance with orders or decisions and to stay the accrual of civil penalties (if the Office of Hearings and Appeals grants a lessee's petition to stay accrual of civil penalties), pending administrative appeal for Federal and Indian leases. For Federal oil and gas leases, under 30 U.S.C. 1724(l) and its implementing regulations in 30 CFR part 1243, appellants who are requesting a suspension without providing a surety must submit information to demonstrate financial solvency. This ICR covers the burden hours associated with submitting financial statements or surety instruments required to stay an ONRR order, decision, or accrual of civil penalties.
Title 30 CFR 1243.1 states that lessees or recipients of ONRR orders may suspend compliance with an order if they appeal under 30 CFR part 1290. Pending appeal, ONRR may suspend the payment requirement if the appellant submits a formal agreement of payment in case of default such as a bond or other surety; for Federal oil and gas leases, the appellant may demonstrate financial solvency. If the Office of Hearings and Appeals grants a lessee's, or other recipient of a Notice of Noncompliance or Civil Penalty Notice, request to stay the accrual of civil penalties under 30 CFR 1241.55(b)(2) and 1241.63(b)(2), the lessee or other recipient must post a bond or other surety, or for Federal oil and gas leases, demonstrate financial solvency.
ONRR accepts the following surety types: Form ONRR-4435, Administrative Appeal Bond; Form ONRR-4436, Letter of Credit; Form ONRR-4437, Assignment of Certificate of Deposit; Self-bonding; and U.S. Treasury Securities.
When an appellant selects and puts one of the surety types in place, the appellant must maintain the surety until
Appellants may file Form ONRR-4435, Administrative Appeal Bond, which ONRR uses to secure the financial interests of the public and Indian lessors during the entire administrative and judicial appeal process. Under 30 CFR 1243.4, appellants must submit their contact and surety amount information on the bond to obtain the benefit of suspension of an obligation to comply with an order. A surety company that the U.S. Department of the Treasury approves (see Department of the Treasury Circular No. 570, as revised periodically in the
Appellants may choose to file Form ONRR-4436, Letter of Credit (LOC), with no modifications. Requirements at 30 CFR 1243.4 continues to apply. The ONRR Director or the ONRR-delegated bond-approving officer maintains the LOC in a secure facility.
The appellant is responsible for verifying that the bank provides a current Fitch rating to ONRR. After the appeal has been concluded, ONRR may release and return the LOC to the appellant or collect payment on the LOC. If collection is necessary for a remaining balance, we will issue a demand for payment, which includes all interest assessed on the affected bill, to the bank with a notice to the appellant.
Appellants may choose to secure a debt using a Certificate of Deposit (CD) from a bank with the required minimum Fitch rating and by submitting Form ONRR-4437, Assignment of Certificate of Deposit. Appellants must file the request with ONRR prior to the invoice due date. We will accept a book-entry CD that explicitly assigns the CD to the Director. If collection of the CD is necessary for an unpaid balance, we will return unused CD funds to the appellant after total settlement of the appealed issues including applicable interest charges.
For Federal oil and gas leases, regulations at 30 CFR 1243.201 provides that no surety instrument is required when a person representing the appellant periodically demonstrates to the satisfaction of ONRR, that the guarantor or appellant is financially solvent or otherwise able to pay the obligation. Appellants must submit a written request to “self-bond” every time a new appeal is filed. To evaluate the financial solvency and exemption from requirements of appellants to maintain a surety related to an appeal, ONRR requires appellants to submit a consolidated balance sheet subject to annual audit. In some cases, we also require copies of the most recent tax returns (up to 3 years) that appellants file.
In addition, appellants must annually submit financial statements, subject to audit, to support their net worth. ONRR uses the consolidated balance sheet or business information supplied to evaluate the financial solvency of a lessee, designee, or payor seeking a stay of payment obligation pending review. If appellants do not have a consolidated balance sheet documenting their net worth or if they do not meet the $300 million net worth requirement, ONRR selects a business information or credit reporting service to provide information concerning an appellant's financial solvency. We charge the appellant a $50 fee each time we need to review data from a business information or credit reporting service. The fee covers our costs in determining an appellant's financial solvency.
Appellants may choose to secure their debts by requesting to use a U.S. Treasury Security (TS). Appellants must file the letter of request with ONRR prior to the invoice due date. The TS must be a U.S. Treasury note or bond with maturity equal to or greater than 1 year. The TS must equal 120 percent of the appealed amount plus 1 year of estimated interest (necessary to protect ONRR against interest rate fluctuations). ONRR only accepts a book-entry TS.
We are requesting OMB's approval to continue to collect this information. Not collecting this information would limit the Secretary's ability to discharge the fiduciary duties of the office and also may result in loss of royalty and other payments.
ONRR protects proprietary information submitted under this collection. We do not collect information of a sensitive nature in this ICR. We require response from appellants to suspend compliance with an order pending appeal.
We have not included in our estimates certain requirements performed in the normal course of business and considered usual and customary. The following table shows the estimated burden hours by CFR section and paragraph:
To comply with the public consultation process, we published a notice in the
If you wish to comment in response to this notice, you may send your comments to the offices listed under the
United States International Trade Commission.
Notice.
The Commission hereby gives notice of the institution of investigations and commencement of preliminary phase antidumping and countervailing duty investigation Nos. 701-TA-528-529 and 731-TA-1264-1268 (Preliminary) under sections 703(a) and 733(a) of the Tariff Act of 1930 (19 U.S.C. 1671b(a) and 1673b(a)) (the Act) to determine whether there is a reasonable indication that an industry in the United States is materially injured or threatened with material injury, or the establishment of an industry in the United States is materially retarded, by reason of imports from Australia, Brazil, China, Indonesia, and Portugal of certain uncoated paper, provided for in subheadings 4802.56, 4802.57, 4802.62, and 4802.69 of the Harmonized Tariff Schedule of the United States, that are alleged to be sold in the United States at less than fair value and that are
For further information concerning the conduct of these investigations and rules of general application, consult the Commission's Rules of Practice and Procedure, part 201, subparts A through E (19 CFR part 201), and part 207, subparts A and B (19 CFR part 207).
Nathanael N. Comly ((202) 205-3174), Office of Investigations, U.S. International Trade Commission, 500 E Street SW., Washington, DC 20436. Hearing-impaired persons can obtain information on this matter by contacting the Commission's TDD terminal on 202-205-1810. Persons with mobility impairments who will need special assistance in gaining access to the Commission should contact the Office of the Secretary at 202-205-2000. General information concerning the Commission may also be obtained by accessing its internet server (
In accordance with sections 201.16(c) and 207.3 of the rules, each document filed by a party to the investigations must be served on all other parties to the investigations (as identified by either the public or BPI service list), and a certificate of service must be timely filed. The Secretary will not accept a document for filing without a certificate of service.
These investigations are being conducted under authority of title VII of the Tariff Act of 1930; this notice is published pursuant to section 207.12 of the Commission's rules.
By order of the Commission.
On the basis of the record
The Commission instituted these investigations effective December 18, 2013, following receipt of a petition filed with the Commission and Commerce by Arch Chemicals, Inc., a Lonza Company, Atlanta, GA. The final phase of the investigations was
The Commission completed and filed its determinations in these investigations on January 21, 2015. The views of the Commission are contained in USITC Publication 4515 (January 2015), entitled
By order of the Commission.
U.S. International Trade Commission.
Notice.
Notice is hereby given that a complaint was filed with the U.S. International Trade Commission on December 19, 2014, under section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. 1337, on behalf of Cisco Systems, Inc. of San Jose, California. The complaint alleges violations of section 337 based upon the importation into the United States, the sale for importation, and the sale within the United States after importation of certain network devices, related software and components thereof by reason of infringement of certain claims of U.S. Patent No. 7,023,853 (“the '853 patent”); U.S. Patent No. 6,377,577 (“the '577 patent”); U.S. Patent No. 7,460,492 (“the '492 patent”); U.S. Patent No. 7,061,875 (“the '875 patent”); U.S. Patent No. 7,224,668 (“the '668 patent”); and U.S. Patent No. 8,051,211 (“the '211 patent”), and alleges that an industry in the United States exists as required by subsection (a)(2) of section 337.
The complainant requests that the Commission institute an investigation and, after the investigation, issue a limited exclusion order and a cease and desist order.
The complaint, except for any confidential information contained therein, is available for inspection during official business hours (8:45 a.m. to 5:15 p.m.) in the Office of the Secretary, U.S. International Trade Commission, 500 E Street SW., Room 112, Washington, DC 20436, telephone (202) 205-2000. Hearing impaired individuals are advised that information on this matter can be obtained by contacting the Commission's TDD terminal on (202) 205-1810. Persons with mobility impairments who will need special assistance in gaining access to the Commission should contact the Office of the Secretary at (202) 205-2000. General information concerning the Commission may also be obtained by accessing its internet server at
The Office of Unfair Import Investigations, U.S. International Trade Commission, telephone (202) 205-2560.
Institution of investigation pursuant to 19 U.S.C. 1337.
The authority for institution of this investigation is contained in section 337 of the Tariff Act of 1930, as amended, and in section 210.10 of the Commission's Rules of Practice and Procedure, 19 CFR 210.10 (2014).
(1) Pursuant to subsection (b) of section 337 of the Tariff Act of 1930, as amended, an investigation be instituted to determine whether there is a violation of subsection (a)(1)(B) of section 337 in the importation into the United States, the sale for importation, or the sale within the United States after importation of certain network devices, related software and components thereof by reason of infringement of one or more of claims 46-52, 54, 56, and 59-63 of the '853 patent; claims 1, 2, 5, 7-10, 12-16, 18-22, 25, and 28-31 of the '577 patent; claims 1-4, 9-14, 17, and 18 of the '492 patent; claims 1-4, 10-13, and 15 of the '875 patent; claims 1-10, 12, 13, 15-28, 30, 31, 33-43, 45-49, 51-64, 66, 67, and 69-72 of the '668 patent; and claims 1, 2, 6-9, 12, 13, and 17-20 of the '211 patent, and whether an industry in the United States exists as required by subsection (a)(2) of section 337;
(2) For the purpose of the investigation so instituted, the following are hereby named as parties upon which this notice of investigation shall be served:
(a) The complainant is: Cisco Systems, Inc., 170 W Tasman Drive, San Jose, CA 95134.
(b) The respondent is the following entity alleged to be in violation of section 337, and is the party upon which the complaint is to be served: Arista Networks, Inc., 5453 Great America Parkway, Santa Clara, CA 95054.
(c) The Office of Unfair Import Investigations, U.S. International Trade Commission, 500 E Street SW., Suite 401, Washington, DC 20436; and
(3) For the investigation so instituted, the Chief Administrative Law Judge, U.S. International Trade Commission, shall designate the presiding Administrative Law Judge, and the Chief Administrative Law Judge is authorized to consider whether to consolidate Inv. No. 337-TA-944 with Inv. No. 337-TA-945, and to consolidate them if he deems it appropriate.
Responses to the complaint and the notice of investigation must be submitted by the named respondent in accordance with section 210.13 of the Commission's Rules of Practice and Procedure, 19 CFR 210.13. Pursuant to 19 CFR 201.16(e) and 210.13(a), such responses will be considered by the Commission if received not later than 20 days after the date of service by the Commission of the complaint and the notice of investigation. Extensions of time for submitting responses to the complaint and the notice of investigation will not be granted unless good cause therefor is shown.
Failure of the respondent to file a timely response to each allegation in the complaint and in this notice may be deemed to constitute a waiver of the right to appear and contest the allegations of the complaint and this notice, and to authorize the administrative law judge and the Commission, without further notice to the respondent, to find the facts to be as alleged in the complaint and this notice and to enter an initial determination and a final determination containing
By order of the Commission.
U.S. International Trade Commission.
Notice.
Notice is hereby given that a complaint was filed with the U.S. International Trade Commission on December 19, 2014, under section 337 of the Tariff Act of 1930, as amended, 19 U.S.C. 1337, on behalf of Cisco Systems, Inc. of San Jose, California. A supplement was filed on January 8, 2015. The complaint alleges violations of section 337 based upon the importation into the United States, the sale for importation, and the sale within the United States after importation of certain network devices, related software and components thereof by reason of infringement of certain claims of U.S. Patent No. 7,162,537 (“the ’537 patent”); U.S. Patent No. 8,356,296 (“the ’296 patent”); U.S. Patent No. 7,290,164 (“the ’164 patent”); U.S. Patent No. 7,340,597 (“the ’597 patent”); U.S. Patent No. 6,741,592 (“the ’592 patent”); and U.S. Patent No. 7,200,145 (“the ’145 patent”), and alleges that an industry in the United States exists as required by subsection (a)(2) of section 337.
The complainant requests that the Commission institute an investigation and, after the investigation, issue a limited exclusion order and a cease and desist order.
The complaint, except for any confidential information contained therein, is available for inspection during official business hours (8:45 a.m. to 5:15 p.m.) in the Office of the Secretary, U.S. International Trade Commission, 500 E Street SW., Room 112, Washington, DC 20436, telephone (202) 205-2000. Hearing impaired individuals are advised that information on this matter can be obtained by contacting the Commission's TDD terminal on (202) 205-1810. Persons with mobility impairments who will need special assistance in gaining access to the Commission should contact the Office of the Secretary at (202) 205-2000. General information concerning the Commission may also be obtained by accessing its internet server at
The Office of Unfair Import Investigations, U.S. International Trade Commission, telephone (202) 205-2560.
The authority for institution of this investigation is contained in section 337 of the Tariff Act of 1930, as amended, and in section 210.10 of the Commission's Rules of Practice and Procedure, 19 CFR 210.10 (2014).
(1) Pursuant to subsection (b) of section 337 of the Tariff Act of 1930, as amended, an investigation be instituted to determine whether there is a violation of subsection (a)(1)(B) of section 337 in the importation into the United States, the sale for importation, or the sale within the United States after importation of certain network devices, related software and components thereof by reason of infringement of one or more of claims 1, 2, 8-11, and 17-19 of the ’537 patent; claims 1, 6, and 12 of the ’296 patent; claims 1, 5, 6, 9, and 18 of the ’164 patent; claims 1, 14, 15, 29, 39-42, 63, 64, 71-73, and 84-86 of the ’597 patent; claims 6-10, 17, 18, 20, 21, 23, and 24 of the ’592 patent; claims 1, 3, 5, 7-11, 13, 15-29, 33-37, and 39-46 of the ’145 patent, and whether an industry in the United States exists as required by subsection (a)(2) of section 337;
(2) For the purpose of the investigation so instituted, the following are hereby named as parties upon which this notice of investigation shall be served:
(a) The complainant is: Cisco Systems, Inc., 170 W Tasman Drive, San Jose, CA 95134.
(b) The respondent is the following entity alleged to be in violation of section 337, and is the party upon which the complaint is to be served: Arista Networks, Inc., 5453 Great America Parkway, Santa Clara, CA 95054.
(c) The Office of Unfair Import Investigations, U.S. International Trade Commission, 500 E Street SW., Suite 401, Washington, DC 20436; and
(3) For the investigation so instituted, the Chief Administrative Law Judge, U.S. International Trade Commission, shall designate the presiding Administrative Law Judge, and the Chief Administrative Law Judge is authorized to consider whether to consolidate Inv. No. 337-TA-944 with Inv. No. 337-TA-945, and to consolidate them if he deems it appropriate.
Responses to the complaint and the notice of investigation must be submitted by the named respondent in accordance with section 210.13 of the Commission's Rules of Practice and Procedure, 19 CFR 210.13. Pursuant to 19 CFR 201.16(e) and 210.13(a), such responses will be considered by the Commission if received not later than 20 days after the date of service by the Commission of the complaint and the notice of investigation. Extensions of time for submitting responses to the complaint and the notice of investigation will not be granted unless good cause therefor is shown.
Failure of the respondent to file a timely response to each allegation in the complaint and in this notice may be deemed to constitute a waiver of the right to appear and contest the allegations of the complaint and this notice, and to authorize the administrative law judge and the Commission, without further notice to the respondent, to find the facts to be as alleged in the complaint and this notice and to enter an initial determination and a final determination containing such findings, and may result in the issuance of an exclusion order or a cease and desist order or both directed against the respondent.
By order of the Commission.
U.S. International Trade Commission.
Notice.
Notice is hereby given that a complaint was filed with the U.S. International Trade Commission on December 23, 2014, under section 337 of
The complainants request that the Commission institute an investigation and, after the investigation, issue a general exclusion order, or in the alternative a limited exclusion order, and cease and desist orders.
The complaint, except for any confidential information contained therein, is available for inspection during official business hours (8:45 a.m. to 5:15 p.m.) in the Office of the Secretary, U.S. International Trade Commission, 500 E Street SW., Room 112, Washington, DC 20436, telephone (202) 205-2000. Hearing impaired individuals are advised that information on this matter can be obtained by contacting the Commission's TDD terminal on (202) 205-1810. Persons with mobility impairments who will need special assistance in gaining access to the Commission should contact the Office of the Secretary at (202) 205-2000. General information concerning the Commission may also be obtained by accessing its internet server at
The Office of Unfair Import Investigations, U.S. International Trade Commission, telephone (202) 205-2560.
The authority for institution of this investigation is contained in section 337 of the Tariff Act of 1930, as amended, and in section 210.10 of the Commission's Rules of Practice and Procedure, 19 CFR 210.10 (2014).
(1) Pursuant to subsection (b) of section 337 of the Tariff Act of 1930, as amended, an investigation be instituted to determine whether there is a violation of subsection (a)(1)(B) of section 337 in the importation into the United States, the sale for importation, or the sale within the United States after importation of certain ink cartridges and components thereof by reason of infringement of one or more of claims 1, 4, and 10 of the '233 patent; claims 1, 5, 9, 14, 16, 18, 21, 24, 25, and 28 of the '116 patent; claims 1, 3, 14, 15, 17, 18, 20, 30, 36, 49, 60, and 61 of the '749 patent; claims 1, 6, and 13 of the '163 patent; and claims 1, 3, 7, 14, 15, and 19 of the '513 patent, and whether an industry in the United States exists as required by subsection (a)(2) of section 337;
(2) For the purpose of the investigation so instituted, the following are hereby named as parties upon which this notice of investigation shall be served:
(a) The complainants are:
Epson Portland Inc., 3950 NW Aloclek Place, Hillsboro, Oregon 97124.
Epson America, Inc., 3840 Kilroy Airport Way, Long Beach, California 90806.
Seiko Epson Corporation, 3-3-5 Owa, Suwa, Nagano 392-8502, Japan.
(b) The respondents are the following entities alleged to be in violation of section 337, and are the parties upon which the complaint is to be served:
Zhuhai Nano Digital Technology Co., Ltd., No. 3 factory building, 2/F, 3 Pingxi 5th Road, Nanping State Hi-Tech Park, Zhuhai, Guangdong, China 519060.
Nano Business & Technology, Inc., d/b/a Nano Digital, d/b/a Nano Ink Spot, d/b/a Dinsink, 650 North State Street, Lake Oswego, OR 97034.
Zhuhai National Resources & Jingjie Imaging Products Co., Ltd., d/b/a Ink-Tank, Workshop 2, 1-3/F, No. 3 Qingwan 3rd Rd, Qingwan Industrial Zone, Zhuhai, Guangdong, China.
Huebon Co., Ltd., Room 1207, Wing Tuck Commercial Centre, 177-183 Wing Lok Street, Sheung Wan, Hong Kong.
Chancen Co., Ltd., Room 1207, Wing Tuck Commercial Centre,177-183 Wing Lok Street, Sheung Wan, Hong Kong.
Zhuhai Rich Imaging Technology Co., Ltd., Block 1, 3-5/F, 3 Qingwan 3rd Rd, Qingwan Industrial Zone, Sanzao, Zhuhai, Guangdong, China 519040.
Shanghai Orink Infotech International Co., Ltd., Room 307, No. 275-8 East Guoding Road, Shanghai, China 200433.
Orink Infotech International Co., Ltd., Unit 1205, 12F/L., Sino Plaza, 255 Gloucester Road, Causewat Bay, Hong Kong.
Zinyaw LLC, d/b/a TonerPirate.com, 1321 Upland Dr. # 1359, Houston, TX 77043.
Yotat Group Co., Ltd., Flat/Room 704, Bright Way Tower, 33 Mong Kok Road, Kowloon, Hong Kong.
Yotat (Zhuhai) Technology Co., Ltd., No. 127 People's East Road, Xiangzhou, Zhuhai, China.
Ourway Image Co., Ltd., Room 403, 4/F, Rirong Edifice, Building 5, No. 291 Remin West Road, Xiangzhou, Zhuhai, China.
Kingway Image Co., Ltd., 4/F, Building 1, No. 1 Ping Dong Road 2, Nanping Industry Park, Zhuhai, China.
Zhuhai Chinamate Technology, Co., Ltd., Room 1504/1508/1511, No# 125 Renmin East Road, Xiangzhou, Zhuhai, China.
InkPro2day, LLC, 1200 Santee Street, Suite 1006, Los Angeles, CA 90015.
Dongguan OcBestjet Printer Consumables Co., Ltd., Block F01, 4/F, Jingyefang Industrial Park, No. 351, Jian'an Road, Wusha Village, Chang'an Town, Dongguan, China.
OcBestjet Printer Consumables (HK) Co., Ltd., RM 2301, 23 F/L, Worldwide House, 19 Des Voeux Road Central, Hong Kong.
Aomya Printer Consumables (Zhuhai) Co., Ltd, Rm #412, Henghe Business Building, No. 313 East Renmin Road, Xiangzhou, Zhuhai, Guangdong, China.
Zhuhai Richeng Development Co., Ltd., d/b/a Richeng Technology, Building No. 5, Nanshan Industrial Zone, 10 Shihua 3rd Street, Jida, Zhuhai, China 519015.
(c) The Office of Unfair Import Investigations, U.S. International Trade Commission, 500 E Street SW., Suite 401, Washington, DC 20436; and
(3) For the investigation so instituted, the Chief Administrative Law Judge, U.S. International Trade Commission, shall designate the presiding Administrative Law Judge.
Responses to the complaint and the notice of investigation must be submitted by the named respondents in accordance with section 210.13 of the Commission's Rules of Practice and Procedure, 19 CFR 210.13. Pursuant to 19 CFR 201.16(e) and 210.13(a), such responses will be considered by the Commission if received not later than 20 days after the date of service by the Commission of the complaint and the notice of investigation. Extensions of time for submitting responses to the complaint and the notice of investigation will not be granted unless good cause therefor is shown.
Failure of a respondent to file a timely response to each allegation in the complaint and in this notice may be deemed to constitute a waiver of the right to appear and contest the allegations of the complaint and this notice, and to authorize the administrative law judge and the Commission, without further notice to the respondent, to find the facts to be as alleged in the complaint and this notice and to enter an initial determination and a final determination containing such findings, and may result in the issuance of an exclusion order or a cease and desist order or both directed against the respondent.
By order of the Commission.
Community Oriented Policing Services (COPS) Office, Department of Justice.
30-day Notice.
The Department of Justice (DOJ), Community Oriented Policing Services (COPS) Office, will be submitting the following information collection request to the Office of Management and Budget (OMB) for review and approval in accordance with the Paperwork Reduction Act of 1995. This proposed information collection was previously published in the
Comments are encouraged and will be accepted for an additional days until February 26, 2015.
If you have additional comments especially on the estimated public burden or associated response time, suggestions, or need a copy of the proposed information collection instrument with instructions or additional information, please contact Kimberly J. Brummett, Program Specialist, Department of Justice, Community Oriented Policing Services (COPS) Office, 145 N Street NE., Washington, DC 20530 (202-353-9769). Written comments and/or suggestions can also be directed to the Office of Management and Budget, Office of Information and Regulatory Affairs, Attention Department of Justice Desk Officer, Washington, DC 20530 or sent to
Written comments and suggestions from the public and affected agencies concerning the proposed collection of information are encouraged. Your comments should address one or more of the following four points:
Overview of this information collection:
(1)
(2)
(3)
(4)
Law enforcement agencies and other public and private entities that apply for COPS Office grants or cooperative agreements will be asked complete the COPS Application Package. The COPS Application Package includes all of the necessary forms and instructions that an applicant needs to review and complete to apply for COPS grant funding. The package is used as a standard template for all COPS programs.
(5)
(6)
If additional information is required contact: Jerri Murray, Department Clearance Officer, United States Department of Justice, Justice Management Division, Policy and Planning Staff, Two Constitution Square, 145 N Street NE., 3E.405B, Washington, DC 20530.
Notice.
The Department of Labor (DOL) is submitting the Employee Benefits Security Administration (EBSA) sponsored information collection request (ICR) titled, “Employee Retirement Income Security Act Prohibited Transaction Exemption 1986-128 For Securities Transactions Involving Employee Benefit Plans and Broker-Dealers,” to the Office of Management and Budget (OMB) for review and approval for continued use, without change, in accordance with the Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501
The OMB will consider all written comments that agency receives on or before February 26, 2015.
A copy of this ICR with applicable supporting documentation; including a description of the likely respondents, proposed frequency of response, and estimated total burden may be obtained free of charge from the RegInfo.gov Web site at
Submit comments about this request by mail or courier to the Office of Information and Regulatory Affairs, Attn: OMB Desk Officer for DOL-EBSA, Office of Management and Budget, Room 10235, 725 17th Street NW., Washington, DC 20503; by Fax: 202-395-5806 (this is not a toll-free number); or by email:
Michel Smyth by telephone at 202-693-4129, TTY 202-693-8064, (these are not toll-free numbers) or by email at
This ICR seeks to extend PRA authority for the information collection requirements in Employee Retirement Income Security Act (ERISA) Prohibited Transaction Exemption (PTE) 1986-128, which applies to securities transactions involving an employee benefit plan and a broker-dealer. PTE 1986-128 permits a person who serves as fiduciary for an employee benefit plan to effect or execute securities transactions on behalf of the employee benefit plan. The PTE also allows sponsors of pooled separate accounts and other pooled investment funds to use their affiliates to effect or execute securities transactions for such accounts in order to recapture brokerage commissions for the benefit of employee benefit plans whose assets are maintained in pooled separate accounts managed by insurance companies. This exemption provides relief from certain prohibitions in ERISA section 406(b) (
PTE 1986-128 section III imposes the following information collection requirements on a fiduciary of an employee benefit plan that effects or executes securities transactions (
This information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless it is approved by the OMB under the PRA and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information that does not display a valid Control Number.
OMB authorization for an ICR cannot be for more than three (3) years without renewal, and the current approval for this collection is scheduled to expire on January 31, 2015. The DOL seeks to extend PRA authorization for this information collection for three (3) more years, without any change to existing requirements. The DOL notes that existing information collection requirements submitted to the OMB receive a month-to-month extension while they undergo review. For additional substantive information about this ICR, see the related notice published in the
Interested parties are encouraged to send comments to the OMB, Office of Information and Regulatory Affairs at the address shown in the
• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
• Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology,
Notice.
The Department of Labor (DOL) is submitting the Occupational Safety and Health Administration (OSHA) sponsored information collection request (ICR) titled, “General Provisions and Confined and Enclosed Spaces and Other Dangerous Atmospheres in Shipyard Employment Standards” to the Office of Management and Budget (OMB) for review and approval for continued use, without change, in accordance with the Paperwork Reduction Act of 1995 (PRA), 44 U.S.C. 3501
The OMB will consider all written comments that agency receives on or before February 26, 2015.
A copy of this ICR with applicable supporting documentation; including a description of the likely respondents, proposed frequency of response, and estimated total burden may be obtained free of charge from the RegInfo.gov Web site at
Submit comments about this request by mail or courier to the Office of Information and Regulatory Affairs, Attn: OMB Desk Officer for DOL-OSHA, Office of Management and Budget, Room 10235, 725 17th Street NW., Washington, DC 20503; by Fax: 202-395-5806 (this is not a toll-free number); or by email:
Michel Smyth by telephone at 202-693-4129, TTY 202-693-8064, (these are not toll-free numbers) or by email at
44 U.S.C. 3507(a)(1)(D).
This ICR seeks to extend PRA authority for the General Provisions and Confined and Enclosed Spaces and Other Dangerous Atmospheres in Shipyard Employment Standards information collection requirements codified in regulations 29 CFR part 1915. The Occupational Safety and Health Act (OSHAct) requires an employer who is subject to the Standards: (1) to ensure a competent person conducts inspections and atmospheric testing prior to a worker entering a confined or enclosed space (§ 1915.12(a)-(c)); (2) to warn workers not to enter a hazardous space or other dangerous atmosphere (§§ 1915.12 (a)-(c), 1915.16); (3) to train a worker who will be entering a confined or enclosed space and certify such training has been provided (§ 1915.12(d)); (4) to establish and train shipyard rescue teams or arrange for outside rescue teams and provide them with information (§ 1915.12(e)); (5) to ensure one person on each rescue team maintains a current first aid training certificate (§ 1915.12(e)); (6) to exchange information regarding hazards, safety rules, and emergency procedures concerning these spaces and atmospheres with other employers whose workers may enter these spaces and atmospheres (§ 1915.12(f)); (7) to ensure testing of a space having contained a combustible or flammable liquid or gas or toxic, corrosive, or irritating substance, or other dangerous atmosphere, boundary or pipeline before cleaning or other cold work is started and, as necessary thereafter, while the operation is ongoing (§ 1915.13(b)(2) and (4)); (8) to post signs prohibiting ignition sources within or near a space that contains bulk quantities of a flammable or combustible liquid or gas (§ 1915.13(b)(10)); (9) to ensure a confined or enclosed space is tested before a worker performs hot work in the work area (§ 1915.14(a)); (10) to post warnings of testing conducted by a competent person and certificates of testing conducted by a Marine Chemist or Coast Guard authorized person in the immediate vicinity of the hot-work operation while the operation is in progress (§ 1915.14(a) and (b)); and (11) to retain the certificate of testing on file for at least three months after completing the operation (§ 1915.14(a)(2)). OSHAct sections 2(b), 6, and 8 authorize this information collection.
This information collection is subject to the PRA. A Federal agency generally cannot conduct or sponsor a collection of information, and the public is generally not required to respond to an information collection, unless it is approved by the OMB under the PRA and displays a currently valid OMB Control Number. In addition, notwithstanding any other provisions of law, no person shall generally be subject to penalty for failing to comply with a collection of information that does not display a valid Control Number.
OMB authorization for an ICR cannot be for more than three (3) years without renewal, and the current approval for this collection is scheduled to expire on January 31, 2015. The DOL seeks to extend PRA authorization for this information collection for three (3) more years, without any change to existing requirements. The DOL notes that existing information collection requirements submitted to the OMB receive a month-to-month extension while they undergo review. For additional substantive information about this ICR, see the related notice published in the
Interested parties are encouraged to send comments to the OMB, Office of Information and Regulatory Affairs at the address shown in the
• Evaluate whether the proposed collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility;
• Evaluate the accuracy of the agency's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
• Enhance the quality, utility, and clarity of the information to be collected; and
• Minimize the burden of the collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology,
In accordance with the Federal Advisory Committee Act (Pub. L. 92-463, as amended), the National Science Foundation announces the following meeting:
The National Coordination Office (NCO) for Networking and Information Technology Research and Development (NITRD).
Notice—2015 NITRD Big Data Strategic Initiative Workshop.
The BDSI-2015 Workshop is designed to gather input from private industry, academia, and Federal research laboratories regarding the drafting of a Federal Big Data Research Agenda.
January 22-23, 2015.
The 2015 NITRD Big Data Strategic Initiative Workshop (BDSI-2015) will begin with a dinner reception on Thursday, January 22nd at 6 p.m. The workshop will take place on Friday, January 23rd from 9 a.m.-5 p.m. Workshop check-in/registration will take place from 8:30 a.m.-9 a.m. on January 23rd. BDSI-2015 will take place at Georgetown University in Washington, DC. For directions, please consult the Web site listed below.
Please visit the Web site at:
The purpose of drafting a Federal Big Data Research Agenda is to assist Federal Agencies in planning their individual Big Data R&D programs and initiatives. The Agenda is expected to be released in late 2015.
U.S. Nuclear Regulatory Commission.
Notice of meeting.
NRC will convene a meeting of the Advisory Committee on the Medical Uses of Isotopes (ACMUI) on March 19-20, 2015. A sample of agenda items to be discussed during the public session includes: (1) An update on the staff's efforts related to the release of patients administered radioactive material; (2) an update on medical-related events; (3) a discussion on the use of iodine-125 and palladium-103 seeds for localization of non-palpable lesions; (4) a discussion related to the decommissioning funding plan for germanium/gallium-68 generators; (5) a discussion on the compatibility category for permanent brachytherapy reportable medical events; (6) an update on the Abnormal Occurrence Criteria, and (7) an update on title 10 of the Code of Federal Regulations (10 CFR) part 35 Proposed Rule. The agenda is subject to change. The current agenda and any updates will be available at
Bruce R. Thomadsen, Ph.D., will chair the meeting. Dr. Thomadsen will conduct the meeting in a manner that will facilitate the orderly conduct of business. The following procedures apply to public participation in the meeting:
1. Persons who wish to provide a written statement should submit an electronic copy to Ms. Holiday at the contact information listed above. All submittals must be received by March 12, 2015, and must pertain to the topic on the agenda for the meeting.
2. Questions and comments from members of the public will be permitted during the meeting, at the discretion of the Chairman.
3. The draft transcript and meeting summary will be available on ACMUI's Web site
4. Persons who require special services, such as those for the hearing impaired, should notify Ms. Holiday of their planned attendance.
This meeting will be held in accordance with the Atomic Energy Act of 1954, as amended (primarily section 161a); the Federal Advisory Committee Act (5 U.S.C. App); and the Commission's regulations in 10 CFR part 7.
For the Nuclear Regulatory Commission.
Notice is hereby given that, pursuant to the Paperwork Reduction Act of 1995 (44 U.S.C. 3501
The Commission is required under Section 342 of the Dodd Frank Wall Street and Reform Act to develop standards and processes for ensuring the fair inclusion of women-owned and minority-owned businesses in all of the Commission's business activities. The effort to implement this mandate includes the development of a new electronic Supplier Diversity Business Management System (the System) to collect up-to-date business information and capabilities statements from diverse suppliers interested in doing business with the Commission. This information will allow the Commission to update and more effectively manage its current internal repository. It will also allow the Commission to measure the effectiveness of its technical assistance and outreach efforts, and target areas where additional program efforts are necessary.
The Commission invites comment on the System. Information will be collected in the System via web-based, e-filed, dynamic form-based technology. The company point of contact will complete a profile consisting of basic contact data and information on the capabilities of the business. The profile will include a series of questions, some of which are based on the data that the individual enters. Drop-down lists will be included where appropriate to increase ease of use.
The information collection is voluntary. The System is scheduled to be released in May 2015. There are no costs associated with this collection. The public interface to the System will be available via a web-link provided by the agency.
Written comments are invited on: (a) Whether this collection of information is necessary for the proper performance of the functions of the agency, including whether the information will have practical utility; (b) the accuracy of the agency's estimate of the burden imposed by the collection of information; (c) ways to enhance the quality, utility, and clarity of the information collected; and (d) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or other forms of information technology. Consideration will be given to comments and suggestions submitted in writing within 60 days of this publication. Please direct your written comments to Pamela Dyson, Acting Director/Chief Information Officer, Securities and Exchange Commission, c/o Remi Pavlik-Simon, 100 F Street NE., Washington DC, 20549 or send an email to:
On July 7, 2014, Automated Matching Systems Exchange, LLC (“AMSE”) submitted to the Securities and Exchange Commission (“Commission”) an application seeking a limited volume exemption under Section 5 of the Securities Exchange Act (“Exchange Act”) from registration as a national securities exchange under Section 6 of the Exchange Act.
Section 19(a) of the Exchange Act provides that the Commission shall, upon the filing of an application for registration as a national securities exchange pursuant to Section 6 of the Exchange Act,
The Commission finds that good cause exists to extend the time for conclusion of the proceedings to determine whether to grant or deny AMSE's exemption application in order for the Commission to have sufficient time to consider AMSE's amended exemption application, including any comment letters received on AMSE's amended exemption application.
By the Commission.
On December 24, 2014, Financial Industry Regulatory Authority, Inc. (“FINRA”), on behalf of the following parties to the National Market System Plan: BATS Exchange, Inc., BATS Y-Exchange, Inc., Chicago Board Options Exchange, Incorporated, Chicago Stock Exchange, Inc., EDGA Exchange, Inc., EDGX Exchange, Inc., NASDAQ OMX BX, Inc., NASDAQ OMX PHLX LLC, the Nasdaq Stock Market LLC, and National Stock Exchange, Inc., New York Stock Exchange LLC, NYSE MKT LLC, and NYSE Arca, Inc. (collectively with FINRA, the “Participants”), filed with the Securities and Exchange Commission (“Commission”) pursuant to Section 11A of the Securities Exchange Act of 1934 (“Act”)
The Participants filed the Plan in order to create a market-wide limit up-limit down mechanism that is intended to address extraordinary market volatility in “NMS Stocks,” as defined in Rule 600(b)(47) of Regulation NMS under the Act.
As set forth in Section V of the Plan, the price bands consist of a Lower Price Band and an Upper Price Band for each NMS Stock.
The Processors also calculate a Pro-Forma Reference Price for each NMS Stock on a continuous basis during Regular Trading Hours. If a Pro-Forma Reference Price does not move by one percent or more from the Reference Price in effect, no new price bands are disseminated, and the current Reference Price remains the effective Reference Price. If the Pro-Forma Reference Price moves by one percent or more from the Reference Price in effect, the Pro-Forma Reference Price becomes the Reference Price, and the Processors disseminate new price bands based on the new Reference Price. Each new Reference Price remains in effect for at least 30 seconds.
When one side of the market for an individual security is outside the applicable price band, the Processors are required to disseminate such National Best Bid
These limit up-limit down requirements are coupled with Trading Pauses
Under the Plan, all trading centers are required to establish, maintain, and enforce written policies and procedures reasonably designed to prevent the display of offers below the Lower Price Band and bids above the Upper Price Band for an NMS Stock. The Processors disseminate an offer below the Lower Price Band or bid above the Upper Price Band that nevertheless inadvertently may be submitted despite such reasonable policies and procedures, but with an appropriate flag identifying it as non-executable; such bid or offer would not be included in National Best Bid or National Best Offer calculations. In addition, all trading centers are required to develop, maintain, and enforce policies and procedures reasonably designed to prevent trades at prices outside the price bands, with the exception of single-priced opening, reopening, and closing transactions on the Primary Listing Exchange.
As stated by the Participants in the Plan, the limit up-limit down mechanism is intended to reduce the negative impacts of sudden, unanticipated price movements in NMS
The following summarizes the Eighth Amendment to the Plan and the rationale behind those changes:
The Eighth Amendment proposes two changes to the Plan. First, the Participants propose to amend Appendix B of the Plan to state that, by May 29, 2015, the Participants shall provide to the Commission a supplemental joint assessment relating to the impact of the Plan. On September 29, 2014, the Participants submitted a Participant Impact Assessment,
The Participants intend to engage a third-party consultant to assist in conducting the cross-market analysis and preparing the supplemental joint assessment. The Participants believe that the process of selecting, engaging, meeting with, and providing required data to the ultimate third-party consultant will be time consuming, but beneficial in that it would facilitate the development of a joint assessment that, unlike individual Participant submissions, would not need to be compared and reconciled.
Second, the Participants propose to amend Section VIII.C the Plan to extend the pilot period of the Plan from February 20, 2015 through October 23, 2015. The Participants believe that extension of the pilot period is necessary and appropriate in the interest of the public, including because additional time will: (i) Provide a reasonable period of time for the public to comment on the supplemental joint assessment and recommendations; (ii) provide Participants time to use the information collected during the operation of the Plan to perform further analysis and recommend amendments to the Plan; and (iii) allow the Commission adequate time to review the supplemental joint assessment and recommendations provided by the Participants, and determine if any modifications to the Plan are appropriate. The Participants also believe that the proposed amendment is consistent with the approval order for the Plan, in which the Commission stated that having a pilot period would allow “the public, the Participants, and the Commission to assess the operation of the Plan and whether the Plan should be modified prior to approval on a permanent basis.”
The Participants note that the amended version of the Plan also includes the revised Appendix A—Schedule 1, which was updated for trading beginning July 1, 2014. As set forth in Appendix A—Percentage Parameters, the Primary Listing Exchange updates Schedule 1 to Appendix A semi-annually based on the fiscal year and such updates do not require a Plan amendment.
The governing documents of the Processor, as defined in Section I(P) of the Plan, will not be affected by the Plan, but once the Plan is implemented, the Processor's obligations will change, as set forth in detail in the Plan.
The initial date of the Plan operations was April 8, 2013.
The Plan was initially implemented as a one-year pilot program in two Phases, consistent with Section VIII of the Plan: Phase I of Plan implementation began on April 8, 2013 and was completed on May 3, 2013. Implementation of Phase II of the Plan began on August 5, 2013 and was completed on February 24, 2014. Pursuant to this proposed amendment, the Participants propose to extend the pilot period so that it is set to end October 23, 2015.
The proposed Plan does not impose any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Exchange Act. The Participants do not believe that the proposed Plan introduces terms that are unreasonably discriminatory for the purposes of Section 11A(c)(1)(D) of the Exchange Act.
The Participants have no written understandings or agreements relating to interpretation of the Plan. Section II(C) of the Plan sets forth how any entity registered as a national securities exchange or national securities association may become a Participant.
Each of the Plan's Participants has executed a written amended Plan.
Section II(C) of the Plan provides that any entity registered as a national securities exchange or national securities association under the Exchange Act may become a Participant by: (1) Becoming a participant in the applicable Market Data Plans, as defined in Section I(F) of the Plan; (2) executing a copy of the Plan, as then in effect; (3) providing each then-current Participant with a copy of such executed Plan; and (4) effecting an amendment to the Plan as specified in Section III(B) of the Plan.
Not applicable.
Not applicable.
Section III(C) of the Plan provides for each Participant to designate an individual to represent the Participant as a member of an Operating Committee. No later than the initial date of the Plan, the Operating Committee shall designate one member of the Operating Committee to act as the Chair of the Operating Committee. Any recommendation for an amendment to the Plan from the Operating Committee that receives an affirmative vote of at least two-thirds of the Participants, but is less than unanimous, shall be submitted to the Commission as a request for an amendment to the Plan initiated by the Commission under Rule 608.
On September 18, 2014, the Operating Committee, duly constituted and chaired by Mr. Christopher B. Stone of FINRA, met and voted to amend the Plan as set forth herein in accordance with Section III(C) of the Plan.
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed Eighth Amendment is consistent with the Act.
Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Brent J. Fields, Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
By the Commission.
Notice is hereby given, pursuant to the provisions of the Government in the Sunshine Act, Public Law 94-409, that the Securities and Exchange Commission will hold a Closed Meeting on Thursday, January 29, 2015 at 2:00 p.m.
Commissioners, Counsel to the Commissioners, the Secretary to the Commission, and recording secretaries will attend the Closed Meeting. Certain staff members who have an interest in the matters also may be present.
The General Counsel of the Commission, or her designee, has certified that, in her opinion, one or more of the exemptions set forth in 5 U.S.C. 552b(c)(3), (5), (7), 9(B) and (10) and 17 CFR 200.402(a)(3), (5), (7), 9(ii) and (10), permit consideration of the scheduled matter at the Closed Meeting.
Commissioner Piwowar, as duty officer, voted to consider the items listed for the Closed Meeting in closed session.
The subject matter of the Closed Meeting will be:
At times, changes in Commission priorities require alterations in the scheduling of meeting items.
For further information and to ascertain what, if any, matters have been added, deleted or postponed, please contact the Office of the Secretary at (202) 551-5400.
On November 27, 2012, the Securities and Exchange Commission (“Commission”) issued an order pursuant to its authority under Rule 612(c) of Regulation NMS (“Sub-Penny Rule)
The Exchange now seeks to extend the exemption until January 31, 2016.
The limited and temporary exemption extended by this Order is subject to modification or revocation if at any time the Commission determines that such action is necessary or appropriate in furtherance of the purposes of the Securities Exchange Act of 1934. Responsibility for compliance with any applicable provisions of the federal securities laws must rest with the persons relying on the exemption that is the subject of this Order.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Pursuant to Section 19(b)(1) of the Securities Exchange Act of 1934 (“Act”),
The Exchange is proposing changes to amend BX Rule 7018 to amend fees and rebates in connection with BX's Retail Price Improvement Program.
The text of the proposed rule change is available on the Exchange's Web site at
In its filing with the Commission, the Exchange included statements concerning the purpose of and basis for the proposed rule change. The text of these statements may be examined at the places specified in Item IV below. The Exchange has prepared summaries, set forth in sections A, B, and C below, of the most significant aspects of such statements.
The purpose of this proposal is to amend BX Rule 7018 to amend fees and rebates for execution of orders under BX's Retail Price Improvement (“RPI”) program. BX recently adopted the RPI program,
BX currently offers a rebate of $0.0025 per share executed to RMOs with respect to Retail Orders that execute against RPI Orders. RMO Retail Orders that execute against other orders providing price improvement with respect to the NBBO will receive a rebate otherwise applicable to executions of orders that access liquidity. For Type 2 Retail Orders that execute against non-price improving orders on the BX book, BX offers a rebate otherwise applicable to execution of orders that access liquidity. Similarly, when Type 2 Retail Orders are routed and execute at another trading venue, BX charges the fee otherwise applicable to execution of routed orders. For RPI Orders that provide liquidity, BX charges a fee of $0.0025 per share executed. Other orders that provide liquidity to Retail Orders will receive the credit or pay the fee otherwise applicable to orders that provide liquidity.
BX is proposing to provide greater incentives to RMOs to participate in the program by providing two new tiers of credits provided under the program. Specifically, BX proposes to provide RMOs a credit of $0.0005 per share executed for a Retail Order that accesses non-Retail Price Improvement midpoint liquidity. This is the same credit all orders that execute against midpoint pegged orders currently receive under
As a consequence of adding the two new credit tiers to the RPI Program, BX is eliminating language under the rule that encompasses such orders, noting that the fees under Rule 7018(a) and (b) apply. Specifically, BX is deleting language concerning Retail Orders that access other liquidity at a price better than the national best bid or best offer. Such Retail Orders may be either Type 1 or Type 2. Likewise, BX is deleting language concerning Type 2 Retail Orders that access other liquidity from the Exchange book. The orders covered by these two sections are now included in the two new credit tiers of the rule. For example, an order that would qualify under the proposed new tier applicable to Retail Orders that accesses non-Retail Price Improvement midpoint liquidity currently falls under the section concerning a Retail Order that accesses other liquidity at a price better than the national best bid and offer. Similarly, an order that would qualify under the proposed new tier applicable to a Retail Order that accesses other liquidity on the Exchange book currently falls under one of the deleted sections, as such orders must be either a Retail Order that accesses other liquidity at a price better than the national best bid or best offer, or is a Type 2 Retail Order that accesses other liquidity from the Exchange book.
BX believes that the proposed rule change is consistent with the provisions of Section 6 of the Act,
The proposed new credits provided to RMOs under the RPI program are reflective of BX's ongoing efforts to use pricing incentive programs to attract orders of retail customers to BX and improve market quality. The goal of this program and similar pricing incentives is to provide meaningful incentives for members that represent the orders of retail customers to increase their participation on BX. The proposed credit of $0.0005 per share executed with respect to Retail Orders that access non-Retail Price Improvement Order midpoint liquidity is reasonable because it merely incorporates the current credit provided for such orders under Rule 7018(a) into the RPI program. The change is consistent with an equitable allocation of fees because it will allow BX to disassociate the credit from the credit provided under Rule 7018(a) so that the RPI program credit will not be affected by changes to the credit under Rule 7018(a). Moreover, all member firms that qualify for the new tier will receive the credit. BX further believes that the proposed credit tier is not unreasonably discriminatory because it is designed to separate order activity under the program from the normal credit provided under Rule 7018(a). As such, BX may increase the proposed credit, or reduce the related credit under Rule 7018(a), resulting in a more meaningful economic benefit to member firms that participate in the RPI program. Such incentive pricing in consistent with the goal of increasing participation in this beneficial program.
Similarly, BX believes that the proposed credit of $0.0017 per share executed with respect to Retail Orders that access other liquidity on the Exchange book is reasonable because it provides greater incentive to member firms to participate in this beneficial program. The proposed credit is greater than the highest credit tier currently available for such orders under Rule 7018(a). Moreover, as opposed to the other tiers under Rule 7018(a) the new credit is not tied to any other measure, which provides further incentive to member firms to participate in the program. The proposed change is consistent with an equitable allocation of fees because it provides incentive pricing to all member firms that qualify under the program. BX further believes that the proposed credit tier is not unreasonably discriminatory because it is designed to provide further meaningful incentives for members that represent the orders of retail customers to increase their participation on BX. Because retail orders are likely to reflect long-term investment intentions, they promote price discovery. Accordingly, their presence in the BX market has the potential to benefit all market participants. For this reason, BX believes that it is equitable and not unfairly discriminatory to provide significant financial incentives to encourage greater retail participation in the market.
Elimination of the existing sections of the RPI Program that note that certain orders will be subject to the current fees and credits under Rule 7018(a) and (b) is reasonable because they are replaced by the new credit tiers, as discussed above. The Exchange believes that elimination of these sections is an equitable allocation and not unfairly discriminatory because they allow the Exchange to offer incentive pricing to a wider range of beneficial order activity, which will be provided to all member firms that meet the requirements for the credits.
Finally, BX notes that it operates in a highly competitive market in which market participants can readily favor competing venues if they deem fee levels at a particular venue to be excessive. In such an environment, BX must continually adjust its fees to remain competitive with other exchanges and with alternative trading systems that have been exempted from compliance with the statutory standards applicable to exchanges. BX believes that the proposed rule change reflects this competitive environment because it is designed to allow BX to compete with other exchanges that offer similar price improvement programs for retail orders.
BX does not believe that the proposed rule change will result in any burden on competition that is not necessary or appropriate in furtherance of the purposes of the Act, as amended. In this instance, the RPI program is designed to allow BX to compete more effectively with the New York Stock Exchange, NYSE MKT LLC, NYSE Arca, Inc. and the BATS-Y Exchange, all of which offer similar programs designed to attract retail order flow. BX believes that the proposed higher credit with respect to Retail Orders will enhance competition by drawing additional retail order flow to BX and, as a consequence, possibly encouraging other trading venues to make competitive pricing changes.
For these reasons and the reasons discussed in connection with the statutory basis for the proposed rule change, BX does not believe that the proposed changes will impose any
No written comments were either solicited or received.
The foregoing rule change has become effective pursuant to Section 19(b)(3)(A) of the Act
Interested persons are invited to submit written data, views, and arguments concerning the foregoing, including whether the proposed rule change is consistent with the Act. Comments may be submitted by any of the following methods:
• Use the Commission's Internet comment form (
• Send an email to
• Send paper comments in triplicate to Secretary, Securities and Exchange Commission, 100 F Street NE., Washington, DC 20549-1090.
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
On November 18, 2014, NYSE Arca, Inc. (the “Exchange” or “NYSE Arca”) filed with the Securities and Exchange Commission (“Commission”), pursuant to Section 19(b)(1)
The Exchange proposes to list and trade the Shares under NYSE Arca Equities Rule 8.600, which governs the listing and trading of Managed Fund Shares on the Exchange. The Fund is a series of the IndexIQ Active ETF Trust (the “Trust”).
IndexIQ Advisors LLC (the “Adviser”) is the investment adviser for the Fund.
The Bank of New York Mellon (“Administrator”) is the administrator, custodian, transfer agent and securities lending agent for the Fund. ALPS
The Exchange has made the following representations and statements in describing the Fund and its strategy and characteristics, investments, and investment restrictions.
According to the Exchange, the Fund will seek long-term capital appreciation. Under normal circumstances,
The Exchange states that the Fund and each of its Underlying Managers may use all or some of the following strategies in managing the assets of the Fund: equity hedge (long/short) strategies, relative value strategies, global macro strategies, event driven strategies, opportunistic credit strategies, tactical trading strategies, and liquid alternative beta strategies.
The Exchange states that in implementing the strategies discussed above, the Fund will invest in a portfolio consisting of some or all of the following instruments:
• Exchange-traded equity securities, which will consist of common stocks, preferred stocks, convertible securities, rights and warrants, depositary receipts, ETFs, non-ETF exchange-traded vehicles (“ETVs”), and partnership interests, including master limited partnerships;
• Fixed income securities, which will consist of debt issued by corporations,
• Currencies;
• The following derivative instruments: futures contracts (consisting of futures contracts based on equity or fixed income securities and/or equity or fixed income indices, commodities, interest rates and currencies), swap agreements on any of the following asset classes: equity, fixed income, currency and interest rates (such swaps may be based on the price return or total return of the referenced asset), credit default swaps (consisting of credit default swaps in which the referenced asset is a single fixed income security or a group of fixed income securities), options (consisting of long and short positions in call options and put options on indices based on equities, fixed income securities, interest rates, currencies or commodities, individual securities or currencies, swaptions and options on futures contracts), forward contracts (consisting of forward contracts based on equity or fixed income securities and/or equity or fixed income indices, currencies, interest rates, swap forwards and non-deliverable forwards), and structured securities (such derivative instruments, collectively “Financial Instruments”).
The Exchange states that the Fund may use leverage (
According to the Exchange, the Fund may take long and/or short positions in equity securities, fixed income securities, commodities
All equity securities will be listed on a U.S. national securities exchange or a non-U.S. securities exchange that is a member of the Intermarket Surveillance Group (“ISG”) or a party to a comprehensive surveillance sharing agreement with the Exchange; provided, however, that up to 10% of the assets of the Fund may be invested in non-U.S. listed equity securities that do not meet these requirements.
All options contracts will be listed on a U.S. national securities exchange or a non-U.S. securities exchange that is a member of ISG or a party to a comprehensive surveillance sharing agreement with the Exchange.
Not more than 20% of the Fund's assets will be invested, in the aggregate, in non-investment grade securities and structured securities.
Up to 10% of the weight of the futures contracts held by the Fund may consist of futures contracts whose principal trading market is not a member of ISG or a party to a comprehensive surveillance sharing agreement with the Exchange.
The Fund may invest up to 20% of its total assets in mortgage-backed securities or in other asset-backed securities, although this 20% limitation will not apply to U.S. government securities.
The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid assets (calculated at the time of investment), including Rule 144A securities.
The Fund will not invest more than 10% of its net assets in unsponsored depositary receipts.
After careful review, the Commission finds that the Exchange's proposal to list and trade the Shares is consistent with the Exchange Act and the rules and regulations thereunder applicable to a national securities exchange.
The Commission finds that the proposal to list and trade the Shares on the Exchange is consistent with Section 11A(a)(1)(C)(iii) of the Exchange Act,
Quotation information for OTC-traded securities and OTC-traded Financial Instruments (such as forwards, swaps and currency-related derivatives), and investment company securities (excluding ETFs), may be obtained from brokers and dealers who make markets in such securities or through nationally recognized pricing services through subscription agreements. Quotation information from brokers and dealers or pricing services will be available for spot and forward currency transactions held by the Fund. Information regarding market price and trading volume of the Shares will be continually available on a real-time basis throughout the day on brokers' computer screens and other electronic services. Information regarding the previous day's closing price and trading volume information for the Shares will be published daily in the financial section of newspapers.
The Commission also believes that the proposal to list and trade the Shares is reasonably designed to promote fair disclosure of information that may be necessary to price the Shares appropriately and to prevent trading when a reasonable degree of transparency cannot be assured. On each business day, before commencement of trading in Shares in the Core Trading Session (9:30 a.m. to 4:00 p.m., Eastern Time) on the Exchange, each Fund will disclose on its Web site the Disclosed Portfolio that will form the basis for a Fund's calculation of NAV at the end of the business day.
The Exchange represents that trading in Shares of a Fund will be halted if the circuit breaker parameters in NYSE Arca Equities Rule 7.12 have been reached.
The Exchange states that it has a general policy prohibiting the distribution of material, non-public information by its employees.
The Financial Industry Regulatory Authority (“FINRA”), on behalf of the Exchange, will communicate as needed regarding trading in the Shares, equity securities, exchange-traded options, futures contracts and options on futures contracts with other markets that are members of the ISG and FINRA, on behalf of the Exchange, may obtain trading information regarding trading in the Shares, exchange-traded equities, exchange-traded options, futures contracts and options on futures contracts from such markets. In
The Commission notes that the Fund and the Shares must comply with the requirements of NYSE Arca Equities Rule 8.600 to be listed and traded on the Exchange. The Exchange deems the Shares to be equity securities, thus rendering trading in the Shares subject to the Exchange's existing rules governing the trading of equity securities. In support of this proposal, the Exchange represented that:
(1) The Shares will be subject to NYSE Arca Equities Rule 8.600, which sets forth the initial and continued listing criteria applicable to Managed Fund Shares.
(2) Trading in the Shares will be subject to the existing trading surveillances administered by FINRA on behalf of the Exchange, which are designed to detect violations of Exchange rules and applicable federal securities laws, and these procedures are adequate to properly monitor Exchange trading of the Shares in all trading sessions and to detect and help deter violations of Exchange rules and applicable federal securities laws.
(3) The Exchange has appropriate rules to facilitate transactions in the Shares during all trading sessions.
(4) Prior to the commencement of trading, the Exchange will inform its Equity Trading Permit (“ETP”) Holders in an Information Bulletin (“Bulletin”) of the special characteristics and risks associated with trading the Shares. Specifically, the Bulletin will discuss the following: (a) The procedures for purchases and redemptions of Shares in creation unit aggregations (and that Shares are not individually redeemable); (b) NYSE Arca Equities Rule 9.2(a), which imposes a duty of due diligence on its ETP Holders to learn the essential facts relating to every customer prior to trading the Shares; (c) the risks involved in trading the Shares during the Opening and Late Trading Sessions when an updated Portfolio Indicative Value will not be calculated or publicly disseminated; (d) how information regarding the Portfolio Indicative Value is disseminated; (e) the requirement that ETP Holders deliver a prospectus to investors purchasing newly issued Shares prior to or concurrently with the confirmation of a transaction; and (f) trading information.
(5) For initial and/or continued listing, the Trust will be in compliance with Rule 10A-3
(6) All equity securities will be listed on a U.S. national securities exchange or a non-U.S. securities exchange that is a member of the ISG or a party to a comprehensive surveillance sharing agreement with the Exchange; provided, however, that up to 10% of the assets of the Fund may be invested in non-U.S. listed equity securities that do not meet these requirements.
(7) All options contracts will be listed on a U.S. national securities exchange or a non-U.S. securities exchange that is a member of ISG or a party to a comprehensive surveillance sharing agreement with the Exchange.
(8) Not more than 20% of the Fund's assets will be invested, in the aggregate, in non-investment grade securities and structured securities.
(9) Not more than 10% of the weight of the futures contracts held by the Fund may consist of futures contracts whose principal trading market is not a member of ISG or a party to a comprehensive surveillance sharing agreement with the Exchange.
(10) The Fund may invest no more than 20% of its total assets in mortgage-backed securities or in other asset-backed securities, although this 20% limitation will not apply to U.S. government securities.
(11) The Fund may hold up to an aggregate amount of 15% of its net assets in illiquid securities, including Rule 144A securities.
(12) The Fund will not invest more than 10% of its net assets in unsponsored depository receipts will not exceed 10% of a Fund's net assets
(13) A minimum of 100,000 Shares will be outstanding at the commencement of trading on the Exchange.
This approval order is based on all of the Exchange's representations, including those set forth above and in the Notice, and the Exchange's descriptions of the Funds. For the foregoing reasons, the Commission finds that the proposed rule change is consistent with Section 6(b)(5) of the Act
For the Commission, by the Division of Trading and Markets, pursuant to delegated authority.
Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681,
For further information, including a list of the imported objects, contact Paul W. Manning, Attorney-Adviser, Office of
Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681,
For further information, including a list of the imported objects, contact Paul W. Manning, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202-632-6469). The mailing address is U.S. Department of State, SA-5, L/PD, Fifth Floor (Suite 5H03), Washington, DC 20522-0505.
Notice is hereby given of the following determinations: Pursuant to the authority vested in me by the Act of October 19, 1965 (79 Stat. 985; 22 U.S.C. 2459), Executive Order 12047 of March 27, 1978, the Foreign Affairs Reform and Restructuring Act of 1998 (112 Stat. 2681,
For further information, including a description of the imported object, contact Paul W. Manning, Attorney-Adviser, Office of the Legal Adviser, U.S. Department of State (telephone: 202-632-6469). The mailing address is U.S. Department of State, SA-5, L/PD, Fifth Floor (Suite 5H03), Washington, DC 20522-0505.
Delegates from the United States and Mexican Governments, the states of Texas and New Mexico, and the Mexican states of Chihuahua, Coahuila, Nuevo Leon, and Tamaulipas will participate in the Texas-New Mexico Regional meeting of the U.S.-Mexico Binational Bridges and Border Crossings Group on February 5, 2015, in Austin Texas. The purpose of this meeting is to discuss operational matters involving existing and proposed international bridges and border crossings and their related infrastructure, and to exchange views on policy as well as technical information. This meeting includes a public session on Thursday, February 5, 2015, from 8:30 a.m. until 11:00 a.m. This session allows proponents of proposed bridges and border crossings and related projects to make presentations to the delegations and members of the public.
For further information on the meeting and to attend the public session, please contact the Mexico Desk's Border Affairs Unit, via email at
By virtue of the authority vested in me as Secretary of State, including Section 1 of the State Department Basic Authorities Act, as amended (22 U.S.C. 2651a), and Executive Order 13567 of March 7, 2011 (the Executive Order), I hereby delegate to the Special Envoy for Guantanamo Closure the authority to serve as a member of the Review Committee described in Section 3(d) of the Executive Order for the review of file reviews only, together with any authority necessary to carry out such function.
Any act, executive order, regulation, or procedure subject to, or affected by, this delegation shall be deemed to be such act, executive order, regulation, or procedure as amended from time to time.
Notwithstanding this delegation of authority, the Secretary, the Deputy Secretary, and the Deputy Secretary for Management and Resources may at any time exercise any authority or function delegated by this delegation of authority.
This delegation of authority shall be published in the
Office of the United States Trade Representative.
Request for comments.
On March 21, 2014, the United States Trade Representative notified Congress of the Administration's intention to enter into negotiations for a World Trade Organization (WTO) Environmental Goods Agreement (EGA) with an initial group of 13 trading partners. The United States Trade Representative has since notified Congress of the Administration's intent to join a consensus among EGA participants to invite the Government of Iceland to join the EGA negotiations. The Office of the U.S. Trade Representative, on behalf of the Trade Policy Staff Committee (TPSC), is seeking public comment regarding U.S. interests and priorities with respect to this initiative to invite Iceland to join the EGA negotiations.
Written comments are due by midnight, March 6, 2015.
Comments from the public should be submitted electronically at
For procedural questions concerning written comments, please contact Yvonne Jamison, Trade Policy Coordination Assistant, at the above number. All other questions regarding this notice should be directed to Bill McElnea, Director for Environment and Natural Resources, at (202) 395-7320.
On March 21, 2014, the United States Trade Representative notified Congress of the Administration's intention to enter into the EGA negotiations. This notification states that the EGA negotiations “are open to all WTO Members that are prepared to eliminate tariffs on a set of environmental goods, building on the list of 54 goods endorsed by APEC Leaders as the starting point.” A copy of the notification is available at
On July 8, 2014, the United States and 13 other WTO members, accounting for 86 percent of global trade in environmental goods, launched the EGA negotiations in Geneva, Switzerland. In addition to the United States, Australia, Canada, China, Costa Rica, the European Union, Hong Kong, Israel, Japan, Korea, New Zealand, Norway, Singapore, Switzerland and Chinese Taipei are participating in the negotiations. The EGA aims to eliminate tariffs on a set of environmental technologies such as wind turbines, water treatment filters, and solar water heaters. WTO members apply tariffs as high as 35 percent on environmental goods.
The Government of Iceland notified EGA participants of their interest in joining these negotiations on November 12, 2014. Following this notification of interest, EGA participants agreed to begin any relevant domestic procedures so as to allow Iceland to join the EGA negotiations. On December 12, 2014, the United States Trade Representative notified Congress of the Administration's intent to join a consensus among EGA participants to invite the Government of Iceland to join the EGA negotiations.
The Chair of the TPSC invites interested persons to provide written comments that will assist USTR in assessing Iceland's potential participation in the EGA negotiations. The TPSC Chair invites comments on all relevant matters, and, in particular, with regard to those environmental goods of which Iceland is a significant producer and consumer, as well as current market conditions for environmental technologies in Iceland.
USTR is observing the relevant procedures of the Bipartisan Trade Promotion Authority Act of 2002 (19 U.S.C. 3804) with respect to notifying and consulting with Congress on the invitation of new members to these negotiations.
Persons submitting comments must do so in English and must identify (on the first page of the submission) “Environmental Goods Agreement—New Participant: Iceland”. In order to be assured of consideration, comments should be submitted by 11:59 p.m., March 6, 2015. In order to ensure the timely receipt and consideration of comments, USTR strongly encourages commenters to make on-line submissions using the
The
As noted, USTR strongly urges submitters to file comments through
The Department of the Treasury will submit the following information collection requests to the Office of Management and Budget (OMB) for review and clearance in accordance with the Paperwork Reduction Act of 1995, Public Law 104-13, on or after the date of publication of this notice.
Comments should be received on or before February 26, 2015 to be assured of consideration.
Send comments regarding the burden estimate, or any other aspect of the information collection, including suggestions for reducing the burden, to (1) Office of Information and Regulatory Affairs, Office of Management and Budget, Attention: Desk Officer for Treasury, New Executive Office Building, Room 10235, Washington, DC 20503, or email at
Copies of the submission(s) may be obtained by calling (202) 927-5331, email at
United States Institute of Peace.
Notice.
Board of Directors meeting.
Friday, January 23, 2015 (10 a.m.-4 p.m.).
2301 Constitution Avenue NW., Washington, DC 20037.
Denson Staples, Assistant to the Board Liaison, Email:
Veterans Health Administration, Department of Veterans Affairs.
Notice.
In compliance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501-3521), this notice announces that the Veterans Health Administration (VHA), Department of Veterans Affairs, will submit the collection of information abstracted below to the Office of Management and Budget (OMB) for review and comment. The PRA submission describes the nature of the information collection and its expected cost and burden and includes the actual data collection instrument.
Comments must be submitted on or before February 26, 2015.
Submit written comments on the collection of information through
Crystal Rennie, Enterprise Records Service (005R1B), Department of Veterans Affairs, 810 Vermont Avenue NW., Washington, DC 20420, (202) 632-7492 or email
Under the PRA of 1995 (Pub. L. 104-13; 44 U.S.C. 3501—3521), Federal agencies must obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct or sponsor. This request for comment is being made pursuant to section 3506(c)(2)(A) of the PRA.
With respect to the following collection of information, VHA invites comments on: (1) Whether the proposed collection of information is necessary for the proper performance of VHA's functions, including whether the information will have practical utility; (2) the accuracy of VHA's estimate of the burden of the proposed collection of information; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or the use of other forms of information technology.
By direction of the Secretary.
Veterans Health Administration, Department of Veterans Affairs.
Notice.
The Veterans Health Administration (VHA), Department of Veterans Affairs (VA), is announcing an opportunity for public comment on the proposed collection of certain information by the agency. Under the Paperwork Reduction Act (PRA) of 1995, Federal agencies are required to publish notice in the
Written comments and recommendations on the proposed collection of information should be received on or before March 30, 2015.
Submit written comments on the collection of information through Federal Docket Management System (FDMS) at
Audrey Revere at (202) 461-5694.
Under the PRA of 1995 (Pub. L. 104-13; 44 U.S.C. 3501-3521), Federal agencies must obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct or sponsor. This request for comment is
With respect to the following collection of information, VHA invites comments on: (1) Whether the proposed collection of information is necessary for the proper performance of VHA's functions, including whether the information will have practical utility; (2) the accuracy of VHA's estimate of the burden of the proposed collection of information; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or the use of other forms of information technology.
By direction of the Secretary.
Veterans Health Administration, Department of Veterans Affairs.
Notice.
The Veterans Health Administration (VHA), Department of Veterans Affairs (VA), is announcing an opportunity for public comment on the proposed collection of certain information by the agency. Under the Paperwork Reduction Act (PRA) of 1995, Federal agencies are required to publish notice in the
Written comments and recommendations on the proposed collection of information should be received on or before March 30, 2015.
Submit written comments on the collection of information through Federal Docket Management System (FDMS) at
Audrey Revere at (202) 461-5694.
Under the PRA of 1995 (Pub. L. 104-13; 44 U.S.C. 3501-3521), Federal agencies must obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct or sponsor. This request for comment is being made pursuant to Section 3506(c)(2)(A) of the PRA.
With respect to the following collection of information, VHA invites comments on: (1) Whether the proposed collection of information is necessary for the proper performance of VHA's functions, including whether the information will have practical utility; (2) the accuracy of VHA's estimate of the burden of the proposed collection of information; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or the use of other forms of information technology.
By direction of the Secretary.
Veterans Health Administration, Department of Veterans Affairs.
Notice.
The Veterans Health Administration (VHA), Department of Veterans Affairs (VA), is announcing an opportunity for public comment on the proposed collection of certain information by the agency. Under the Paperwork Reduction Act (PRA) of 1995, Federal agencies are required to publish notice in the
Written comments and recommendations on the proposed collection of information should be received on or before March 30, 2015.
Submit written comments on the collection of information through Federal Docket Management System (FDMS) at
Audrey Revere at (202) 461-5694.
Under the PRA of 1995 (Pub. L. 104-13; 44 U.S.C. 3501-3521), Federal agencies must obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct or sponsor. This request for comment is being made pursuant to section 3506(c)(2)(A) of the PRA.
With respect to the following collection of information, VHA invites comments on: (1) Whether the proposed collection of information is necessary for the proper performance of VHA's functions, including whether the information will have practical utility; (2) the accuracy of VHA's estimate of the burden of the proposed collection of information; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or the use of other forms of information technology.
By direction of the Secretary.
Office of Acquisition and Logistics, Department of Veterans Affairs.
Notice.
The Office of Acquisition and Logistics (OAL), Department of Veterans Affairs (VA), is announcing an opportunity for public comment on the proposed collection of certain information by the agency. Under the Paperwork Reduction Act (PRA) of 1995, Federal agencies are required to publish notice in the
Written comments and recommendations on the proposed collection of information should be received on or before March 30, 2015.
Submit written comments on the collection of information through the Federal Docket Management System (FDMS) at
Rosa Cason at (202) 632-5773.
Under the PRA of 1995 (Pub. L. 104-13; 44 U.S.C. 3501-3521), Federal agencies must obtain approval from the Office of Management and Budget (OMB) for each collection of information they conduct or sponsor. This request for comment is being made pursuant to section 3506(c)(2)(A) of the PRA.
With respect to the following collection of information, OAL invites comments on: (1) Whether the proposed collection of information is necessary for the proper performance of OAL's functions, including whether the information will have practical utility; (2) the accuracy of OAL's estimate of the burden of the proposed collection of information; (3) ways to enhance the quality, utility, and clarity of the information to be collected; and (4) ways to minimize the burden of the collection of information on respondents, including through the use of automated collection techniques or the use of other forms of information technology.
By direction of the Secretary.
Office of Resolution Management, Department of Veterans Affairs.
Notice.
In compliance with the Paperwork Reduction Act (PRA) of 1995 (44 U.S.C. 3501-21), this notice announces that the Office of Resolution Management (ORM), Department of Veterans Affairs, will submit the collection of information abstracted below to the Office of Management and Budget (OMB) for review and comments. The PRA submission describes the nature of the information collection and its expected cost and burden; it includes the actual data collection instrument.
Written comments and recommendations on the proposed collection of information should be received on or before February 26, 2015.
Submit written comments on the collection of information through
Crystal Rennie, Enterprise Records Service (005R1B), Department of Veterans Affairs, 810 Vermont Avenue NW., Washington, DC 20420, (202) 632-7492 or email
An agency may not conduct or sponsor, and a person is not required to respond to a collection of information unless it displays a currently valid OMB control number. The
By direction of the Secretary:
National Credit Union Administration (NCUA).
Proposed rule.
The NCUA Board (Board) is seeking comment on a second proposed rule that would amend NCUA's current regulations regarding prompt corrective action (PCA) to require that credit unions taking certain risks hold capital commensurate with those risks. The proposal would restructure NCUA's PCA regulations and make various revisions, including amending the agency's current risk-based net worth requirement by replacing the current risk-based net worth ratio with a new risk-based capital ratio for federally insured natural person credit unions (credit unions). The proposal would also, in response to public comments received, make a number of changes to the original proposed rule that the Board published in the
The proposed risk-based capital requirement set forth in this proposal would be more consistent with NCUA's risk-based capital measure for corporate credit unions and more comparable to the regulatory risk-based capital measures used by the Federal Deposit Insurance Corporation, Board of Governors of the Federal Reserve, and Office of the Comptroller of Currency (Other Banking Agencies).
In addition, the proposed revisions would amend the risk weights for many of NCUA's current asset classifications; require higher minimum levels of capital for credit unions with concentrations of assets in real estate loans or commercial loans or higher levels of non-current loans; and set forth how NCUA can address a credit union that does not hold capital that is commensurate with its risk.
The proposed revisions would also eliminate several provisions in NCUA's current PCA regulations, including provisions relating to the regular reserve account, risk-mitigation credits, and alternative risk weights. (For clarity, the “current” PCA regulations would remain in force until the effective date of a final risk-based capital rule.)
Comments must be received by April 27, 2015.
You may submit written comments, identified by RIN 3133-AD77, by any of the following methods (Please send comments by one method only):
• Federal eRulemaking Portal:
• NCUA Web site:
• Email: Address to
Comments on Proposed Rule: Risk-Based Capital” in the email subject line.
• Fax: (703) 518-6319. Use the subject line described above for email.
• Mail: Address to Gerard Poliquin, Secretary of the Board, National Credit Union Administration, 1775 Duke Street, Alexandria, Virginia 22314-3428.
• Hand Delivery/Courier: Same as mail address.
You can view all public comments on NCUA's Web site at
Larry Fazio, Director, Office of Examination and Insurance, at (703) 518-6360; JeanMarie Komyathy, Director, Division of Risk Management, Office of Examination and Insurance, at (703) 518-6360; Steven Farrar, Loss/Risk Analyst, Division of Risk Management, Office of Examination and Insurance, at (703) 518-6393; John Shook, Loss/Risk Analyst, Division of Risk Management, Office of Examination and Insurance, at (703) 518-3799; Tom Fay, Senior Capital Markets Specialist, Division of Capital and Credit Markets, Office of Examination and Insurance, at (703) 518-1179; Rick Mayfield, Senior Capital Markets Specialist, Division of Capital and Credit Markets, Office of Examination and Insurance, at (703) 518-6501; or by mail at National Credit Union Administration, 1775 Duke Street, Alexandria, VA 22314.
NCUA's primary mission is to ensure the safety and soundness of federally insured credit unions. NCUA performs this function by examining and supervising all federal credit unions, participating in the examination and supervision of federally insured, state-chartered credit unions in coordination with state regulators, and insuring members' accounts at federally insured credit unions.
At its January 2014 meeting, the Board issued a proposed rule (the Original Proposal)
In addition, due to the inherent limitations of any widely applied risk-based capital measurement system, the Original Proposal also included procedures for the Board to require an individual credit union to hold a higher level of risk-based capital where NCUA staff raised specific supervisory concerns regarding the credit union's condition. Finally, the Original Proposal eliminated the provisions of current § 702.401(b) relating to transfers to the regular reserve account, current § 702.106 regarding the standard calculation of the RBNW ratio requirement, current § 702.107 regarding alternative components for the standard calculation, and current § 702.108 regarding the risk-mitigation credit.
In response to the Original Proposal, the Board received over 2,000 comments with many suggestions on how to improve the Original Proposal. The Board has reviewed the comments and determined that it was appropriate to issue a second proposed rule. The Board notes that, because this is a new proposed rule, it is not required to respond to any comments received on the Original Proposal. However, the Board believes it is important to address those comments, and has, therefore, included comment summaries and responses throughout the preamble to this proposal.
The Board is now requesting comment on this second proposed rule regarding risk-based capital. Based largely on comments it received on the Original Proposal, the Board is proposing many improvements to the Original Proposal, including: (1) Amending the definition of “complex” credit union by increasing the asset threshold from $50 million to $100 million; (2) reducing the number of asset concentration thresholds for residential real estate loans and commercial loans (formerly classified as MBLS); (3) assigning one-to-four family non-owner-occupied residential real estate loans the same risk weights as other residential real estate loans; (4) eliminating IRR from this proposed rule; (5) extending the implementation timeframe to January 1, 2019; and (6) eliminating the Individual Minimum Capital Requirement (IMCR) provision. Among other things, these changes would substantially reduce the number of credit unions subject to the rule, and would afford affected credit unions sufficient time to prepare for the rule's full implementation. A full discussion of the impact of these and other changes in this proposed rule is contained in Impact of the Proposed Regulation part of the preamble below.
As discussed in more detail below, the revisions in the Original Proposal and this proposal are intended to implement the statutory requirements of the Federal Credit Union Act (FCUA) and follow recommendations made by the Government Accountability Office (GAO).
In 1998, Congress enacted the Credit Union Membership Access Act (CUMAA).
The purpose of section 216 of the FCUA is to “resolve the problems of [federally] insured credit unions at the least possible long-term loss to the [NCUSIF].”
Among other things, section 216(c) of the FCUA requires NCUA to use a credit union's net worth ratio to determine its classification among five “net worth categories” set forth in the FCUA.
Section 216(d)(1) of the FCUA requires that NCUA's system of PCA include, in addition to the statutorily defined net worth ratio requirement applicable to federally insured natural-person credit unions, “a risk-based net worth
The FCUA directs NCUA to base its definition of “complex” credit unions “on the portfolios of assets and liabilities of credit unions.”
The NCUA must design the risk-based net worth requirement to take into account any material risks against which the 6 percent net worth ratio required for a credit union to be adequately capitalized may not provide adequate protection. Thus the NCUA should, for example, consider whether the 6 percent requirement provides adequate protection against interest-rate risk and other market risks, credit risk, and the risks posed by contingent liabilities, as well as other relevant risks. The design of the risk-based net worth requirement should reflect a reasoned judgment about the actual risks involved.
Section 216(c) of the FCUA requires that, if a credit union meets the definition of “complex” and its net worth ratio initially indicates that it meets or exceeds the net worth ratio requirement to be either “adequately capitalized” or “well capitalized,” the credit union must still satisfy the separate risk-based net worth requirement.
If any complex credit union meets or exceeds the net worth ratio requirement to be classified as well capitalized or adequately capitalized, but fails to meet the corresponding risk-based net worth requirement to be well capitalized or adequately capitalized, then the credit union's capital classification is determined based on the risk-based net worth requirement. For example, if a complex credit union is classified as well capitalized based on its net worth ratio, but only meets the risk-based net worth requirement that corresponds with the adequately capitalized capital category, then that credit union's capital classification would be adequately capitalized. Similarly, if a complex credit union meets the risk-based net worth requirement to be well capitalized, but only meets the net worth ratio requirement to be undercapitalized, then that credit union's overall capital classification is undercapitalized. In either case, the credit union would be subject to any mandatory and discretionary supervisory actions applicable to its lowest capital classification category.
In response to the Original Proposal, some commenters questioned NCUA's legal authority to impose a risk-based net worth requirement on both well capitalized and adequately capitalized credit unions. NCUA's position is that the Board is authorized to do so under the FCUA. Section 216(c)(1)(A) specifically provides that, to be classified as well capitalized, a complex credit union must meet the statutory net worth ratio requirement
In addition, section 216(d)(2) of the FCUA sets forth specific requirements for the design of the risk-based net worth requirement mandated under section 216(d)(1).
In other words, the language in section 216(d)(2) of the FCUA simply identifies the types of risks that NCUA's risk-based net worth requirement must address (
NCUA's interpretation of its legal authority to impose a risk-based net worth requirement on both well capitalized and adequately capitalized credit unions is further supported by the Other Banking Agencies' PCA statute and regulations.
Capital is the buffer that depository institutions, including credit unions, use to prevent institutional failure or dramatic deleveraging during times of strees. As evidenced by the recent recession, during a financial crisis a buffer can mean the difference between the survival or failure of a financial insitution. Financial crises are very costly, both to the economy in general and to individual depository institutions.
The 2007-2009 financial crisis and the associated economic dislocations during the Great Recession were particularly costly to the United States in terms of lost output and jobs. Real GDP declined more than four percent, almost nine million jobs were lost, and the unemployment rate rose to 10 percent.
Research using bank data across several countries and time periods indicates that higher levels of capital insulate financial institutions from the
While higher levels of capital can insulate depository institutions from adverse shocks, holding higher levels of capital does have costs, both to individual institutions and to the economy as a whole. For the most part, the largest cost associated with holding higher levels of capital, in the long term, is foregone opportunities; that is, from the loss of potential earnings from making loans, from the cost to bank customers and credit union members of higher loan rates and lower deposit rates, and the downstream costs from the customers' and members' reduced spending.
The recent financial crisis revealed a number of inadequacies in the current approach to capital requirements. Banks, in particular, experienced an elevated number of failures and the need for federal intervention in the form of capital infusions.
In a risk-based capital system, institutions that are holding assets that have historically shown higher levels of risk are generally required to hold more capital against those assets. At the same time, an institution's leverage ratio, which does not account for the riskiness of assets, can provide a baseline level of capital adequacy in the event that the approach to assigning risk weights does not capture all risks. A system including well-designed and well-calibrated risk-based capital standards is generally more efficient from the point of view of the overall economy, as well as for individual institutions. In general, risk-based capital standards increase capital requirements at those institutions whose asset portfolios have, on average, higher risk. Conversely, risk-based capital standards generally decrease the cost of holding capital for institutions whose strategies focus on lower risk activities. In that way, risk-based capital standards generate the benefits of helping to insulate the economy from financial crises, while also preventing some of the potential costs that would occur from holding unnecessarily high levels of capital at low-risk institutions.
The Original Proposal would have amended NCUA's risk-based net worth requirements to be more comparable to the Other Banking Agencies' regulations, as required by the FCUA.
The Board issued the Original Proposal to enhance risk sensitivity and address weaknesses in the existing regulatory capital framework for credit unions. Under the current rule, only two credit unions are required to hold more capital as a result of the required risk-based net worth ratio measure. The Board emphasized that capital and risk operate synchronously, and that credit union senior management, boards, and regulators are all accountable for ensuring that appropriate capital levels are in place based on the credit union's risk exposure. The Original Proposal reflected the Board's initial effort to establish a system for assigning risk
The recent economic crisis highlighted the need for a sound system of capital requirements to address risk. From 2008 through 2012, 27 credit unions with assets greater than $50 million (the current threshold for applicability of the risk-based net worth requirement) failed at a cost of $728 million to the NCUSIF,
The Board notes that, in general, most credit unions with over $100 million in assets (the proposed new threshold for applicability of the risk-based capital ratio measure) hold capital well above the statutory net worth ratio for credit unions to be classified as well capitalized, as shown in the following table.
Many credit unions hold additional capital as a cushion against an unexpected adverse shock that might drive their net worth ratios below the well capitalized level. Because credit unions primarily generate capital only through retained earnings, there is an added incentive to hold higher levels of capital. Most banks, however, also hold capital in excess of their required well capitalized thresholds and on par with total capital levels held by credit unions, despite having the ability to raise capital outside of retained earnings.
As shown in the table below, at year end 2013, 119 credit unions, or 7.3 percent of all credit unions with assets greater than $100 million in assets, exhibited a net worth ratio below eight percent. Of that 7.3 percent of credit unions, all were either already below the seven percent well capitalized threshold or were only slightly above, so they were vulnerable to falling below the well capitalized level with only a modest shock to their net income. Call report data as of December 31, 2013, indicates that these 119 credit unions hold assets of $68.7 billion, which is more than seven percent of all credit union assets (see table below).
The table
Unlike banks
NCUA's analysis of credit union Call Report data from 2006 forward, as detailed below, also makes it clear that higher capital levels keep credit unions from becoming undercapitalized during periods of economic stress. The table below summarizes the changes in the net worth ratio that occurred during the recent economic crisis. Of credit unions with a net worth ratio of less than eight percent in the fourth quarter of 2006, 80 percent fell below seven percent at some time during the financial crisis and its immediate aftermath. Of credit unions with 8 percent to 10 percent net worth ratios in the fourth quarter of 2006, just under 33 percent fell below seven percent during the crisis period. However, of credit unions that entered the crisis with at least 10 percent net worth ratios, less than five percent fell below the seven percent well capitalized standard during the crisis or its immediate aftermath.
Similarly, the table below shows how credit unions with at least $100 million in assets in the fourth quarter of 2006 fared during the five years after the fourth quarter of 2007, which was the period that encompassed the Great Recession. The table shows that the credit unions that survived the crisis and recession had higher net worth ratios going into the Great Recession. In particular, credit unions with more than $100 million in assets before the crisis began, but failed during the crisis, had a median precrisis net worth ratio of less than nine percent, while similarly sized institutions that survived the crisis had, on average, precrisis net worth ratios in excess of 11 percent.
Aside from demonstrating the differences in the capital positions of credit unions that failed from those that did not fail, the table above highlights two additional considerations. First, the table shows that other performance indicators were different between the two groups of credit unions. In particular, the survivors had a lower median loan-to-asset ratio, a lower median share of total loans in real estate loans, and a lower share of member business loans in their overall loan portfolio.
A key limitation of the leverage ratio is that it is a lagging indicator because it is based largely on accounting standards. Accounting figures are point-in-time values largely based on historical performance to date. Further, the leverage ratio does not discriminate between low-risk and high-risk assets or changes in the composition of the balance sheet. A risk-based capital ratio measure is more prospective in that, as a credit union makes asset allocation choices, it drives capital requirements before losses occur and capital levels decline. The differences in indicators between the failure group and the survivors in the table above demonstrate that factors in addition to capital levels play an important role in preventing failure. For example, all of the failures listed in the table above had net worth ratios in excess of the well capitalized level at the end of 2006. The severe weakness of NCUA's current risk-based net worth requirement is further demonstrated by the fact that, of the 27 credit unions that failed during the Great Recession, only two of those credit unions were considered less than well capitalized due to the existing RBNW requirement.
The need for a risk-based capital standard beyond a leverage ratio is further supported when considering a more comprehensive review of credit union failures. The figures below present data from NCUA's review of the 192 credit union failures that occurred over the past 10 years and indicates that 160 failed credit unions had net worth ratios greater than seven percent two years prior to their failure. Further, the failed credit unions exhibited a 12 percent average net worth ratio two years prior to their failure.
The table above shows that credit unions with high net worth ratios can and have failed, demonstrating that a leverage ratio alone has not always proven to be an adequate predictor of a credit union's future viability. However,
A recession or other source of financial stress poses more difficulties for credit unions with limited capital options and with capital levels lower than what their risks warrant. A capital shortfall reduces a credit union's ability to effectively serve its members. At the same time, the shortfall can cascade to the rest of the credit union system through the NCUSIF, potentially affecting an even broader number of credit union members. Credit unions are an important source of consumer credit and a capital shortfall that affects the credit union system could reduce general consumer access to credit for millions of credit union members.
The Original Proposal reflected the Board's objective of modifying the existing system for assigning risk weights to make it more indicative of the risks in credit unions. The Board intended it to help credit unions better absorb losses and establish a safer, more resilient, and more stable credit union system. However, as noted below, the Board believes the Original Proposal can be improved and is, therefore, issuing this second proposal.
The Original Proposal would have changed the current risk-based net worth requirement applicable to complex credit unions (which was then defined as credit unions with more than $50 million in assets). In particular, the Original Proposal would have replaced the current risk-based net worth ratio measure with a new risk-based capital ratio measure that would have been more comparable to the risk-based capital requirement in the Other Banking Agencies' regulations. NCUA's capital requirements and PCA supervisory actions for “new” credit unions and credit unions with $50 million or less in assets would have remained largely unchanged, with a few exceptions.
The Board intended the change in the risk-based capital methodology in the Original Proposal to improve the comparability of risk-based capital ratios across financial institutions. Compared to the current risk-based net worth ratio measure, the methodology under the Original Proposal would have provided a more common measure both of credit union capital available to absorb losses and of asset risk. Moreover, the use of a consistent framework for assigning risk weights would have resulted in better comparability and improved understanding between all types of federally insured financial institutions, and would have increased the correlation between required capital levels and risk.
The Original Proposal would have replaced the current method used by credit unions to apply risk weights to their assets with a new risk-based capital ratio measure that is more commonly applied to depository institutions worldwide. The proposed risk-based capital ratio measure was the percentage of a credit union's capital available to cover losses, divided by the credit union's defined risk weighted asset base.
Under the current rule, the numerator of the RBNW ratio is “net worth” as defined in section 216(o)(2).
The Board chose to take this approach to provide a more comparable measure of capital across all financial institutions and to better account for those related elements of the financial statement that are available to cover losses and protect the NCUSIF. Under the Original Proposal, the risk-based capital ratio numerator essentially started with the generally accepted accounting principles (GAAP) definition of equity (which is broader than the statutory definition of “net worth”), adding the allowance for loan and lease losses (ALLL) account subject to some limitations, and deducting goodwill, intangible assets, and the NCUSIF deposit. In addition, to more accurately reflect capital available to absorb losses, this broader definition of the risk-based capital ratio numerator would have contributed over 50 basis points, on average, to credit unions' risk-based capital ratio.
With regard to the denominator for the risk-based capital ratio, Congress recognized that operating a credit union involves taking and managing a variety of risks. As stated previously, the FCUA mandates that NCUA's risk-based net worth requirement “take account of any material risks against which the net worth ratio required for [a federally] insured credit union to be adequately capitalized may not provide adequate protection.”
The risk-based net worth ratio measure in NCUA's current PCA regulation, which has not been substantially updated since 2002, was designed to primarily address credit risk, concentration risk, interest rate risk (IRR), and liquidity risk. The current rule does this through the assignment of risk weights to different types of assets based on the predominant form of risk that is associated with the asset type. Loans and investments make up the vast majority (88 percent based on December 2013 Call Report data) of credit union assets and, therefore, are the primary variables for the denominator of a credit
Under the current rule, most types of loans have risk weights based on credit risk. Concentration risk and IRR are incorporated for real estate loans and member business loans (MBLs) using a tiered risk weight framework. As a credit union's concentration in these loans increases, incrementally higher levels of capital are required. This requirement was intended to provide capital to protect against the concentration risk and IRR inherent in a long duration and/or complex whole loan portfolio with limited liquidity.
The Original Proposal would have maintained a very similar risk weight structure for loans, with a few exceptions. The Original Proposal would have effectively reduced the capital required for a credit union to hold first-lien residential real estate loans, and raised the capital required to hold junior-lien residential real estate loans, consumer loans, and MBLs.
The current rule, as opposed to this second proposal, assigns risk weights to most types of investments based on their IRR and liquidity risk. The rationale for doing so was that most credit unions maintain liquidity in their investment portfolio. For credit unions with high loan volume involving long-term fixed rate products, the investment portfolio can exacerbate the interest rate and liquidity risks involved in meeting member lending and deposit preferences. NCUA's current rule, unlike this second proposal, assigns risk weights to most investments based on their weighted average life, with the weights generally calibrated to the projected loss in value of a U.S. Treasury security if interest rates increased by 300 basis points. The Original Proposal would have retained this approach to assigning investment risk weights. However, the Original Proposal would have effectively reduced the capital required for investments with weighted average lives of less than five years, and increased the capital required for investments with weighted average lives of greater than five years.
The Original Proposal was intentionally designed to parallel the current approach to applying risk weights to assets using existing information contained in the Call Report, thereby minimizing transition costs and associated reporting burdens. In comparison to the current risk-based net worth ratio method however, the originally proposed risk-based capital ratio method would have included a greater number of exposure categories for purposes of calculating a credit union's risk-weighted assets. Thus, the Original Proposal would have required that some additional data be collected on the Call Report. However, this additional data would not have represented a material increase to the burden of completing the Call Report. Further, under the Original Proposal, the rule would have provided an 18-month implementation period for credit unions to adjust their systems to account for the additional data items that would have been collected in the Call Report.
The way in which the risk-based net worth ratio functions in relation to the net worth categories under the current rule could result in a credit union's capital classification declining directly from well capitalized to undercapitalized if it fails to meet the required risk-based net worth ratio level.
The Original Proposal would have generally retained the definition of “complex” in the current rule so the proposed changes to the risk-based net worth requirement would have applied to all credit unions with over $50 million in total assets.
The Board received 2,056 public comments on the Original Proposal from credit unions, trade associations, state credit union leagues, state supervisory authorities, public officials (including current and former members of the U.S. Congress), Federal Home Loan Banks, credit union members, and other interested parties. Because this is a new proposed rule, the Board notes it is not required to respond to any comments received on the Original Proposal. However, the Board believes it is important to address all relevant comments. Therefore, the Board has included comment summaries and responses throughout the preamble to this proposal.
Overall, while some commenters supported the concept of adopting risk-based capital standards for complex credit unions that were more comparable to those applicable to banks, most commenters opposed the Original Proposal, particularly those requirements that the commenters believed exceeded the requirements imposed on banks.
Most commenters also expressed concerns about the potential costs and burdens of various aspects of the Original Proposal. A significant number of commenters argued that new risk-based capital standards were not necessary at this time, particularly given the success of consumer credit unions during the recent financial crisis. A number of commenters also requested that the Board withdraw the Original Proposal and reissue a proposal for another round of public comments with significant revisions to the risk weights. Many commenters also asked for additional time to implement the new requirements and adjust their balance sheets.
The Board responds to the significant comments received on the Original Proposal throughout this preamble. More detailed discussions on the comments received on particular aspects of the Original Proposal, and NCUA's responses to those comments, are primarily provided in the section-by-section analysis part of the preamble.
The Board received over 2,000 comments regarding the application of risk-based capital standards to credit unions under the Original Proposal. A majority of the commenters stated that NCUA's current risk-based net worth ratio standard is working well,
The Board received a significant number of comments questioning whether the proposal would actually serve to protect the NCUSIF and make the industry safer and sounder. A number of commenters stated that the proposal essentially represented a de facto assumption of important balance sheet management decisions by NCUA for purposes of protecting the NCUSIF at the expense of the current prerogatives and interests of individual credit unions and their members. Commenters contended that since the implicit incentives in the proposal are the same for every credit union, over the long run, the Original Proposal would cause credit unions to become less financially diverse, which would increase the vulnerability of the industry and NCUSIF to some future widespread economic adversity. Commenters stated that credit unions are in the risk business by nature and that the proposal was too focused on a number-generated, one-size-fits-all solution. Other commenters requested that the Board be mindful that the risk weights that are adopted in the rule could ultimately drive which types of products and services are offered by credit unions.
Some commenters suggested NCUA include a risk-capital model calculation as part of the examination process, similar to NCUA requirements for other types of modeling such as the model required for IRR testing. Those commenters suggested that the results of the risk-based capital model could be used to identify “potential risk” by examiners and credit union boards, calling for additional scrutiny in the exam, instead of prescribing a rule that is assumed to quantify “actual” risk.
A small number of commenters suggested that the Other Banking Agencies are all leaning toward simply using a simplified leverage ratio to account for risks.
A number of commenters commented on the Board's justification and analysis supporting the need for a proposed rule. Commenters suggested the proposal was arbitrary and developed without feedback from the credit union industry. Other commenters suggested that the Board should have provided stakeholders with a more thorough discussion of how the proposal would fit into NCUA's regulatory framework, including recently issued final rules regarding liquidity risk, IRR, and stress testing and capital planning. Commenters stated there was no credible analysis available in the Original Proposal to suggest credit unions overall are unlikely to perform well under the current PCA system, which already includes a risk-based net worth requirement. Others commented that the proposal provided no evidence that this rule would help members.
Commenters suggested the Board did not sufficiently take into account the unique nature of credit unions and the financial performance and distinctive structure of credit unions in developing the proposal. They argued this was problematic because the Board is required to take into account the unique nature of credit unions in designing a system of PCA, and that by failing to sufficiently account for credit union differences and the lower level of risk that credit unions demonstrate as a result led to a proposal that would require well-managed credit unions to hold too much capital. Others suggested that the proposal failed to consider how the use of bank style capital levels could adversely impact credit unions. There were those who felt that the Board should propose a rule only if NCUA has prepared a reasoned determination that the rule's benefits justify its costs. They suggested that any benefits in terms of reduced NCUSIF losses would be minor at best and the very real costs of unnecessarily high capital requirements would be substantial. Commenters also suggested that the proposal was not tailored to impose the least burden.
The Board received a number of comments on the basis provided for the proposed rule. Commenters suggested the proposal should have been based on historical perspectives, and stated that based on their own analysis the proposal would have avoided few if any past credit union failures. One commenter stated that only 1.1 percent of credit unions with more than $50 million in assets have failed in the six-and-a-half years since the beginning of the worst financial crisis and recession in 80 years. The commenter did, however, acknowledge that the proposed system would have been more effective than the current system in identifying credit unions that subsequently failed.
One commenter suggested that the Board's justification that the proposal seeks to incorporate lessons learned from past failures of credit unions to hold sufficient levels of capital despite warnings from NCUA examiners was unsupportable because NCUA and state officials have various supervisory enforcement measures at their disposal (
A significant number of commenters questioned the Board's supporting analysis for various aspects of the proposal. Commenters suggested that the empirical foundation provided for the proposed risk weights was not sufficient. Other commenters stated that the Board should provide additional justification and more clarity as to why the proposed risk weights differ from those for other community financial institutions. Many commenters stated they would like an opportunity to review and comment on empirical data, but that they were not provided sufficient information to understand how the metrics behind the proposal were determined and how historic losses contributed to each calculation. One commenter suggested that NCUA should expand its research horizons to include data-sourcing outside the natural-person credit union space, claiming the Original Proposal contained several examples where “uncertain” conclusions were drawn from insufficient data or those where
Another commenter suggested that the stated purpose of the proposal was to mitigate losses to the NCUSIF that could result from inadequate capital, but that GAO and NCUA's Office of Inspector General (OIG) reports demonstrate that deficiencies in the examination process contributed substantially to losses during the financial crisis, and that such deficiencies continue to be a significant factor in more recent credit unions failures. That commenter suggested that instead of focusing on a risk-based capital requirement for credit unions to contain NCUSIF losses, the Board should be improving examiner training so that agency field staff can more readily identify material risks without increasing the agency's budget, which is funded by credit unions.
A significant number of commenters expressed concerns regarding the justification and explanation of how credit risks as well as interest rate, concentration, liquidity, operational, market risks, and other types of risk were addressed in the proposed rule. Commenters questioned the Board's justification for including IRR and concentration risk in the proposed risk weights for investments, real estate loans, and member business loans. A small number of commenters suggested that there was no explanation of which portion of the proposed risk weight is intended to address each of these risk elements, and that, as a result, the risk weights did not reflect a reasoned judgment about the actual risks involved.
The Board received a significant number of comments expressing concerns that the proposed rule would have put credit unions at a competitive disadvantage to banks. A majority of the commenters suggested that the differences between NCUA's proposed risk weights and the Other Banking Agencies' capital rules would have constrained the healthy growth of the credit union industry. Commenters suggested that the statutory seven percent net worth requirement to be classified as well capitalized was set artificially high by Congress to slow the growth of credit unions and that the proposed rule would build on that artificially high net worth requirement and further slow the growth of credit unions, putting credit unions at a further disadvantage to banks. A significant number of commenters stated that the competitive disadvantages in the proposed rule could incentivize many credit unions to switch to bank charters. Other commenters suggested that NCUA's proposed risk-based capital ratios were much more volatile than the risk weights under the Other Banking Agencies' rule, and that the proposed risk weights for some investments were excessively punitive and should be changed to match the risk weights used in Basel
A small number of commenters stated that they appreciated that the Board kept the proposed risk-based capital calculation less complicated than the banking risk-based capital calculation.
A substantial number of commenters suggested that it was not appropriate for the Board to adopt the framework of the Basel system in the proposal and also take parts from NCUA's current PCA regulation that bear no relationship to Basel. A substantial number of commenters stated that neither Basel III nor the Other Banking Agencies rules attempt to capture IRR, liquidity risk, market risk, or operational risk in their risk weights, and that Basel III and the Other Banking Agencies' capital rules are only designed to take into account credit risk. Many commenters stated that adopting either the Basel III format or the Other Banking Agencies' risk weights accurately would give both NCUA and the credit union industry credibility to all outside parties. Other commenters suggested that, because of these and other differences, the proposal was not “comparable” with the Other Banking Agencies' rules, which is a requirement of the FCUA.
A substantial number of commenters stated that the structure and performance of credit unions suggests that the risk weights should be less stringent than the risk weights applied to banks. Other commenters suggested that the proposed risk-based capital standards for credit unions are comparable to FDIC standards, but that they fail to take into account the unique characteristics of the credit union system as required by the FCUA. Commenters noted that unlike banks, credit unions do not have capital stock and cannot go to outside investors to seek equity capital to fuel growth or shore up capital ratios in times of stress. They stated that the rule and associated risk weights should recognize that sources of capital within the credit union industry are not as easily acquired as capital sources for banks. A number of commenters stated that if Congress had intended credit unions to be subject to the same requirements as banks it would have said so, and suggested that the Board should stop treating credit unions like banks and judging them by return on investment, and instead judge them on how effectively they deliver on their mission and make a distinctive impact relative to their resources.
One commenter suggested that the rule should be based on three principles: (1) Risk weights should generally be similar to those applied to community banks in the United States; (2) for those assets where credit union loss experience is historically lower than bank loss rates, credit union risk weights should be at or below bank risk weights; and (3) concentration risk and IRR should not be incorporated into the risk-based capital system, but instead, should be addressed in the regulatory, examination and supervision process.
Another commenter claimed that the risk weights established by FDIC do not exceed 100 percent so NCUA's rule should not establish levels over 100 percent as it would impede growth and preclude credit unions from generating net income.
Commenters suggested that the differences between proposed risk weights and banks' rules would encourage credit unions to make consumer loans by discouraging credit unions from making other types of loans, such as mortgage loans, MBLs, or agricultural loans. Others suggested that the proposed rule would have forced all credit unions into a bank model that would have required them to pay less, charge more, and increase fees. Other commenters suggested that the proposed risk weights could drive many credit unions to a “cookie cutter” balance sheet where each credit union has the same percentage of total assets allocated to specific loan types, which could force a high percentage of credit unions into less profitable asset growth and make it challenging to differentiate themselves from competitors.
Commenters suggested that credit unions generally operate as portfolio lenders, making and holding high-quality consumer and residential real estate loans that serve their members and improve their communities, and that credit unions often carry significantly less exposure to volatile product lines such as acquisition development and construction loans, commercial real estate, and complex derivatives products.
Commenters added that credit unions also face stringent regulatory restrictions on their investment powers, and as a result, natural-person credit unions fared substantially better during the recent financial crisis than many other entities, including banks. Those commenters concluded that an appropriate risk-based capital requirement would reflect these important differences with a streamlined program that recognizes credit unions as strong counter-cyclical lenders while bolstering safety and soundness through meaningful benchmarks and access to supplemental capital.
The Board received a substantial number of comments concerning the impact that the Original Proposal would have had on credit unions. In general, most of these commenters expressed concern that the Original Proposal would have had a material adverse impact on individual credit unions and the entire credit union industry. This section outlines these concerns.
A majority of commenters stated that the proposed risk-based capital requirement would weaken credit unions' ability to build the capital cushions they need to protect themselves against risk and would hamper credit unions' ability to grow and provide services to their members. Other commenters stated that the Original Proposal would constrain future investments by credit unions and, thus, would limit credit unions' ability to provide certain services, better loan rates, and dividends to their members. Others expressed concern that the proposal would impede growth and deter lending among credit unions, even those with demonstrated long-term ability to manage risk and net worth.
Many commenters stated that the Original Proposal seemed to be a reaction to the Great Recession and that the Board should further consider the Original Proposal's impact on the future of the credit union industry. Commenters suggested that the proposed requirement to hold a higher capital-to-asset ratio would cause credit union asset growth to stagnate and decline over the long term, for any given rate of return on assets, and that the Board should try to quantify these costs and weigh them against the uncertain benefits of minor reductions in the relative cost of credit union failures. Using the rule that the sustainable asset growth rate is equal to the return on equity, or Asset Growth Rate = ROA/Capital Ratio, some commenters estimated that asset growth for credit unions would slow to eight percent under the Original Proposal, or 1.1 percent lower than the asset growth rate would be without the Original Proposal.
Commenters stated that because credit unions can only build capital through retained earnings, the Original Proposal could severely limit credit unions' ability to grow, to increase the products and services they provide to their members, and to help their local communities prosper. They also suggested that the Original Proposal may actually reduce credit unions' ability to absorb losses, given their limited access to capital markets.
A number of commenters stated that the low risk weights applied to consumer loans and the high risk weights applied to first-lien mortgage loans, mortgage servicing rights, and subordinate-lien mortgage loans would push credit unions to make more consumer loans and fewer mortgage loans, despite a significant demand for real estate lending services at some credit unions. Other commenters stated that the Original Proposal would induce credit unions to focus on risk-based capital instead of growth in real capital. Still other commenters suggested the proposed risk weights would penalize non-consumer lending, which could force small credit unions to only make consumer loans on very low margins, a strategy that would not survive in the future.
One commenter suggested that the Original Proposal did not properly account for the effect of economic downturns on credit unions, and that it would be difficult or impossible for downgraded credit unions to rebuild following an economic downturn.
A substantial number of commenters suggested that NCUA underestimated the adverse effect of the Original Proposal. They maintained that the Board understated the number of credit unions whose net worth would have decreased to just barely over well capitalized or adequately capitalized levels. One commenter suggested that, under the Original Proposal, approximately 1,000 credit unions would be required to raise $4 billion in additional capital. Other commenters proffered that the Original Proposal would require the credit union industry to hold an additional $6.5 billion to $7 billion dollars in additional capital to retain the same buffers that exist today and still be considered well capitalized. Commenters suggested that the Board considered only the narrowest interpretation of the Original Proposal's impact, ignoring the immediate and long-term effects that it would have on individual credit unions and the entire credit union system. They stated that credit unions cannot easily manage their capital to the exact dollar level that equates to NCUA's proposed standards, and that credit unions typically strive to maintain sufficient space or buffers between their actual net worth ratios and the minimum required levels to be well capitalized because of the significant consequences of not meeting the net worth standards. According to the commenters, credit unions choosing to regain their buffer would only have three choices: (1) Rebalance their assets, recognizing an opportunity cost when they forego higher earnings, which would diminish their ability to grow; (2) ration services, stifling asset and membership growth; or (3) require members to pay more, resulting in fewer member benefits and increased competition from banks.
Commenters added that the Original Proposal would require many credit unions to adjust their capital levels to maintain current margins above the well capitalized threshold, at the same time as earnings at credit unions continue to be squeezed by low interest rates, downward pressure on other revenue streams, and moderate loan growth. They argued that these adjustments would pressure credit unions, already suffering from low to moderate loan-to-share ratios, to decrease their assets by curbing lending in an attempt to comply with the new requirements.
A significant number of commenters stated that the Original Proposal would cause the reallocation of credit union capital toward less productive uses. One commenter suggested that, for some credit unions, the Original Proposal would increase the amount of capital required to be well capitalized above the current level of seven percent of total assets, positing that 10.5 percent of risk assets amounts to more than seven percent of total assets for most credit unions, depending on the ratio of risk assets to total assets. The commenter assumed that, across all potentially affected credit unions, the total amount of capital necessary to be well capitalized would increase by $7.6 billion, or, in other words, that the Original Proposal would increase the
A number of commenters also noted their concern that the Original Proposal would force many credit unions out of business.
A significant number of commenters expressed concern that the Original Proposal would curtail MBL activities. They stated that the Original Proposal unfairly penalized credit unions that are exempt from the MBL limits in § 107A of the FCUA.
Commenters suggested that the proposed risk weights would discourage well capitalized credit unions from engaging in mergers of undercapitalized credit unions because the Original Proposal would force credit unions into less profitable asset growth. Other commenters maintained that the reduction of credit unions' capital margin or cushion would negatively impact credit unions' ability to merge, and would permit only the largest credit unions to merge with smaller credit unions. Still others suggested that the Original Proposal would encourage mergers of credit unions not meeting the risk-based requirements.
A substantial number of commenters stated that the Original Proposal would have a direct negative impact on credit union service organizations (CUSOs) by discouraging investment in CUSOs, thereby forcing many credit unions to limit services to their members.
Commenters feared that the Original Proposal would result in stricter scrutiny by examiners, which would increase NCUA's examination and supervision costs and, therefore, the costs borne by credit union members. Other commenters suggested that NCUA already has a large examination and oversight budget to eliminate risk to the NCUSIF; they contended the Original Proposal did not sufficiently address the aggregate costs of these initiatives to credit union members. According to these commenters, the impact of the Original Proposal on credit union members, in the form of excessive supervision and lost earnings due to overcapitalization, could itself pose a risk to the NCUSIF.
Some commenters shared their belief that the Original Proposal would reduce lending in dramatic ways and stifle the economy. Other commenters asserted that the Original Proposal would decrease member benefits, such as patronage dividends and reduced expenses. A number of commenters stated that the Original Proposal failed to consider impacts on businesses and the economy, particularly on small businesses that rely on credit unions for credit. Several commenters suggested that the Original Proposal would force some credit unions away from their missions to serve member in predominantly rural and low-income fields of membership.
A small number of commenters encouraged the Board to follow the cost-benefit analysis blueprint established by Executive Orders 13563 and 13579. Doing so, they argued, would allow meaningful, cumulative analysis that would result in a more coherent rule with fewer harmful, unintended consequences for the American economy.
A number of commenters expressed significant concerns about the Original Proposal's negative impact on the growth and viability of small credit unions. They suggested that the Original Proposal would inhibit the growth of credit unions that are developing from small credit unions (less than $50 million) to medium-size credit unions ($50 million-$99 million). Other commenters suggested it would reduce the monetary and other support that larger credit unions historically have provided to their smaller counterparts. They noted that some small credit unions depend on grants, scholarships, and training opportunities funded by larger credit unions. If these larger credit unions were compelled to change their loan and investment portfolios, or are required to adjust their capital, those commenters concluded their income levels would decline, thereby rendering it more difficult for them to fund as many opportunities for small credit unions. One credit union with less than $10 million in assets asserted that it would be adversely affected by the proposed change in the capital reserves requirement.
Other commenters suggested that the Original Proposal imposed unnecessary regulatory burdens that would impede small credit unions' ability to serve their members. A substantial number of commenters stated that small credit unions not classified as “complex” and not subject to the risk-based capital requirement would still be negatively affected because the Original Proposal estimated the paperwork burdens include over 160 hours of work for credit unions, which is significant for small credit unions with limited resources. Other commenters suggested that small credit unions would suffer significantly due to the complexity of this regulation and its implementation costs. Many commenters stated that small credit unions cannot survive under the current regulatory burdens. Others foresaw potentially disastrous consequences if this regulation were pushed down to small credit unions. An official at one small credit union asserted that the Original Proposal would affect its strategic planning as it approached $50 million in assets. Another commenter stated that, as a credit union with under $50 million in assets, it was concerned about the uncertainty of how the Original Proposal would affect privately insured credit unions.
Several commenters expressed concerns that the proposal did not provide for input from state regulators who may have a different view or approach from that of NCUA. Other commenters suggested that the proposal was developed with no involvement or dialogue with state regulators. Commenters suggested that the Board should ensure that NCUA properly implements directives in the FCU Act and coordinates with state officials in implementing risk-based requirements and PCA.
Similar to the Original Proposal, this proposal would replace the method currently used by credit unions to apply risk weights to their assets with a new risk-based capital ratio measure that is more comparable to that applied to depository institutions worldwide. The proposed risk-based capital ratio measure would be the percentage of a credit union's capital available to cover losses, divided by the credit union's defined risk-weighted asset base.
As noted in the introduction, this proposed rule would make substantial modifications to the Original Proposal to address specific concerns that were raised by commenters regarding the proposal's cost, complexity, and burden. These changes would include: (1) Amending the definition of “complex” credit union by increasing the asset threshold from $50 million to $100 million; (2) reducing the number of asset concentration thresholds for residential real estate loans and commercial loans (formerly classified as MBLS); (3) assigning one-to-four family non-owner-occupied residential real estate loans the same risk weights as other residential real estate loans; (4) eliminating IRR from this proposed rule; (5) extending the implementation timeframe to January 1, 2019; and (6) eliminating the Individual Minimum Capital Requirement (IMCR) provision. Among other things, these changes would substantially reduce the number of credit unions subject to the rule, and would afford affected credit unions sufficient time to prepare for the rule's full implementation. A full discussion of the impact of these and other changes in this proposed rule is contained in Impact of the Proposed Regulation part of the preamble below.
As discussed previously, the FCUA gives NCUA broad discretion in designing the risk-based net worth requirement. Thus, this proposal would incorporate a broadened definition of capital to be used as the numerator in calculating the proposed new risk-based capital ratio measure. The Board is proposing this change to provide a more comparable measure of capital across all financial institutions and to better account for related elements of the financial statement that are available to cover losses and protect the NCUSIF. This broader definition of capital would more accurately reflect the amount of capital that is available at a credit union to absorb losses. On average, it would increase a credit union's risk-based capital ratio by over 50 basis points as discussed in more detail below.
The Board agrees with the various comments received on the Original Proposal that suggested the allowance for loan and lease losses (ALLL) account should be included in its entirety in the risk-based capital ratio numerator (that is, not subject to a 1.25 percent cap), and that goodwill and other intangible assets specifically related to a supervisory merger that occurs before the Board finalizes its risk-based capital ratio rule should be included in the risk-based capital ratio numerator for some period of time before being excluded (approximately 10 years after any final rule is published in the
In terms of the denominator for the risk-based capital ratio measure, section 216(d)(2) of the FCUA requires that the Board, in designing a risk-based net worth requirement, “take account of
NCUA's risk-based net worth requirement has included some aspect of IRR since its inception in 2000. Further, the Board continues to believe that IRR, if not adequately addressed through some regulatory, statutory or supervisory mechanism, can represent a material risk for purposes of NCUA's risk-based requirement.
Based on long-term balance sheet trends at credit unions and NCUA's experiences dealing with problem institutions, the Board has concluded that NCUA's current regulations and supervisory process alone cannot adequately address IRR. However, the Board agrees with commenters on the Original Proposal who suggested that measures of IRR based comprehensively on assets and liabilities (including hedges) should be favored over measures that are based upon an asset-only approach, which is the approach taken in the current rule and was also the approach taken in the Original Proposal. Accordingly, the Board is now proposing to exclude consideration of IRR from the risk-based capital ratio measure, but in the future intends to consider alternative approaches for taking into account the IRR at credit unions.
The proposed methodology for assigning risk weights in this proposed rule, therefore, would account only for credit risk and concentration risk. The Board believes that a capital-at-risk methodology is more appropriate for
Because IRR will no longer be included in this proposal, NCUA will consider what alternative approaches can be taken to account for IRR at credit unions. Alternative approaches that could be taken include adding a separate IRR standard as a subcomponent of the risk-based net worth requirement to complement the proposed risk-based capital ratio measure. Conceptually, a separate IRR standard should be based on a comprehensive balance sheet measure, like NEV, that takes into account offsetting risk effects between assets and liabilities (including benefits from derivative transactions). The intent of such a measure would be to measure IRR consistently and transparently across all asset and liability categories, to address both rising and falling rate scenarios, and to supplement the supervisory process with a measure calibrated to address severe outliers. This approach would also incorporate a forward-looking, proactive measure into NCUA's capital standards, as recommended by GAO.
In light of the proposed elimination of IRR measures from the current rule, and GAO's recommendation for NCUA to incorporate a forward-looking measure into credit union's capital standards, the Board specifically requests comments on alternative approaches that could be taken in the future to reasonably account for IRR.
Because the Board has decided to exclude IRR from the computation of the risk weights for assets in this proposal, it was necessary to propose significant changes to how investments are currently risk-weighted. This proposal adopts a risk weight framework for investments based largely on the credit risk of the issuer or underlying collateral. This proposed approach would be substantially similar to the Other Banking Agencies' framework for investments.
Concentration risk can also be a material risk. As the Basel Committee on Banking Supervision explained in Basel II:
Risk concentrations are arguably the single most important cause of major problems in banks. Risk concentrations can arise in a bank's assets, liabilities, or off-balance sheet items, through the execution or processing of transactions (either product or service), or through a combination of exposures across these broad categories. Because lending is the primary activity of most banks, credit risk concentrations are often the most material risk concentrations within a bank. Credit risk concentrations, by their nature, are based on common or correlated risk factors, which, in times of stress, have an adverse effect on the creditworthiness of each of the individual counterparties making up the concentration.
The concept of higher risk weights for concentrations of real estate loans and MBLs exists in the current risk-based requirement. Eliminating the concentration dimension for risk weights would be a step backward and is inconsistent with the concerns raised regarding concentration risk by GAO and in Material Loss Reviews (MLRs) conducted by NCUA's OIG. The 2012 GAO report notes credit concentration risk contributed to 27 of 85 credit union failures that occurred between January 1, 2008, and June 30, 2011. Credit unions with high MBL concentrations are particularly susceptible to changes in business conditions that can affect borrower cash flow, collateral value, or other factors increasing the probability of default. GAO found in its 2012 report that credit unions who failed had more MBLs as a percentage of total assets than peers and the industry average. GAO advised NCUA to revise PCA taking into account credit unions with a high percentage of MBLs to total assets. The report documented NCUA's agreement to revise PCA regulations so that capital standards adequately address concentration risk.
GAO also recommended NCUA address the real estate concentration risk concerns raised by NCUA's OIG, who completed several MLRs where failed credit unions had large real estate loan concentrations. The NCUSIF incurred losses of at least $25 million in each of these cases. The credit unions reviewed held substantial residential real estate loan concentrations in either first-lien mortgage loans, home equity lines of credit (HELOCS), or both.
Accordingly, the Board is now proposing to include a tiered risk weight framework for high concentrations of residential real estate loans and commercial loans
The Board agrees with various commenters on the Original Proposal that the tiered risk weight system should be adjusted so as to focus on material outliers, thereby creating more consistency of capital treatment with banks. Accordingly, the Board proposes to use a single, higher concentration threshold to simplify the risk weight framework and calibrate it to be applicable only to credit unions that deviate significantly from the mean.
The concentration thresholds would not limit a credit union's lending activity; rather, the thresholds would merely require the credit union to hold capital for the elevated risk. The Board does not believe credit unions would be at a competitive disadvantage because most loans (except for loans at extremely high concentrations) would be assigned risk weights similar to those applicable to banks.
Consistent with section 216(b)(1)(A)(ii) of the FCUA, which requires NCUA's PCA requirement be comparable to the Other Banking Agencies' PCA requirements, the Board largely relied on the risk weights assigned to various asset classes under the Basel Accords and the Other Banking Agencies' risk-based capital rules, as well as the underlying principles, for this proposal.
The following is a table showing a summary of the risk weights included in this proposal. See the section-by-section analysis part of the preamble below for more detail on the proposed changes to the asset classes and risk weights.
The Board notes that FDIC's capital standards are the “minimum capital requirements and overall capital adequacy standards for FDIC-supervised institutions . . . include[ing] methodologies for calculating minimum capital requirements . . .”
The FDIC may require an FDIC-supervised institution to hold an amount of regulatory capital greater than otherwise required under its capital rules if the FDIC determines that the institution's capital requirements under its capital rules are not commensurate with the institution's credit, market, operational, or other risks.
Further, the September 10, 2013 preamble to part 324 of FDIC's regulations states that:
The FDIC's general risk-based capital rules indicate that the capital requirements are minimum standards generally based on broad credit-risk considerations. The risk-based capital ratios under these rules do not explicitly take account of the quality of individual asset portfolios or the range of other types of risk to which FDIC-supervised institutions may be exposed, such as interest-rate risk, liquidity, market, or operational risks . . . In light of these considerations, as a prudent matter, an FDIC-supervised institution is generally expected to operate with capital positions well above the minimum risk-based ratios and to hold capital commensurate with the level and nature of the risks to which it is exposed, which may entail holding capital significantly above the minimum requirements.
As indicated above, FDIC's approach to risk weights is calibrated to be the minimum regulatory capital standard. Similarly, this proposal is calibrated to be the minimum regulatory capital standard. Therefore, the Board believes it is necessary to incorporate a broader regulatory provision requiring complex credit unions to maintain capital commensurate with the level and nature of all risks to which they are exposed, and to maintain a written strategy for assessing capital adequacy and maintaining an appropriate level of capital.
Proposed new § 702.101(b) is based on a similar provision in the Other Banking Agencies' rules.
Because of this proposed new capital adequacy provision, existing enforcement authority for unsafe and unsound conditions or practices,
Under the Original Proposal, proposed § 702.105(a) would have introduced rules and procedures to permit the Board, on a case-by-case basis, to impose an IMCR that exceeds the risk-based capital requirement that otherwise would apply to a credit union under subpart A of part 702.
Under the Original Proposal, § 702.105(a) would have prescribed criteria to determine when a credit union's capital is, or may become, inadequate, making it appropriate to impose a higher capital requirement. It then would have prescribed standards to determine what heightened capital requirement to impose in such cases, based not only on mathematical and objective criteria, but on subjective judgment grounded in agency expertise.
Under the Original Proposal, a staff-level decision to impose a discretionary supervisory action (DSA) under part 702,
With a few notable exceptions,
Now that the IMCR provision in this proposal has been removed, the commenters' concerns with the various aspects of the IMCR are no longer relevant. NCUA would be able to address any deficiencies in a credit union's capital levels relative to its risk by: (1) Reclassifying the credit union into a lower net worth category under § 702.102(b) of this proposal and FCUA;
As discussed earlier in this preamble, the Original Proposal would have required that credit union meet different risk-based capital ratio levels for the adequately capitalized category (eight percent) and the well capitalized category (10.5 percent). Commenters on the Original Proposal questioned NCUA's legal authority to require complex credit unions to meet one risk-based capital ratio to be adequately capitalized and a different, higher risk-based capital ratio to be classified as well capitalized. As explained in the legal authority section of this preamble, the Board has the authority under the FCUA to take this approach.
However, the Board supports lowering the risk-based capital ratio level required for a complex credit union to be classified as well capitalized from 10.5 percent to 10 percent. The Board agrees with commenters that a 10 percent risk-based capital ratio level for well capitalized credit unions simplifies the comparison with the Other Banking Agencies' rules
The Original Proposal would have applied to all credit unions with over $50 million in total assets. Based on NCUA's analysis of the comments received on the Original Proposal, the Board is now proposing to define a credit union as “complex” if it has assets of more than $100 million.
The Board believes an asset threshold would be clear, logical, and easy to administer when compared to the more complicated formula credit unions are required to follow under the current rule
The Original Proposal would have provided an 18-month implementation period for credit unions to adjust to the new requirements. The Board agrees with the comments received on the Original Proposal that a longer implementation period is necessary due to the complexity of this rule and the changes needed in the Call Report. Therefore, the Board is proposing to more than double the implementation period by extending it to January 1, 2019, to provide both credit unions and NCUA sufficient time to make the necessary adjustments, such as systems, processes, and procedures, and to reduce the burden on affected credit unions in meeting the new requirements.
Consistent with the Original Proposal, this proposed rule would reorganize part 702 by consolidating NCUA's PCA requirements, which are currently included under subsections A, B, C, and D, under proposed subparts A and B. Proposed subpart A would be titled “Prompt Corrective Action” and proposed subpart B would be titled “Alternative Prompt Corrective Action for New Credit Unions.”
In general, this proposed rule would restructure part 702 by consolidating most of the rules relating to capital and PCA that are applicable to credit unions that are not “new” credit unions under new subpart A. This change is intended to simplify the structure of part 702. The specific sections that would be included in new subpart A and the proposed changes to those sections are discussed in more detail below.
Similarly, this proposed rule would consolidate most of NCUA's rules relating to alternative capital and PCA requirements for “new” credit unions under new subpart B. This change is intended to simplify the structure of part 702. The sections under new subpart B would remain largely unchanged from the requirements of current part 702 relating to alternative capital and PCA, except for revisions to the sections relating to reserves and the payment of dividends. The specific sections included in new subpart B and the specific changes to the sections under new subpart B are discussed in more detail below.
Finally, this proposed rule would retain subpart E of part 702, Stress Testing, but would re-designate and re-number the current subpart as subpart C. Other than re-designating and re-numbering the subpart, the language and requirements of current subpart E would remain unchanged.
Consistent with the Original Proposal, proposed § 702.1 would remain substantially similar to current § 702.1, but would be amended to update terminology and internal cross references within the section, consistent with the changes that are being proposed in other sections of part 702. No substantive changes to the section are intended.
The Board received a number of comments expressing concerns regarding the Boards authority to issue the Original Proposal. Several commenters stated that the Board lacks legal authority to issue a rule implementing the risk-based capital requirement as proposed. Other commenters suggested that the Board did not adequately account for the unique nature of credit unions in the Original Proposal. Another commenter suggested that the language of the FCUA does not mean that there should be one approach and one universal algorithm applied to all risk in the same fashion. Other commenters suggested that the Original Proposal was inconsistent with the statutory requirement for the Board to design a system of PCA that is comparable to that of FDIC. Other commenters argued that the proposed risk-based capital requirement was inconsistent with the FCUA because they believed it ignored the fact that most credit unions raise net worth only through retained earnings.
The Board has carefully considered these comments and generally disagrees with commenters' reading of the FCUA. Section 216(b)(1) of the FCUA requires the Board to adopt by regulation a system of PCA for insured credit unions that is “comparable to” the system of PCA prescribed in the FDI Act, that is also “consistent” with the requirements of section 216 of the FCUA, and that takes into account the cooperative character of credit unions.
Under the Original Proposal, proposed § 702.2 would have retained many of the definitions in current § 702.2 with no substantive changes. The Original Proposal would, however, have removed the paragraph number assigned to each of the definitions under current § 702.2 and would have reorganized the section so the new and existing definitions were listed in alphabetic order. This reformatting would have made § 702.2 more consistent with current §§ 700.2, 703.2 and 704.2 of NCUA's regulations.
The Board received no comments on these technical changes to § 702.2 and has decided to retain the changes described above in this second proposal. Consistent with section 202 of the FCUA,
The Board received no comments on the definition of ALLL in the Original Proposal and has decided to retain the term and definition in this second proposal with the following changes. As discussed in more detail below, the Board is now proposing to amend the definition of ALLL to address the importance of maintaining ALLL in accordance with GAAP since the integrity of the risk-based capital ratio is dependent upon an accurate ALLL, particularly now that this second proposal would allow the entire ALLL balance to be included in the risk-based capital ratio numerator. A credit union maintaining ALLL in accordance with GAAP will make timely adjustments to the ALLL including the timely charge off of loan losses. Accordingly, under this proposed rule, the term “ALLL” would be defined as valuation allowances that have been established through a charge against earnings to cover estimated credit losses on loans, lease financing receivables or other extensions of credit as determined in accordance with GAAP.
This proposed new term is being added because investments accounted for as held-to-maturity are reported on the balance sheet at amortized cost while investments accounted for as available-for-sale are reported on the balance sheet at fair value. As explained in more detail below, to ensure consistency in the measure of minimum capital for held-to-maturity or available-for-sale investments, the risk weights will be applied to the amortized cost.
The Board received no comments on the definition of “Call Report” and has decided to retain the definition unchanged in this proposal.
The Board is proposing to adopt a different approach from the Original Proposal, in which it applied risk weights to assets that fell within the statutory definition of MBLs, and is now proposing to assign specific risk weights to all loans meeting the new definition of commercial loans provided above. The proposed definition of commercial loans is more reflective of the risk of these loans than the previously defined term MBL, which would no longer be used in proposed § 702.104, and, as discussed in more detail below, is intended to better identify the loans made for a commercial purpose and having similar risk characteristics. Classification of a loan as a commercial loan would be based upon the purpose of the loan, the use of the proceeds of the loan, and the type of underlying collateral. Commercial loans may take the form of direct or purchased loans.
For example, commercial loans would generally include the following types of loans:
• Loans for commercial, industrial and professional purposes to:
○ Mining, oil- and gas-producing, and quarrying companies;
○ Manufacturing companies of all kinds, including those which process agricultural commodities;
○ Construction companies;
○ Transportation and communications companies and public utilities;
○ Wholesale and retail trade enterprises and other dealers in commodities;
○ Cooperative associates including farmers' cooperatives;
○ Service enterprises such as hotels, motels, laundries, automotive service stations, and nursing homes and hospitals operated for profit;
○ Insurance agents; and
○ Practitioners of law, medicine and public accounting.
• Loans for the purpose of financial capital expenditures and current operations.
• Loans to finance agricultural production and other loans to farmers, including:
○ Loans and advances made for the purpose of financing agricultural production, including the growing and storing of crops, the marketing or carrying of agricultural products by the growers thereof, and the breeding, raising, fattening, or marketing of livestock;
○ Loans and advances made for the purpose of financial fisheries and forestries, including loans to commercial fishermen;
○ Agricultural notes and other notes of farmers that the credit union has discounted, or purchased from, merchants and dealers, either with or without recourse to the seller;
○ Loans and advances to farmers for purchase of farm machinery, equipment, and implements;
○ Loans and advances to farmers for all other purposes associated with the maintenance or operations of the farm.
• Loan secured by multifamily residential properties with 5 or more dwelling units in structures (including apartment buildings and apartment hotels) used primarily to accommodate a household on a more or less permanent basis and cooperative-type apartment buildings containing 5 or more dwelling units.
• Loans secured by real estate as evidenced by mortgages or other liens on business and industrial properties, hotels, churches, hospitals, educational and charitable institutions, dormitories, clubs, lodges, association buildings, “homes” for aged persons and orphans, golf courses, recreational facilities, and similar properties.
• Loans to finance leases for fleets of vehicles used for commercial purposes.
The Board received no comments on the definition of “commitment” and has decided to retain the definition in this proposal, but with a minor change. In this proposal, the term “commitment” would be defined as any legally binding arrangement that obligates the credit union to extend credit, to purchase
For example, under this proposed rule, consumer loans would include direct and indirect loans for the following purposes:
• Purchases of new and used passenger cars and other vehicles such as minivans, sport-utility vehicles, pickup trucks, and similar light trucks or heavy duty trucks generally manufactured for personal, family, or household use and not used as fleet vehicles or to carry fare-paying passengers;
• Purchases of household appliances, furniture, trailers, and boats;
• Repairs or improvements to the borrower's residence (that do not meet the definition of a loan secured by real estate);
• Education expenses, including student loans;
• Medical expenses;
• Personal taxes;
• Vacations;
• Consolidation of personal debts;
• Purchases of real estate or mobile homes to be used as the borrower's primary residence (that do not meet the definition of a loan secured by real estate); and
• Other personal expenses.
The Board is proposing to add this new term and definition to part 702 to distinguish loans made for a consumer purpose from real estate loans and commercial loans so each can be assigned to an appropriate risk weight category.
The Board is proposing this new term because it recognizes that the portion of commercial loans covered by contractual compensating balances present a lower credit risk, and thus should be assigned a lower risk weight provided the credit union has a proper hold and maintains the compensating balance.
This definition is being proposed to help clarify the process used to calculate the credit exposure equivalent for off-balance sheet items. Specific off-balance sheet items have a probability of becoming an actual credit exposure and shifting on to the balance sheet. The CCF is an estimate of this probability.
Commenters suggested that loans carried on non-accrual status should not be included with delinquent loans, and that the Original Proposal did not take into consideration the balances in the ALLL if the credit union is able, under GAAP, to reserve for individual losses. Other commenters suggested that the definition of “delinquent loans” should be amended to match the Other Banking Agencies' regulations, which count loans as delinquent only if they are 90 days or more past due.
The Board is now proposing to count loans as non-current if they are 90 days past due (rather than 60 days past due), and, as explained in more detail below, to assign them to the higher risk weight category associated with past due loans. This change would better align this proposal with the definition of “current loan” under the Other Banking Agencies regulations.
In general, loans that are more than 90 days past due, or restructured, tend to
This definition would replace the term “delinquent loans,” which was used in the Original Proposal, when referring to whether a loan is past due, placed on non-accrual status, modified, or restructured. The Board believes using the term “current” when referring to loans will eliminate confusion caused by using the term “delinquent loan” in reference to regulatory reporting requirements or proper accounting treatment. Under this second proposed rule, loans are either current or non-current for purposes of determining their appropriate risk weight category.
The Board received no comments on the proposed definition of “CUSO” and has decided to retain the definition unchanged in this proposal.
The term depository institution would primarily be used to address the risk weights assigned to deposits in depository institutions.
The Board received no comments on the proposed definition of “derivatives contract.” This proposal, however, includes a slightly modified definition of derivative contract to state derivative means a financial contract whose value is derived from the values of one or more underlying assets, reference rates, or indices of asset values or reference rates. Derivative contracts include interest rate derivative contracts, exchange rate derivative contracts, equity derivative contracts, commodity derivative contracts, and credit derivative contracts. Derivative contracts also include unsettled securities, commodities, and foreign exchange transactions with a contractual settlement or delivery lag that is longer than the lesser of the market standard for the particular instrument. The Board believes this modification will make this proposal more clear and accurate.
This term would be primarily used to address the risk weights assigned to equity exposures. The Board recognizes that equity investments contain significant credit risk as they are generally in the first loss position and depend upon continued profitable operations of a business entity to retain value. The liquidity of equity investments can vary depending upon if the investment is publicly traded or closely held.
The Board received no comments on the definition of “investments in CUSO.” However, the Board has decided to change the term and the definition as follows. Under this proposed rule, the new term “equity investment in CUSOs” would be defined as the unimpaired value of the credit union's equity investments in a CUSO as recorded on the statement of financial condition in accordance with GAAP.
The Board renamed this term and amended the definition in this proposal to emphasize the importance of recording equity investments in CUSOs in accordance with GAAP and clarify how the equity investment in a CUSO for the assignment of risk weights is determined. By following GAAP:
• For an unconsolidated CUSO, a credit union must assign the risk weight to the unimpaired value of the equity investment as presented on the statement of financial condition;
• For a consolidated CUSO, a credit union's equity investment is normally zero since the consolidation entries eliminate the intercompany transaction.
This proposed rule would also define the new term “excluded other intangible assets” as the outstanding balance, maintained in accordance with GAAP, of any other intangible assets such as core deposit intangibles, member relationship intangibles, or trade name intangible originating from a supervisory merger or combination that was completed no more than 29 days after publication of this rule in final form in the
The Board added these two definitions as part of a response to certain comments on the Original Proposal and seeks to take into account the impact goodwill or other intangible assets recorded from transactions defined as supervisory mergers or combinations has on the calculation of the risk-based capital ratio upon implementation. This proposed exclusion would apply to supervisory mergers or combinations that are completed prior to a date that is 30 days from the date of publication of this rule in final form in the
• The amortized cost for investments classified as held-to-maturity and available-for-sale, and the fair value for trading securities.
• The outstanding balance for Federal Reserve Bank Stock, Central Liquidity Facility Stock, Federal Home Loan Bank Stock, nonperpetual capital and perpetual contributed capital at corporate credit unions, and equity investments in CUSOs.
• The carrying value for non-CUSO equity investments, and investment funds.
• The carrying value for the credit union's holdings of general account permanent insurance, and separate account insurance.
• The amount calculated under § 702.105 of this part for derivative contracts.
This definition would be used to ensure the specific assets are assigned consistent risk weights based on the treatment of the specific assets.
Under the Original Proposal, the term “first mortgage real estate loan” would have been defined as loans and lines of credit fully secured by first-liens on real estate (excluding MBLs), where the original amortization of the mortgage exposure does not exceed 30 years; the loan underwriting took into account all the borrower's obligations, including mortgage obligations, principal, interest, taxes, insurance (including mortgage guarantee insurance) and assessments; and the loan underwriting concluded the borrower is able to repay the exposure using the maximum interest rate that may apply in the first five years, the maximum contract exposure over the life of the mortgage, and verified income.
A number of commenters stated that they believed the proposed definition of first mortgage real estate loan would conflict with rules promulgated by the Consumer Financial Protection Bureau (CFPB), which may prevent credit unions from originating mortgage loans that qualify as “qualified mortgages” under CFPB's regulations, or are otherwise permitted under those rules, without incurring an additional capital charge. One commenter suggested that the proposed definition of first mortgage real estate loan should be amended to read as follows: “A loan on realty with the benefit of a senior security interest to all others.” Other commenters stated that the definition of first mortgage real estate loan is overbroad and should be revised to exclude home equity lines of credit because the risks associated with 30-year fixed-rate first-lien mortgages and HELOCs are vastly different and should not be assigned the same risk weight.
In response to the comments received on the Original Proposal, the Board is now proposing to eliminate the term “first mortgage real estate loan” and the accompanying definition and instead use the new term “first-lien residential real estate loan” for purposes of this proposal.
The Board believes that the credit risk for all first-lien residential real estate loans, in which the credit union has conducted a reasonable analysis of the ability of the borrower to repay, are sufficiently similar to justify a lower risk weight than most other types of loans. Accordingly, the Board is proposing to remove from the definition of first-lien residential real estate loans the requirement that such loans not have an amortization period exceeding 30 years.
The Board also believes, however, that first-lien residential real estate loans with amortizations longer than 30 years contain additional risks and must be underwritten with great care and monitored closely. Accordingly, the low risk weight assigned to first-lien residential real estate loans should not be viewed as encouraging certain real estate loan features which can be harmful to the credit quality of the loan, including an interest-only period, negative amortization, balloon payments, or excess upfront points and fees.
Credit unions must continue to make a good-faith effort to determine before the loan is made whether a borrower is likely to be able to repay the loan. In practice this means credit unions must generally ascertain, consider, and document a borrower's income, assets, employment status and stability, credit history and current and proposed monthly expenses.
The definition of first-lien residential real estate loan would include first-lien residential real estate loans that are not owner occupied. First-lien residential real estate loans that are over $50,000 and not the primary residence of the borrower would continue to count toward the credit union's total of member business loans for the purpose of monitoring and compliance with the statutory limitation on MBLs. However, they would be included in the definition of first-lien residential real estate loans for the purpose of this part and would be risk-weighted accordingly.
If a credit union holds both the first-and junior-liens on a residential real estate loan without an intervening lien holder and the loan otherwise meets this definition, the entire combined balance of the loans would be assigned the risk weight for first-lien residential real estate loans.
The Board received no comments on the definition of “GAAP” and has decided to retain the term in this proposal with the following changes. Under this proposed rule, the term “GAAP” would be defined as generally accepted accounting principles in the United States as set forth in the Financial Accounting Standards Board's (FASB) Accounting Standards Codification (ASC).
The Board is proposing to define “GAAP” narrowly to retain its conventional meaning. However, credit unions should also follow joint accounting issuances by the chief accountants' of the federal financial institution regulatory agencies (including NCUA) that provide implementation guidance consistent with GAAP practice. The guidance issued jointly by the federal financial institution regulatory agencies' chief accountants' does not add to or modify existing financial reporting requirements under GAAP but often narrows GAAP practice to address supervisory considerations related to financial institutions. The federal financial institution regulatory agencies' chief accountants have a practice of clearing such guidance implementing GAAP through the FASB and the SEC's Office of the Chief Accountant.
Under this proposal, general account permanent insurance would include direct obligations to the insurance provider. This would mean that the credit risk associated with general account permanent insurance is to the insurance company, which generally makes these insurance accounts have a lower credit risk than separate account insurance, which is a segregated accounting and reporting account held separately from the insurer's general assets.
The Board is proposing to add this definition to clarify that general obligation bonds or debt are generally backed by the credit and “taxing power” of the issuing jurisdiction rather than the revenue from a given project.
The Board received no comments on the definition of “goodwill” and has decided to retain the definition in this proposed rule, with the addition that goodwill must be maintained in accordance with GAAP and does not include a new term “excluded goodwill.” Accordingly, under this proposal, the term “goodwill” would be defined as an intangible asset, maintained in accordance with GAAP, representing the future economic benefits arising from other assets acquired in a business combination (
The Board recognizes that government guarantees provide enhanced credit protection, particularly to loans, and revised the risk weights for the portion of loans with a government guarantee to a lower risk weight.
The Board received no comments on the proposed definition of “identified losses.” Nevertheless, the Board is now proposing to amend the definition of “identified losses” from the Original Proposal to ensure that identified losses would be measured in accordance with GAAP. Accordingly, under this proposal, the term “identified losses” would be defined as those items that have been determined by an evaluation made by NCUA, or in the case of a state-chartered credit union, the appropriate state official, as measured on the date of examination in accordance with GAAP, to be chargeable against income, equity or valuation allowances such as the allowances for loan and lease losses. The definition would provide further that examples of identified losses would be assets classified as losses, off-balance sheet items classified as losses, any provision expenses that are necessary to replenish valuation allowances to an adequate level, liabilities not shown on the books, estimated losses in contingent liabilities, and differences in accounts that represent shortages.
This definition would be added to ensure the ultimate obligor's risk weight is used for risk-based capital calculations.
The Board received no comments on the definition of “Intangible assets”, but is proposing to revise the definition for clarity. Accordingly, under this proposal, the term “intangible assets” would be defined as assets, maintained in accordance with GAAP, other than financial assets, that lack physical substance. This proposed change would not affect the substance of the definition, but will make the definition clearer. Additionally, the Board is proposing to add a definition for “other intangibles”, which are a subset of “intangible assets,” and discussed in more detail below.
The Board is proposing to define the term “investment fund” broadly to capture more than SEC-registered investment companies and funds offered by banks. This broader definition is intended to allow for the use of the look-through approaches used in the Other Banking Agencies' capital regulations,
Due to the observed higher delinquency and losses of junior lien residential real estate loans, and consistent with the risk weights assigned by the Other Banking Agencies,
The Board received no comments on the definition of “Loans to CUSOs” and has decided to retain the term in this proposal with the following changes to the term and the definition. Under this proposed rule the term “loan to a CUSO” would be defined as the outstanding balance of any loan from a credit union to a CUSO as recorded on the statement of financial condition in accordance with GAAP.
The Board originally proposed to add this definition to capture the importance of recording loans to a CUSO in accordance with GAAP and to clarify how the assignment of risk weights would be determined. By following GAAP:
• For an unconsolidated CUSO, a credit union must assign the risk weight to the outstanding balance of the loans to the CUSO as presented on the statement of financial condition;
• For a consolidated CUSO, the loan to a CUSO is normally zero since the consolidation entries eliminate the intercompany transaction.
The Board proposes using this term to ensure consistency in the assignment of risk weights for real estate loans. The definition would clarify that the terms of the loan are predicated on the existence of the lien on real property and that the real estate value at origination of the loans must be at least 50 percent of the principal amount of the loan to meet the definition. The Board does not intend for this to mean that a real estate loan with a 50 percent loan-to-value ratio is an appropriate credit risk but rather such a loan only meets the definition of secured by real estate.
Commenters suggested that the proposed definition be amended to represent the true risk associated with that product. Commenters stated that the proposed definition mirrors the Call Report field and includes the “total principal balance outstanding of loans transferred . . . for which the transferor credit union retained some limited recourse.” Although commenters stated they appreciated NCUA's efforts to align defined terms with existing Call Report fields, they countered that contingent liabilities should be taken into account only to the extent the credit union retains contractual and legal liability on the exposure. On partial recourse loans, commenters suggested that the credit union only retains a small fraction of the liability and is not exposed on the total principal balance. However, commenters stated that, under the Original Proposal, a credit union would be treated as holding the full balance as a contingent liability. Commenters suggested that this was a significant misrepresentation of the risk and created a disincentive for credit unions to utilize limited recourse loan sale relationships, which provide credit unions with a valuable option in managing liquidity risk and IRR, while still incentivizing the credit union to make high-quality loans. Commenters stated that the proposal would penalize credit unions that have utilized these programs prudently and effectively as part of a safe and sound asset management program. To remedy this problem, commenters suggested the definition of the term “loans transferred with limited recourse” and the corresponding Call Report field should be amended to reflect the true recourse exposure of the credit union.
In response to these comments, the Board is now proposing to amend the calculation for determining the risk-based capital requirement for loans transferred with limited recourse to more accurately align the capital requirement with the true recourse exposure. Whereas the Original Proposal would have required the credit union to multiply the face amount, or notional value, of the loans transferred with limited recourse by the appropriate credit conversion factor and then apply the appropriate risk weight, this proposed rule would amend the calculation to require a credit union to multiply the off-balance sheet exposure by the appropriate credit conversion factor and then apply the appropriate risk weight. A new definition for off-balance sheet exposure is included in this proposal and is discussed in more detail below. In addition, the definition of “loans transferred with limited recourse” is revised by amending all references to “warranty paragraphs” to read “warranty clauses” to clarify that it is the content of the document and not its length that is important.
Accordingly, under this proposed rule, the term “Loans transferred with limited recourse” would be defined as the total principal balance outstanding of loans transferred, including participations, for which the transfer qualified for true sale accounting treatment under GAAP, and for which the transferor credit union retained some limited recourse (
Adding this definition is necessary because this proposal would apply a separate risk weight to the off-balance sheet exposure resulting from loans transferred under the defined program. Additionally, the method that would be used to calculate the risk-based capital requirement for loans in the defined program would be different from other loans transferred with limited recourse. A separate definition and risk weight for loans sold under this program would result in a risk-based capital requirement consistent with the credit loss history of this program.
The Board received no comments on the definition of “mortgage servicing asset” and has decided to retain the proposed definition in this proposal with the following changes for clarity. Credit unions are expected to follow GAAP when reporting assets, which is intended to clarify that credit unions must report mortgage servicing assets net of any related valuation allowance because it is required by GAAP. Accordingly, under this proposed rule, the term “mortgage servicing assets” would be defined as those assets, maintained in accordance with GAAP, resulting from contracts to service loans secured by real estate (that have been securitized or owned by others) for which the benefits of servicing are expected to more than adequately compensate the servicer for performing the servicing.
• The retained earnings balance of the credit union at quarter-end as determined under GAAP, subject to bullet 3 of this definition.
• For a low-income-designated credit union, net worth also includes secondary capital accounts that are uninsured and subordinate to all other
• For a credit union that acquires another credit union in a mutual combination, net worth also includes the retained earnings of the acquired credit union, or of an integrated set of activities and assets, less any bargain purchase gain recognized in either case to the extent the difference between the two is greater than zero. The acquired retained earnings must be determined at the point of acquisition under GAAP. A mutual combination, including a supervisory combination, is a transaction in which a credit union acquires another credit union or acquires an integrated set of activities and assets that is capable of being conducted and managed as a credit union.
• The term “net worth” also includes loans to and accounts in an insured credit union, established pursuant to § 208 of the FCUA, provided such loans and accounts:
○ Have a remaining maturity of more than five years;
○ Are subordinate to all other claims including those of shareholders, creditors, and the NCUSIF;
○ Are not pledged as security on a loan to, or other obligation of, any party;
○ Are not insured by the NCUSIF;
○ Have non-cumulative dividends;
○ Are transferable; and
○ Are available to cover operating losses realized by the insured credit union that exceed its available retained earnings.”
The Original Proposal did not revise the definition of the term “net worth,” and NCUA did not receive any comments on the definition. This proposal, however, would delete from the current definition of net worth the sentence “Retained earnings consists of undivided earnings, regular reserve, and any other appropriations designed by management or regulatory authorities,” which is included in paragraph (f)(1) of the current definition. That sentence lists items that are included in retained earnings and is not necessary. No substantive change is intended by this amendment.
Paragraph (f)(3) of the current definition would also be revised to clarify that the term “mutual combination” includes a “supervisory combination” because this proposal introduces the new term supervisory merger to part 702, which is a specific type of mutual combination.
The Board received no comments on the definition of “off-balance sheet items,” but is proposing to change the words “balance sheet' in the definition to “statement of financial condition.” Accordingly, under this proposed rule, the term “off-balance sheet items” would be defined as items such as commitments, contingent items, guarantees, certain repo-style transactions, financial standby letters of credit, and forward agreements that are not included on the statement of financial condition, but are normally reported in the financial statement footnotes.
The Board is proposing to make this change in a number of places throughout the rule to make the rule more accurate and to clarify the definition for the reader.
The Board added the definition of off-balance sheet exposure to clarify the amount of the off-balance sheet item that will be used to calculate a credit union's risk-based capital ratio.
Under the Original Proposal, the term “intangible assets” would have been defined as those assets that are required to be reported as intangible assets on a credit union's Call Report, including but not limited to purchased credit card relationships, goodwill, favorable leaseholds, and core deposit value.
The Board received no comments on the proposed definition of “intangible assets,” but has taken the opportunity in this proposed rule to clarify the definition. The term intangible asset is typically defined by GAAP and includes goodwill. However, in the context of deductions from the numerator of the risk-based capital ratio, goodwill is already a deduction. Further, servicing assets are also typically considered an intangible asset. However, because servicing assets can typically be readily sold in the marketplace, the Board believes that intangible assets excluded from the risk-based capital ratio numerator should not include servicing assets. To simplify this issue, the Board has defined the term “other intangible assets” to be those assets defined under GAAP as intangible assets, except goodwill and servicing assets. The Board notes that this is not a substantive change between the two proposals, but merely a clarification to make the rule easier to read and understand.
• The agreement creates a single legal obligation for all individual transactions covered by the agreement upon an event of default, including upon an event of conservatorship, receivership, insolvency, liquidation, or similar proceeding, of the counterparty;
• The agreement provides the credit union the right to accelerate, terminate, and close out on a net basis all transactions under the agreement and to liquidate or set off collateral promptly upon an event of default, including upon an event of conservatorship, receivership, insolvency, liquidation, or similar proceeding, of the counterparty, provided that, in any such case, any exercise of rights under the agreement will not be stayed or avoided under applicable law in the relevant jurisdictions, other than in receivership, conservatorship, resolution under the Federal Deposit Insurance Act, Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or under any similar insolvency law applicable to GSEs;
• The agreement does not contain a walkaway clause (that is, a provision that permits a non-defaulting counterparty to make a lower payment than it otherwise would make under the agreement, or no payment at all, to a defaulter or the estate of a defaulter, even if the defaulter or the estate is a net creditor under the agreement); and
• In order to recognize an agreement as a qualifying master netting agreement for purposes of this part, a credit union must conduct sufficient legal review, at origination and in response to any changes in applicable law, to conclude with a well-founded basis (and maintain sufficient written documentation of that legal review) that:
○ The agreement meets the requirements of paragraph (2) of this definition; and
○ In the event of a legal challenge (including one resulting from default or from conservatorship, receivership, insolvency, liquidation, or similar proceeding), the relevant court and administrative authorities would find the agreement to be legal, valid, binding, and enforceable under the law of relevant jurisdictions.
The Board has retained this definition from the Original Proposal with only minor clarifying amendments.
The Board proposes to define “residential mortgage-backed security” similarly to the conventional usage of that term. This definition was added to allow for non-subordinated mortgage-backed securities backed by first-lien real estate loans to receive the same risk weight as first-lien residential real estate loans.
The purpose of this new term is to broadly define the types of property that will be considered residential property. The definition is intended to allow for the inclusion of single family residential construction loans. The definition is intended to exclude larger scale speculative residential land transactions, which would be considered commercial loans for assigning risk weights.
The restructuring of a loan may include, but is not necessarily limited to: (1) The transfer from the borrower to the lending credit union of real estate, receivables from third parties, other assets, or an equity interest in the borrower, in full or partial satisfaction of a loan; (2) a modification of the loan terms, such as a reduction of the stated interest rate, principal, or accrued interest or an extension of the maturity date at a stated interest rate lower than the current market rate for new debt with similar risk; or (3) a combination of the above.
The Board proposes to add the definition of “restructured” because a loan that is restructured contains elements, as addressed above, which increase the credit risk of the loan and therefore is assigned a higher risk weight associated with non-current loans. This definition also enables the definition of current loan to better align with the Other Banking Agencies
Revenue obligation bonds or debt are generally paid with revenues from the specific project financed rather than the general credit and taxing power of the issuing jurisdiction.
A number of commenters raised concerns with the proposed changes that would have been made to the terminology in the current rule, including adding the new term “risk-based capital ratio” to the rule. Several commenters suggested that the Board would be redefining a statutorily defined term by using the proposed term “risk-based capital ratio” in the rule instead of the statutory term “risk-based net worth ratio” in the proposed rule.
The Board disagrees with this comment for reasons that are discussed in more detail in the portion of the preamble relating to § 702.102 below. Other than the comment above, the Board received no comments on the substance of the definition of “risk-based capital ratio” and has decided to retain the definition in this proposal with only non-substantive changes. Accordingly, under this proposed rule the term “risk-based capital ratio” would be defined as the percentage, rounded to two decimal places, of the risk-based capital ratio numerator to risk weighted assets, as calculated in accordance with § 702.104(a).
The Board received no comments on the definition of “risk-weighted assets” and has decided to retain the definition unchanged in this proposal.
The Board recognizes that a secured consumer loan has lower credit risk than an unsecured consumer loan and, therefore, the Board assigns secured consumer loans to a lower risk weight than unsecured consumer loans. Secured consumer loans generally have lower delinquency rates and lower charge-off rates than unsecured consumer loans. Secured consumer loans generally include those collateralized by new and used vehicles, all-terrain vehicles, recreational vehicles, boats, motorcycles, and other items with a title and could also include a perfected security interest in furniture, fixtures, equipment, antiques, investments and collectables.
The Board received no comments on the definition of “senior executive officer” and has decided to retain the definition unchanged in this proposal.
The Board added the definition of separate account insurance. The credit risk associated with separate account insurance may be higher than for general account permanent insurance because the separate account insurance is a segregated accounting and reporting account held separately from the insurer's general assets. The investments in the separate account would typically not be permissible for federal credit unions; therefore the separate account insurance is treated as if it were a non-part 703 compliant investment fund.
The Board recognizes that share-secured loans have a low credit risk. It added this new definition to clarify which loans can be classified as share secured and, therefore, assigned a 20 percent risk weight. A credit union should have proper internal controls to ensure that pledged shares are not withdrawn prior to the full payment of the loan they secure. This definition specifically excludes a loan upon which a credit union has impressed a statutory lien pursuant to § 701.39 of NCUA's regulations, where the subject loan was not originated as share-secured.
The Board proposes to define “STRIPS” similarly to its conventional usage. This definition is meant to define investments that are created by separating a coupon paying security into distinct interest-only and principal-only securities.
The Board proposes to define “structured product” to include investments that are created to behave like other investments. This definition is meant to ensure bonds that are indexed to equities are treated as equities for risk weight purposes. This definition is also meant to ensure that debentures that have losses that are allocated similarly to subordinated securities are treated as subordinated securities.
The Board recognizes that subordinated investments can contain substantial and complicated credit risk elements. The definition of subordinated is designed to encompass all investments that take losses before a more senior claim takes losses. This definition would not include an investment that was once subordinate to a senior investment, but then became non-subordinate because the previously senior investment paid off.
• An assisted merger or purchase and assumption where funds from the NCUSIF are provided to the continuing credit union;
• A merger or purchase and assumption classified by NCUA as an “emergency merger” where the acquired credit union is either insolvent or “in danger of insolvency” as defined under appendix B to part 701 of this chapter; or
• A merger or purchase and assumption that included NCUA's or the appropriate state official's
The Board has added this definition to clarify which merger or combination transactions would be subject to an extended time period for absorbing the directly related goodwill and other intangible assets that are part of the transaction.
The Board received no comments on the definition of “total assets” and has decided to retain the definition in this proposal with only minor conforming changes.
The Board proposes to define “tranche” similarly to its conventional usage for securitizations. Structured products are included in this definition if they are allocated losses based on a reference investment or reference pool.
The Board recognizes that unsecured consumer loans generally have a higher credit risk than secured consumer loans. Unsecured consumer loans have higher delinquency rates and higher charge-off rates than secured consumer loans. Unsecured consumer loans generally include credit card loans, signature loans, and co-maker and cosigner loans. Accordingly, the Board assigns unsecured consumer loans to a higher risk weight category than secured consumer loans.
The Board received no comments on the definition of “U.S. Government agency” and has decided to retain the proposed definition unchanged in this proposal.
In response to the comments, the Board now proposes to assign investment risk weights primarily based on credit risk with risk weights more comparable to the risk weights assigned by the Other Banking Agencies.
The Board requests comments on the definitions included in this proposal.
The Original Proposal would have established new subpart A titled “Prompt Corrective Action.” New subpart A would have contained the sections of part 702 relating to capital measures, supervisory PCA actions, requirements for net worth restoration plans, and reserve requirements for all credit unions
Under the Original Proposal, the requirements of proposed § 702.101 would have remained largely unchanged from current § 702.101. The title of proposed § 702.101, however, would have been changed to “Capital measures, effective date of classification, and notice to NCUA” to better reflect the three major topics that would have been covered in the section. In addition, the Original Proposal would have replaced the terms “net worth measures” with “capital measures,” “net worth classification” with “capital classification,” and “net worth category” with “capital category” to reflect the terminology changes being made throughout the proposal, which were discussed above and are discussed in further detail below.
A number of commenters raised concerns with the proposed changes that would have been made to the terminology in the current rule. The Board disagrees with these commenters for reasons that are discussed in more detail in the portion of the preamble relating to § 702.102. Other than the comments discussed in more detail below, the Board received no other comments on proposed changes to § 702.101 and has decided to retain the changes in this proposal.
Capital helps to ensure that individual credit unions can continue to serve as credit intermediaries even during times of stress, thereby promoting the safety and soundness of the overall U.S. financial system. As a prudential matter, the NCUA has a long-established policy that federally insured credit unions should hold capital commensurate with the level and nature of the risks to which they are exposed. In some cases, this may entail holding capital above the minimum requirements, depending on the nature of the credit union's activities and risk profile.
The Board notes that Other Banking Agencies' capital standards are the “minimum capital requirements and
The FDIC may require an FDIC-supervised institution to hold an amount of regulatory capital greater than otherwise required under this part if the FDIC determines that the institution's capital requirements under this part are not commensurate with the institution's credit, market, operational, or other risks.
Further, the September 10, 2013 preamble to art 324 of FDIC's regulations state that:
The FDIC's general risk-based capital rules indicate that the capital requirements are minimum standards generally based on broad credit-risk considerations. The risk-based capital ratios under these rules do not explicitly take account of the quality of individual asset portfolios or the range of other types of risk to which FDIC-supervised institutions may be exposed, such as interest-rate risk, liquidity, market, or operational risks . . . In light of these considerations, as a prudent matter, an FDIC-supervised institution is generally expected to operate with capital positions well above the minimum risk-based ratios and to hold capital commensurate with the level and nature of the risks to which it is exposed, which may entail holding capital significantly above the minimum requirements.
As indicated above, FDIC's approach to risk weights is calibrated to be the minimum regulatory capital standard. This NCUA proposal would also be calibrated to be the minimum regulatory capital standard, similar to the FDIC's rule, as suggested by commenters on the Original Proposal. Therefore, the Board believes it is necessary to incorporate a broader regulatory provision requiring complex credit unions to maintain capital commensurate with the level and nature of all risks to which they are exposed, and to maintain a written strategy for assessing capital adequacy and maintaining an appropriate level of capital. Proposed new § 702.101(b) is based on a similar provision in the Other Banking Agencies' rules and within the Board's authority under the FCUA.
As the Other Banking Agencies' approach to risk assigning risk weights is calibrated to be the minimum regulatory capital standard, and this proposal is calibrated predominantly based on the Other Banking Agencies' rules as suggested by commenters on the Original Proposal, the Board has concluded it is necessary to require complex credit unions to maintain capital commensurate with the level and nature of all risks to which they are exposed, and a written strategy for assessing capital adequacy and maintaining an appropriate level of capital. This provision would complement NCUA's existing regulatory framework by working in tandem with other regulatory requirements, such as those related to liquidity, interest rate, and credit risk.
Accordingly, proposed § 702.101 would amend current § 702.101 to include a new capital adequacy provision based on a similar provision in FDIC's rule.
A complex credit union is generally expected to have internal processes for assessing capital adequacy that reflect a full understanding of its risks and to ensure that it holds capital corresponding to those risks to maintain overall capital adequacy.
An effective capital planning process involves an assessment of the risks to which a credit union is exposed and its processes for managing and mitigating those risks, an evaluation of its capital adequacy relative to its risks, and consideration of the potential impact on its earnings and capital base from current and prospective economic conditions. While elements of a supervisory review of capital adequacy would be similar across credit unions, evaluation of the level of sophistication of an individual credit union's capital adequacy process should be commensurate with the institution's size, sophistication, and risk profile, similar to the current supervisory practice. NCUA would develop and publish supervisory guidance for examiners on how to apply this provision.
Some commenters stated that they manage their capital so that they operate with a buffer over the regulatory minimum and that examiners expect such a buffer. These commenters expressed concern that examiners will expect even higher capital levels. The Board notes that the credit union system is generally very well capitalized, and
For the reasons discussed above, this proposal would add new capital adequacy provisions to current § 702.101(b). The proposed new capital adequacy provisions would be added as § 702.101(b), and the proposal would redesignate paragraphs (b) and (c) of current § 702.101 as paragraphs (d) and (e) of proposed § 702.101. Proposed § 702.101(b) would provide that:
• Notwithstanding the minimum requirements in this part, a credit union defined as complex must maintain capital commensurate with the level and nature of all risks to which the institution is exposed.
• A credit union defined as complex must have a process for assessing its overall capital adequacy in relation to its risk profile and a comprehensive written strategy for maintaining an appropriate level of capital.
Under the Original Proposal, the title of § 702.102 would have been changed from “statutory net worth categories” to “capital classifications.” The section would also have continued to list the five statutory capital categories that are provided in § 216(c) of the FCUA.
A number of commenters expressed concerns with the changes in terminology that were made in this and other sections of the regulation. Commenters suggested that by using the terms “risk-based capital,” “capital categories,” “capital classifications,” and other terms not specifically included in the FCUA, the Board was redefining the statutorily defined terms “net worth” and “net worth ratio” with terms that do not encompass the same things.
The Board disagrees. As the Board explained in the Original Proposal, although § 216(c) of the FCUA uses the general term “net worth categories,” the Board believes the term “capital categories” is less confusing for industry practitioners and better describes the two measurements, “net worth ratio” and “risk-based net worth,” that make up the categories listed in the statute. It is clear, from the distinct uses of the terms “net worth” and “risk-based net worth” in the FCUA that Congress intended those terms to have different meanings.
Under the Original Proposal, proposed § 702.102(a) would have replaced current § 702.102(a) and would have set forth new minimum capital measures for complex credit unions. Consistent with sections 216(c)(1)(A) through (E) of the FCUA, the net worth ratio measures listed in proposed §§ 702.102(a)(1) through (5) would have continued to match those listed in the statute for each capital category, and would have used both the net worth ratio and the proposed risk-based capital ratio as elements of the capital categories for “well capitalized,” “adequately capitalized,” and “undercapitalized” credit unions. The risk-based capital ratio would have included components that required higher capital levels to reflect increased risk due to IRR, concentration risk, credit risk, market risk, and liquidity risk.
The Original Proposal also would have introduced a new, scaled risk-based capital ratio measurement approach for assigning capital classifications for well capitalized, adequately capitalized, and undercapitalized credit unions. This scaled approach would have recognized the relationship between higher risk-based capital ratios and the creditworthiness of credit unions.
The Board received numerous general comments concerning the capital categories, nearly all advocating a reduction in all of the risk-based capital ratios for complex credit unions. Some commenters suggested the following risk-based ratios for complex credit unions: Eight percent or greater for well capitalized, 5.5 percent to 7.99 percent for adequately capitalized, and 5.5 percent or lower for undercapitalized. Other commenters suggested that, in light of the historical performance of credit unions through the recent financial crisis, the risk-based capital ratio ratios should be: 8.5 percent or greater to be well capitalized, six percent to 8.49 percent to be adequately capitalized, and six percent or less to be undercapitalized. Still other commenters suggested a reduction in the risk-based capital ratios for each capital category by a minimum of 50 basis points to avoid harming the credit union industry by limiting credit unions' ability to make loans, decreasing their earnings, and hampering current business strategies.
After carefully considering the comments, the Board is now proposing to reduce the risk-based capital ratio threshold for well capitalized from 10.5 percent to 10 percent. All of the other risk-based capital ratio thresholds from the Original Proposal would remain unchanged. As discussed below, the Board believes this structure is within its legal authority to implement, and that this well capitalized ratio threshold both achieves parity with Other Banking Agencies' regulations
Under the Original Proposal, proposed § 702.102(a)(1) would have required a credit union to maintain a net worth ratio of seven percent or greater and, if it were a complex credit union, a risk-based capital ratio of 10.5 percent or greater to be classified as well capitalized. The higher proposed risk-based capital requirement for the well capitalized classification was designed to boost the resiliency of complex credit unions throughout financial cycles and align them with the standards used by the Other Banking Agencies.
The Board received a substantial number of comments regarding the proposed risk-based capital ratio for a credit union to be classified as well capitalized. As a threshold matter, a number of commenters questioned the Board's authority to impose any risk-based net worth requirement on well capitalized credit unions. Specifically, commenters suggested that § 1790d(d) of the FCUA, which they argued provides the entirety of the language in the FCUA dealing with the risk-based component of PCA, directs NCUA to connect the risk-based net worth requirement to the sufficiency of a credit union's net worth only for the adequately capitalized classification. Commenters further maintained that requiring a
Similarly, another commenter recommended that the Board impose the same risk-based capital ratio on both well capitalized and adequately capitalized credit unions, and the commenter encouraged the Board not to increase that risk-based capital ratio above eight percent. As support, the commenter noted that, in the preamble to the Original Proposal, the Board stated that the proposed risk-based capital ratio of eight percent would have been reasonable for an adequately capitalized credit union. The commenter further suggested that because adequately capitalized and well capitalized credit unions have higher net worth ratio requirements than similarly situated banks, an eight percent risk-based capital ratio would be sufficient and that it would be unreasonable to require adequately capitalized credit unions to maintain a 10.5 percent risk-based capital ratio.
Other commenters suggested that the proposed 10.5 percent risk-based capital ratio for a credit union to be classified as well capitalized is not appropriate because it unfairly incorporates the capital conservation buffer into the PCA framework for credit unions. These commenters noted that a bank can be classified as well capitalized with an eight percent total risk-based capital ratio, even if the bank fails to hold the 2.5 percent capital conservation buffer required under the Other Banking Agencies' capital regulations, although the commenters acknowledged that any such failure to meet the capital conservation buffer would limit that bank's ability to make capital distributions and discretionary bonus payments. These commenters maintained that by directly incorporating the capital conservation buffer into NCUA's PCA framework, the Board would disadvantage credit unions by making them more vulnerable to downgrades in their PCA capital classification level, a course of action which the Other Banking Agencies specifically declined to adopt. Commenters further stated that because the capital conservation buffer was designed to absorb losses in stressful periods, the Other Banking Agencies believed that it was appropriate for a depository institution to be able to use some of its capital conservation buffer without being considered less than well capitalized for PCA purposes. Commenters suggested that the Board should, at a minimum, provide credit unions the same flexibility. Other commenters suggested that the Other Banking Agencies adopted the capital conservation buffer as a means to restrict banks from paying dividends to shareholders and “substantial discretionary bonuses” to management, which occurred even as banks' financial conditions weakened during the last financial crisis. These commenters noted that even failed credit unions were not engaging in this practice and, therefore, the concern is not relevant to the credit union industry. Accordingly, the commenters argued that including the capital conservation buffer in the risk-based capital proposal and setting the risk-based capital ratio at 10.5 percent was arbitrary.
Another commenter suggested that the capital conservation buffer for banks applies only in periods of significant credit growth, while NCUA's proposed risk-based capital ratio of 10.5 percent would apply at all times in a financial cycle. Other commenters suggested that the Original Proposal would have applied the capital conservation buffer only to the well capitalized classification, thereby subjecting adequately capitalized credit unions only to the eight percent total risk-based capital ratio used by the Other Banking Agencies. Commenters maintained that, for the sake of consistency and comparability among banks and credit unions, the Board should remove the 2.5 percent capital conservation buffer from the well capitalized category and adjust the other levels accordingly. Alternatively, they argued that the Board should, at a minimum, allow credit unions an equivalent five-year implementation period to build capital reserves without sacrificing member services or dramatically increasing fees.
One commenter supported the proposed 10.5 percent risk-based capital ratio level as the appropriate level to be considered well capitalized.
Other commenters questioned why well capitalized credit unions would be subject to a risk-based capital ratio of 10.5 percent when banks only need a risk-based capital ratio of 10 percent.
Finally, still other commenters suggested that credit unions receiving an overall capital classification of well capitalized be granted blanket waivers, fixed asset exemptions, longer exam cycles, and other incentives under any final risk-based capital rule.
As noted in the legal authority section of this preamble, the Board has carefully considered these comments and generally disagrees with commenters' reading and interpretation of the FCUA. For the reasons stated in that discussion, it is within NCUA's legal authority to promulgate this proposal and to impose a separate, higher risk-based capital ratio requirement on well capitalized credit unions than the one imposed on adequately capitalized
The Board also notes there are sound policy reasons for setting a higher risk-based capital ratio threshold for the well capitalized category than the one for the adequately capitalized category. Under the current rule, a credit union's capital classification could rapidly decline directly from well capitalized to undercapitalized if it fails to meet the required risk-based net worth ratio level.
The Board believes a more effective policy is to adopt a higher threshold for the well capitalized category than for the adequately capitalized category to provide a more graduated framework where a credit union does not necessarily drop directly from well capitalized to undercapitalized. In fact, this policy objective is reflected in how Congress, in section 216(c) of the FCUA, and the Other Banking Agencies, in their risk-based capital regulations, designed the graduated PCA capital categories.
For a given risk asset, the amount of capital required to be held for that risk asset is calculated by multiplying the dollar amount of the risk asset times the risk weight times the desired capital level. To illustrate, where the threshold for well capitalized is 10 percent, a credit union that has one dollar in a risk asset assigned a 50 percent risk weight would need to hold capital of five cents ($1 multiplied by 50 percent multiplied by 10 percent). The point of this illustration is that the risk weights are interdependent with the thresholds set for the regulatory capital categories. The Board notes the risk weights in this proposal are based predominantly on those used by the Other Banking Agencies, as suggested by commenters on the Original Proposal. For the total capital-to-risk assets ratio, the Other Banking Agencies establish a threshold of 10 percent to be well capitalized.
For NCUA's risk-based capital requirement to be comparable, it should also be equivalent in rigor to the Other Banking Agencies' risk-based capital requirement.
Conversely, a uniform threshold for the well capitalized and adequately capitalized categories could be maintained, but raised to maintain the rigor of the risk-based capital standard and avoid adjusting the risk weights. This approach would set a higher point at which credit unions would fall to undercapitalized, and therefore be subject to mandatory and discretionary supervisory actions. The Board does not believe this would be optimal, as the supervisory consequences for credit unions with risk-based capital ratios between eight percent and ten percent would be worse than for institutions operating under the Other Banking Agencies' rules.
Maintaining the rigor of the risk-based net worth requirement is also important for another key policy objective of the Board: Ensuring the risk-based net worth requirement is relevant and meaningful. A relevant and meaningful risk-based net worth requirement will result in capital levels better correlated to risk, and better inform credit union decision making.
Further, capital is a lagging indicator because it is founded primarily on accounting standards, which by their nature are largely based on past performance. The net worth ratio is even more so a lagging indicator because it applies capital—a lagging measure in itself—to total assets. Thus, the net worth ratio does not distinguish among risky assets or changes in a balance sheet's composition. A risk-based capital ratio is more prospective by accounting for asset allocation choices and driving capital requirements before losses occur and capital levels decline. The more relevant the risk-based net worth requirement is, the more likely that credit unions will build capital sufficient to prevent precipitous declines in their PCA capital classifications that could result in greater regulatory oversight and even failure.
To be relevant and meaningful, the risk-based net worth requirement also needs to incent credit unions to build and maintain capital as they increase risk to be able to absorb any corresponding unexpected losses. A graduated, or tiered, system of capital category thresholds that distinguishes between the well capitalized and adequately capitalized categories will incentivize credit unions to hold sound levels of capital without invoking supervisory action before necessary. While there is no requirement for a credit union to be well capitalized, and there are no supervisory interventions required for a credit union with an adequately capitalized classification, there are some regulatory privileges and other benefits for a credit union that is well capitalized. Chief among those benefits is the accumulation of sufficient capital to weather financial and economic stress. During the recent financial crisis, credit unions experienced large losses in a compressed timeframe, resulting in a rapid deterioration of net worth. Some credit unions that historically had been classified as well capitalized were quickly downgraded to undercapitalized. As noted in the summary section, credit unions that failed at a loss to the NCUSIF on average were very well capitalized, based on their net worth ratios, 24 months prior to failure (average net worth ratio of 12 percent). Over the last 10 years, more than 80 percent of all credit union failures involved institutions that were well capitalized in the 24 months immediately preceding their failure. Unlike the net worth ratio, which is indifferent to the composition of assets, a well-designed risk-based net worth requirement would reflect material shifts in the risk profile of assets.
The Board believes that a risk-based capital framework that encourages and promotes capital accumulation benefits not only those credit unions that achieve the well-capitalized classification, but the entire credit union system. Thus, the Board remains committed to implementing the risk-based requirement under a graduated (multi-tiered) capital category framework.
As noted earlier in this preamble, the Board supports lowering the well capitalized risk-based capital ratio threshold from 10.5 percent to 10 percent. The Board agrees with the commenters who suggested that a 10 percent risk-based capital ratio would simplify the comparison with the Other Banking Agencies' rules by removing the effect of the capital conservation buffer. The 10 percent threshold for well capitalized credit unions, along with the eight percent threshold for adequately capitalized credit unions, would also be consistent with the total risk-based capital ratio requirements contained in the Other Banking Agencies' capital rules.
Capital ratio thresholds are largely a function of risk weights. As discussed in other parts of this proposal, the Board is now proposing to more closely align NCUA's risk weights with those assigned by the Other Banking Agencies. Therefore, the Board believes that NCUA's risk-based capital ratio threshold levels should also align with those of the Other Banking Agencies as closely as possible.
Under the Original Proposal, proposed § 702.102(a)(2) would have required a credit union to maintain a net worth ratio of six percent or greater and, if it were a complex credit union, a risk-based capital ratio of eight percent or greater to be classified as adequately capitalized. This risk-based capital ratio level is comparable to the eight percent total risk-based capital ratio level required by the Other Banking Agencies for a bank to be adequately capitalized.
Other than the comments discussed above and in other parts of this preamble, the Board received no comments on the Original Proposal's adequately capitalized risk-based capital ratio level. Therefore, the Board has decided to retain the changes, with only minor adjustments for clarity.
This proposal would also add proposed § 702.102(a)(2)(iii), which would clarify that a credit union is adequately capitalized only if it meets the net worth and risk-based capital criteria in proposed paragraphs (a)(2)(i) and (ii), and does not meet the definition of a well capitalized credit union.
Under the Original Proposal, proposed § 702.102(a)(3) would have classified a credit union as undercapitalized if the credit union maintained a net worth ratio of four percent or greater but less than six percent and, if it were a complex credit union, a risk-based capital ratio of less than eight percent.
Other than the comments discussed above and other parts of this preamble, the Board received no comments on the Original Proposal's undercapitalized risk-based capital ratio requirement. However, to provide additional clarity the Board is proposing to make additional minor adjustments to the paragraph in this proposal.
Under this proposal, § 702.102(a)(3) would provide that a credit union is undercapitalized if: (1) The credit union has a net worth ratio of four percent or more but less than six percent; or (2) the credit union, if complex, has a risk-based capital ratio of less than eight percent.
Under the Original Proposal, proposed § 702.102(a)(4) would have classified a credit union as significantly undercapitalized if: (1) It had a net worth ratio of less than five percent and had received notice that its net worth restoration plan had not been approved;
The Board received no comments on the proposed changes to this paragraph and has decided to retain the changes in this proposal with several adjustments for clarity.
Under this proposal, § 702.102(a)(4) would provide that a credit union is significantly undercapitalized if:
• The credit union has a net worth ratio of two percent or more but less than four percent; or
• The credit union has a net worth ratio of four percent or more but less than five percent, and either—
○ Fails to submit an acceptable net worth restoration plan within the time prescribed in § 702.111;
○ Materially fails to implement a net worth restoration plan approved by the Board; or
○ Receives notice that a submitted net worth restoration plan has not been approved.
Under the Original Proposal, proposed § 702.102(a)(5) would have classified a credit union as critically undercapitalized if it had a net worth ratio of less than two percent. The Original Proposal would have made some minor technical amendments to the language in current 702.102(a)(5), but would not have changed the criteria for being classified as critically undercapitalized under part 702.
The Board received no comments on the proposed changes to this paragraph and, therefore, it has decided to retain the changes in this proposal.
The Original Proposal would have retained current § 702.102(b), with only a few amendments to update terminology and make minor edits for clarity. No substantive changes were intended.
The Board received no comments or suggested changes to this paragraph and has decided to retain the changes in this proposal.
Proposed § 702.102(c) would have been unchanged from current § 702.102(c).
The Board received no comments or suggested changes to this paragraph and has decided to make no changes in this proposal.
Proposed § 702.102(d) would have retained current § 702.102(d) with only a few small amendments for consistency with other sections of NCUA's regulations. No substantive changes were intended.
The Board received no comments or suggested changes to this paragraph and has decided to retain the changes in this proposal.
Under the Original Proposal, proposed § 702.103 would have changed the title of current § 702.103 from “Applicability of risk-based net worth requirement” to “Applicability of risk-based capital ratio measure.” Proposed § 702.103 would have provided that, for purposes of § 702.102, a credit union is defined as “complex,” and a risk-based capital ratio requirement is applicable, only if the credit union's quarter-end total assets exceed $50 million, as reflected in its most recent Call Report.
Under the current rule, credit unions are “complex” and subject to the risk-based net worth requirement only if they have quarter-end total assets over $50 million
The Board received a significant number of comments on the proposed definition of complex credit unions. Many commenters pointed out that NCUA already has a complexity index based on deposit account types, member services, loan and investment types, and portfolio composition, and given the availability of such a measure, which takes into account “the portfolio of assets and liabilities” of credit unions. Commenters stated that it seemed odd that the Board would define complex based solely on credit unions' asset size given the fact that the NCUA already has a complexity index.
Commenters suggested that section 1790d(d)(1) of the FCUA directs the Board to establish a risk-based net worth system for “complex” credit unions, but does not give the Board complete discretion on how the system must be structured and applied to credit unions. Commenters argued that defining “complex” using only an asset size threshold fails to comply with the requirement in section 1790d(d)(1) that the Board take into account the “portfolios of assets and liabilities of credit unions” when defining complex credit unions.
Commenters also suggested that a single-dimension definition of “complex” credit union does not account for actual operational complexity. Other commenters suggested that the proposed definition of “complex” was arbitrary and is too simplistic a measure because it did not take into account a credit union's comprehensive book of assets, including all loans, investments, and liabilities, as well as whether a credit union's operations are sufficiently diverse to warrant a “complex” designation.
Other commenters stated that determining whether a credit union is complex should be influenced by whether they do real estate lending, member business lending, have risky investments, and many other factors contributing to the composition of a credit union's balance sheet and overall operation. Commenters claimed that many larger credit unions have limited service offerings or narrow portfolio composition and are not complex institutions. Commenters suggested that NCUA's own complexity index shows that using asset size alone does not result in an accurate measure of complexity for credit unions.
One commenter suggested that all federally insured credit unions with assets above $250 million and that have an NCUA complexity index value of 17 or higher be required to meet risk-based capital requirements. Another commenter suggested that, consistent with NCUA's final liquidity rule, credit unions with over $250 million in assets have a great degree of interconnectedness with other market entities, and when they experience unexpected or severe liquidity constraints they are more likely to adversely affect the credit union system, public perception, and the NCUSIF. The commenter suggested that setting the size threshold at $250 million will encourage mid-size credit union growth.
Other commenters believed the Board has defined complex in NCUA's derivatives regulation and for examinations as $250 million in assets.
Other commenters suggested the Board raise that threshold to $500 million given the burden they believe would be imposed by the rule and the potential for unintended consequences. The commenters further suggested it would be wise to phase-in the application of the rule slowly by starting with credit unions with assets of $500 million or more to ensure smooth implementation of the rule without threatening the viability of smaller institutions.
Other commenters questioned whether the Board cares about the safety and soundness of credit unions with $50 million in assets or less. Several of those commenters suggested the risk-based capital requirements should apply to all credit unions regardless of size because if they are not subject to the capital regulation they will be unprepared when they reach $50 million size threshold.
Some commenters suggested that the situation is further compounded by the number of credit unions that have
A small number of commenters suggested the Board should adjust for inflation any asset-size threshold used in the definition of complex.
Another commenter suggested that any credit union that is identified as “complex” by NCUA should be able to present evidence to the agency as to why it is not complex and should not be subject to risk-based capital requirements. The commenter suggested the process for contesting an agency designation of “complex” should also be detailed in the rule.
Other commenters suggested the rule should acknowledge the differences between credit unions of different asset sizes and assign different risk weights for credit unions of different asset sizes.
The Board has carefully considered the comments received and generally agrees that a higher asset size threshold is appropriate. Based on comments received on the Original Proposal, the Board is now proposing to use $100 million in assets as a proxy for determining whether a credit union is complex. Under this proposal, the title of current § 702.103 would continue to be changed from “Applicability of risk-based net worth requirement” to “Applicability of risk-based capital ratio measure.”
However, after diligently considering the comments on the Original Proposal and further analyzing the “portfolios of assets and liabilities of credit unions,” the Board now believes that $100 million in assets would be a more appropriate threshold level for defining “complex” credit unions. Accordingly, consistent with requirements of § 216(d)(1) of the FCUA, this proposed § 702.103 would now provide that, for purposes of § 702.102, a credit union is defined as “complex,” and a risk-based capital ratio requirement is applicable, only if the credit union's quarter-end total assets exceed $100 million, as reflected in its most recent Call Report. The Board would periodically evaluate this threshold as part of NCUA's annual review of one-third of its regulations.
Under the current rule, credit unions are “complex” and subject to the risk-based net worth requirement only if they have quarter-end total assets over $50 million
Consistent with requirements of section 216(d)(1) of the FCUA, the Board is proposing to eliminate the additional complexity measure in current § 702.103(b) and declines to propose a complexity measure in addition to the $100 million asset sized threshold for defining “complex” credit unions. Accordingly, this proposal would eliminate current § 702.103(b) and define all credit unions with over $100 million in assets as “complex.” For reasons described more fully below, the Board believes that defining the term “complex” credit union using a single asset size threshold of $100 million as a proxy for a credit union's complexity would be accurate and reduce the complexity of the rule, would provide regulatory relief for smaller institutions, and would eliminate the complexity and potential unintended consequences of having a checklist of activities that would determine whether or not a credit union is subject to the risk-based capital requirement.
Under this proposal, the term “complex” is defined only for purposes of the risk-based capital ratio measure. The Board believes there are a number of products and services, which under GAAP are reflected as the credit unions portfolio of assets and liabilities, in which credit unions are engaged
• Member business loans,
• Participation loans,
• Interest-only loans,
• Indirect loans,
• Real estate loans,
• Non-federally guaranteed student loans,
• Investments with maturities of greater than five years (where the investments are greater than one percent of total assets),
• Non-agency mortgage-backed securities,
• Non-mortgage-related securities with embedded options,
• Collateralized mortgage obligations/real estate mortgage investment conduits,
• Commercial mortgage-related securities,
• Borrowings,
• Repurchase transactions,
• Derivatives, or
• Internet banking.
Based on a review of Call Report data as of June 30, 2014, all credit unions with more than $100 million in assets were engaged in the products and services listed above, with 99 percent having more than one complex activity, and 87 percent having four or more. On the other hand, less than two-thirds of credit unions below $100 million in assets are involved in even a single complex activity, and only 15 percent have four or more. Moreover, credit unions with total assets less than $100 million are a small share (approximately 10 percent) of the overall assets in the credit union system—which limits the exposure of the Share Insurance Fund to these institutions. Accordingly, the Board believes $100 million in assets is a clear demarcation above which complex activities are always present, and where credit unions are almost always engaged in one or more complex activities, in contrast to credit unions $100 million or less in assets.
As discussed earlier, and consistent with section 216(d)(1) of the FCUA, the Board believes $100 million in assets is an accurate proxy for complexity based on credit unions' portfolios of assets and liabilities. It is logical, clear, and easy to administer. This proposed approach would also benefit credit union boards of directors, which consist primarily of volunteers. Based on December 31, 2013 Call Report data, this proposed approach would exempt almost 80 percent of credit unions from the regulatory burden associated with complying with the risk-based net worth requirement, while still covering 90 percent of the assets in the credit union system. It is also consistent with the fact that the majority of losses (68 percent as measured as a proportion of the total dollar cost
In addition, the Board is requesting comment on an alternative measurement for the definition of “complex.” This alternative approach would define “complex” as engaging in a threshold number of products and services, such as those listed above, which the Board believes make up a complex portfolio of assets and liabilities. For example, this alternative approach could define a credit union as complex if it engaged in one or more of the products and services listed above. In addition to general comments on this approach, the Board is requesting comments on the following aspects of this alternative measurement for the definition of “complex”:
1. What specific products and services should the Board include in the list of products and services used to determine whether a credit union's portfolio of assets and liabilities is “complex,” and why?
2. What number of complex products and services should a credit union be allowed to engage in before being designated as “complex,” and why?
Under the Original Proposal, the Board proposed changing the title of current § 702.104 from “Risk portfolio defined” to “Risk-based capital ratio measures.” In addition, the Board originally proposed entirely replacing the requirements for calculating the risk-based net worth requirement for “complex” credit unions under current § 702.104 with a new risk-based capital ratio measure.
NCUA received a number of general comments on the proposed § 702.104. Commenters argued that the proposed risk-based capital calculation did not match the real risk in the system. Other commenters suggested the proposed risk-based capital calculation was an oversimplification of risk.
Some commenters stated that they generally supported the proposed calculation for the risk-based capital ratio. Other commenters stated that the proposed changes would make the risk-based capital ratio calculations more reflective of comparable calculations required by FDIC, provide clarity and understandability to a complex calculation, and make the resulting analysis more valuable and useable.
Other commenters suggested that the funding source of the credit union's assets should also be factored into the risk-based capital ratio measure, and that credit unions that fund assets solely with member deposits should be given a credit compared to credit unions that fund assets with borrowing and/or broker deposits. These commenters stated that the proposal would regulate only one side of the balance sheet—the assets—while not allowing credit unions the flexibility to deal with this new capital requirement through supplementary capital or the matching of term liabilities to specific assets. Similarly, other commenters suggested that the proposal did not effectively consider a credit union's liabilities as a source of funds matched against its assets. The commenters suggested that the cost at which some credit unions can borrow funds to then loan out or invest is very low and carry a healthy spread, but they believed the proposal would have penalized credit unions on the asset side of the balance sheets irrespective of their management of matching sources and uses of funds. Other commenters suggested that applying higher risk weights on long-term assets to deal with IRR is misleading without considering liabilities.
Commenters stated that NCUA assigns a CAMEL rating based on a number of factors, including management effectiveness, and that an institution with a more effective management team can adequately manage an increased level of risk. Commenters suggested that by not taking risk management techniques and qualities into account in the proposed rule when determining the required risk-based capital ratios, credit unions with strong management effectiveness would be essentially limited in how well they could utilize the skills that reside on their team.
One commenter suggested that credit unions should be given a credit for checking and savings non-maturity deposits. Another commenter suggested that the Original Proposal appeared to concentrate on risks faced by credit unions in a low interest rate environment, but that the rule should be amended to be flexible enough to also work in high interest rate environments that may occur in the future.
As discussed in more detail below, the Board believes most of the comments outlined above would be addressed by removing the IRR components from the risk weights in this proposal. Accordingly, consistent with the Original Proposal, the Board is now proposing to change the title of current § 702.104 from “Risk portfolio defined” to “Risk-based capital ratio.” In addition, the Board is now proposing, with some minor changes from the Original Proposal, to entirely replace the requirements for calculating the risk-based net worth ratio for “complex” credit unions under current § 702.104 with a new risk-based capital ratio measure.
Proposed § 702.104 would continue to require all “complex” credit unions to calculate the risk-based capital ratio as directed in the section. The Board believes the proposed risk-based capital ratio would enhance sound capital management and help ensure that credit unions maintain adequate levels of loss-absorbing capital going forward, strengthen the stability of the credit union system, provide a more leading indicator of deteriorating strength than the net worth ratio, and ensure credit unions serve as a source of credit in times of stress.
Under the Original Proposal, proposed § 702.104(a) would have provided that to determine its risk-based capital ratio, a complex credit union must calculate the percentage, rounded to two decimal places, of its risk-based capital ratio numerator as described in § 702.104(b) to its total risk-weighted assets denominator as described in § 702.104(c). The proposed method of calculating risk-based capital would have been generally consistent with the methods used in other sectors of the financial services industry. As with the current risk-based net worth requirement, the proposed risk-based capital ratio calculation would have been calculated primarily using information credit unions already report on the Call Report form required under § 741.6(a)(2) of NCUA's regulations.
The Board received a number of comments regarding the Original
Other commenters suggested the Call Report information currently collected should be modified to properly capture risks associated with assets and liabilities in more detail. One commenter suggested that by supporting and ensuring strong risk-based capital calculations through enhanced Call Report data, the Board could help to improve communications between credit unions and examiners during the examination process, which could result in more efficient examinations and would help alleviate regulatory burdens on credit unions.
Other commenters suggested that adopting investment risk weights consistent with the Other Banking Agencies' regulations would require additional reporting in the Call Reports, but stated additional reporting would be a small issue for some credit unions and a non-event for others.
One commenter suggested that the Board's goal should be to produce the best risk-based capital proposal regardless of the current reporting structure and the proposal should be rewritten and the effort begun anew without the instructions to minimize changes to the current call report form. Another commenter suggested that the call report should be amended to include a separate line item labeled, “deposits in Federal Reserve Banks,” and that such a change would not be burdensome, either for credit unions or NCUA.
Several commenters stated that the revised Call Report would make the reporting process more costly and complicated for credit unions due to the amount of new information that credit unions would be required to provide under the Original Proposal because gathering new data would require changes by data processors, additional staff time and staff training, all of which costs money.
Conversely, one commenter suggested that the vast majority of credit unions that would be affected by the Original Proposal either use systems developed by, or outsourced their investment accounting and reporting to, firms who already provide the required information to banks, and it would require little relative effort to modify the reports provided to credit unions to be able to report this information in the Call Reports. Another commenter stated that the Board should overhaul the current call reporting platform to better align credit union Call Report data with the Call Report data collected by the other U.S. regulated depository institutions to build a consistent framework for both the assignment of appropriate risk weights, as well as the comparability of capital adequacy across institutions. Still another credit union commenter stated that it captures credit scores and current loan-to-value (LTV) ratios and would gladly report additional loan information to NCUA in its Call Report rather than be subject to the proposed risk-based capital standards.
The Board has decided to retain the original changes to § 702.104(a) in this proposal with only minor, non-substantive edits. However, the Board is aware that changes to the Call Report could create a reporting burden on credit unions. The Board agrees with commenters who encouraged Call Report data enhancement which would improve the assignment of appropriate risk weights using more granular data. While this approach would require more call report data, it would also result in improved precision of capital requirements, and more granular data that would also enhance NCUA's offsite supervision capabilities. As NCUA has done in the past (most recently in October 2012), the agency will provide credit unions with prior notification of significant reporting changes to the Call Report,
Under the Original Proposal, proposed § 702.104(b) would have provided that the risk-based capital ratio numerator is the sum of certain specific capital elements listed in § 702.104(b)(1), minus certain regulatory adjustments listed in § 702.104(b)(2). The proposed numerator for the risk-based capital ratio would have continued to consist primarily of the components of a credit union's net worth. In order to capture all of the material risks while keeping the calculation from becoming overly complicated, the Original Proposal would have added some additional equity and loss allowance items and other specified balance sheet items would be subtracted. The goal of the proposed risk-based capital ratio numerator was to achieve a measure that reflects a more accurate amount of equity and reserves available to cover losses.
A number of commenters suggested that the Board should focus more on the numerator of the risk-based capital ratio in the rule by allowing credit unions to hedge IRR by obtaining “credits” for low-risk assets such as certificates of deposit. Other commenters made similar statements suggesting that credit unions should be given a credit when they build their own insurance through certificates of deposit or long-term borrowing because such investments are considered additional insurance that are being used to hedge IRR.
The Board determined these comments are related to the IRR components of the risk weights in the Original Proposal and, as previously stated, this proposal would not include IRR components in the risk weights assigned to investments. The Board also determined quantifying “credits” for specific types of shares and liabilities would be extraordinarily complicated and require a large amount of additional data, and be inconsistent with how the Other Banking Agencies approach risk-based capital requirements.
The Original Proposal maintained the structure of the computation of the risk-based capital ratio numerator with some revisions, which are addressed under the discussion on each of the individual elements below. Accordingly, the Board is now proposing to retain § 702.104(b) of the Original Proposal without change.
Section 702.104(b)(1) of the Original Proposal would have listed the capital elements of the risk-based capital ratio numerator as follows: undivided earnings (including any regular reserve); appropriation for non-conforming investments; other reserves; equity acquired in merger; net income; ALLL, limited to 1.25 percent of risk assets; secondary capital accounts included in net worth (as defined in § 702.2); and § 208 assistance included in net worth (as defined in § 702.2). Consistent with the Original Proposal, § 702.104(b)(1) of this proposal would list the elements of the risk-based capital ratio numerator.
The Board received a significant number of comments suggesting various changes or additions to the list of capital elements included in the Original
The Board generally disagrees with the comments received and has, with the exception of the ALLL, decided to retain the language from the Original Proposal without change. As explained above, the FCUA gives NCUA broad discretion in designing the risk-based net worth requirement. Thus, this proposal incorporates a broadened definition of capital for purposes of calculating the proposed new risk-based capital ratio that would serve as the risk-based net worth requirement. The Board proposes to do this to provide for a more comparable measure of capital across all financial institutions and better account for related elements of the financial statement that are available (or not) to cover losses and protect the NCUSIF. This broader definition of capital would contribute over 50 basis points, on average, to affected credit unions' risk-based capital ratio.
The Original Proposal would have included undivided earnings (including any regular reserve) in the risk-based capital ratio numerator.
The Board received no comments on the inclusion of this capital element in the risk-based capital ratio numerator. Accordingly, the Board has decided to retain this aspect of the Original Proposal with a minor change. The reference to regular reserve would be removed, as the regular reserve account is a part of undivided earnings and this proposal seeks to eliminate the provisions of the rule relating to maintenance of the regular reserve account.
The Original Proposal would have included the appropriation for nonconforming investments in the risk-based capital ratio numerator.
The Board received no comments on the inclusion of this capital element in the risk-based capital ratio numerator. Accordingly, the Board has decided to retain this aspect of the Original Proposal without change.
The Original Proposal would have included other reserves in the risk-based capital ratio numerator.
The Board received no comments on the inclusion of this capital element in the risk-based capital ratio numerator. Accordingly, the Board has decided to retain this aspect of the Original Proposal without change.
Under the Original Proposal, the proposed risk-based capital ratio numerator would have included the equity acquired in merger component of the balance sheet. This equity item would have been used in place of the total adjusted retained earnings acquired through business combinations amount that credit unions report on the PCA net worth calculation worksheet in the Call Report. The equity acquired in merger is the GAAP equity recorded in a business combination and can vary from the amount of total adjusted retained earnings acquired through business combinations, which is not a GAAP accounting item. The use of equity acquired in a merger, as measured using GAAP, would have more accurately reflected the overall value of the business combination transaction.
The Board received no comments on the inclusion of this capital element in the risk-based capital ratio numerator. Accordingly, the Board has decided to retain this aspect of the Original Proposal without change.
The Original Proposal would have included net income in the risk-based capital ratio numerator.
The Board received no comments on the inclusion of this capital element in the risk-based capital ratio numerator. Accordingly, the Board has decided to retain this aspect of the Original Proposal without change.
The Original Proposal would have included the ALLL in the risk-based capital ratio numerator. The Board noted in the Original Proposal that the ALLL would have been included in the risk-based capital ratio numerator because it is available to cover expected levels of loan losses at a credit union. The Original Proposal, however, would have limited the amount of the ALLL that a credit union could include in the risk-based capital ratio numerator to 1.25 percent of total risk-weighted assets. In the preamble to the Original Proposal, the Board stated that this approach would have been consistent with the Basel III framework and the Other Banking Agencies' capital regulations,
The Board received a number of comments regarding the proposed inclusion of the ALLL in the risk-based capital ratio numerator. A substantial number of commenters stated that the ALLL is a dedicated item on the balance sheet and should not be limited or restricted in any way. Commenters suggested that GAAP will not allow the ALLL to be an excessive amount, so the reasoning for limiting the ALLL in the Original Proposal was unclear, even if the Other Banking Agencies' rules treat it that way. Commenters suggested that, rather than implementing a 1.25 percent cap to capture risks in credit unions that are holding excess ALLL, the Board should address the risks that the cap was intended to address one-on-one with “overly conservative” credit unions. Commenters suggested that risk reserved for within the ALLL for credit risk should not be duplicated under the risk-based capital ratio measure. Other commenters stated that limiting the ALLL would have minimal practical effect on the way credit unions underwrite loans or record losses, but it could create a disincentive for credit unions to hold higher reserves.
Some commenters suggested that for banks, the 1.25 percent limitation prevents the use of the ALLL as a means to control taxable revenue by maintaining excessive reserves, but that credit unions have no incentive to manipulate the reserve in such a manner so the Board should include the full ALLL balance in the risk-based capital ratio numerator.
Other comments stated that the allocation of 1.5 percent of loans in the current rule more appropriately captures the insulating contribution that the ALLL provides to capital, particularly during times of economic stress.
Still other commenters stated that credit unions with portfolios of agricultural and business loans, which are allowed by GAAP to reserve for each loan individually in the ALLL rather than just using historical data, would be adversely affected by the original proposal because credit unions would have a lot less incentive to include economic downturns as part of their calculations under the rule.
A small number of commenters suggested that the ALLL in excess of 1.25 percent of risk assets should be recognized as a reduction of risk-based loans at 100 percent consistent with the treatment by the Other Banking Agencies.
Conversely, some other commenters stated that both the inclusion of the ALLL in the risk-based capital ratio numerator and the 1.25 percent limit were appropriate based on the current environment.
However, another commenter suggested that by excluding the amount of the ALLL above 1.25 percent, the Original Proposal would have implicitly encouraged credit unions to cap their ALLL at 1.25 percent, ignoring the responsibility to develop the ALLL based on portfolio risk.
In response to the comments received, the Board is now proposing to remove the 1.25 percent of risk asset limit on the amount of the ALLL that can be included in the risk-based capital ratio numerator. Under this proposal, all of the ALLL, maintained in accordance with GAAP, would be included in the risk-based capital ratio numerator. The proposed removal of the limit on the ALLL would result in this reserve fully counting as capital. The Board believes this is appropriate given that credit unions will have already expensed through the income statement the expected credit losses on the loan portfolio. In times of financial stress, while risk may be increasing (such as rising non-current loans), an uncapped inclusion of the ALLL in the risk-based capital ratio numerator would allow a properly funded ALLL to somewhat offset the impact of the financial stressors on the risk-based capital ratio.
The Board also believes that this proposed change is appropriate given the high quality of credit union capital. The quality of credit union capital should eliminate concerns that the ALLL could account for too much of the capital required to be held against total risk-weighted assets.
Further, the Board agrees with commenters that NCUA's supervision process could address any concerns with uncapping inclusion of the ALLL, such as artificially slow charge-offs to manipulate capital requirements. Removal of the limitation in the amount of the ALLL included in risk-based capital ratio would also address the treatment of excess ALLL that was excluded from the calculation.
A significant number of commenters also stated that if the Financial Accounting Standards Board (FASB) changes the accounting standards that cause more than inconsequential increases to the normal levels of ALLL, the Board should increase the limit of ALLL to be included in the risk-based capital ratio numerator comparable to the additional levels of normal ALLL. Other commenters suggested that the Board eliminate the ALLL cap of 1.25 percent of risk-weighted assets given the high risk weight associated with non-current loans. Further, commenters suggested elimination of the ALLL cap based on the FASB's proposed accounting for credit losses, which, if finalized, could result in an increase of credit unions' ALLL by more than 50 percent. Another commenter suggested that language be added to the rule that states that the ALLL credit will be increased if FASB proposal is implemented. Other commenters suggested that reducing the ALLL allocation would be inconsistent with the expected accounting conventions for future allowance methodologies.
The Board notes that eliminating the cap on ALLL inclusion in the risk-based capital ratio numerator would address concerns with FASB's proposed related changes to GAAP.
As the entire credit loss allowance would be included in a credit union's risk-based capital ratio numerator under the proposed rule, the Board is requesting specific comment on how a final rule should mitigate strategies by credit unions to “purchase” a credit loss allowance by acquiring PCI assets in an acquisition or merger, and thus, artificially increase their risk-based capital ratio numerator.
The Original Proposal would have included secondary capital accounts included in net worth (as defined in § 702.2) in the risk-based capital ratio numerator.
The Board received no comments on the inclusion of this capital element in the risk-based capital ratio numerator. Accordingly, the Board has decided to retain this aspect of the Original Proposal in this proposal without change.
The Original Proposal would have included § 208 assistance included in net worth (as defined in § 702.2) in the risk-based capital ratio numerator.
The Board received no comments on the inclusion of this capital element in the risk-based capital ratio numerator. Accordingly, the Board has decided to retain this aspect of the Original Proposal in this proposal without change.
Under the Original Proposal, the proposed risk-based capital ratio numerator would not have included the following Call Report equity items: accumulated unrealized gains (losses) on available for sale securities; accumulated unrealized losses for other than temporary impairment (OTTI) on debt securities; accumulated unrealized net gains (losses) on cash flow hedges; and other comprehensive income. In designing the proposed rule, the Board recognized that the items listed above reflected a credit union's actual loss absorption capacity at a specific point in time, but included gains or losses that may or may not be realized. The Board also recognized that including these items in the risk-based ratio numerator could lead to volatility in the risk-based capital ratio measure, difficulty in capital planning and asset-management, and other unintended consequences.
The Board received a number of comments on the exclusion of accumulated unrealized gains and losses from the risk-based capital ratio numerator in the proposed rule. Commenters suggested that to offset the effect of unrealized gains or losses, credit unions should be allowed to net the gain or loss against the investment that created it, which would mean valuing the investment at book. Commenters stated that this would make adjustments to the unrealized gains or losses have no net effect on the calculation. Commenters stated further that under the Original Proposal an unrealized gain would increase the value of the investment in the denominator and an unrealized loss would decrease the value of the investment in the denominator, creating volatility. Commenters also suggested that with an unrealized loss there is no deduction from net worth and the asset is still decreased in the risked-based asset calculation; thus, a large unrealized loss could hide a risk that the net worth would have to be reduced if the credit union was liquidated. Other commenters agreed that including unrealized gains and losses could lead to volatility in the risk-based capital measure, difficulty in capital planning and asset-management, and other unintended consequences as the unrealized gain or loss expands and contracts.
Still other commenters suggested that while the Original Proposal would have
As noted earlier, this proposal removes the IRR components contained in the risk weights, so related concerns raised by commenters on the investment risk weights should now be moot.
Due to the changes this proposal would make to the assignment of risk weights for investments, and in response to the comments in agreement with the concerns about volatility in the risk-based capital ratio that can occur with investments, the Board has decided to retain this aspect of the Original Proposal without change. The proposed application of excluding accumulated unrealized gains (losses) on available-for-sale securities; accumulated unrealized losses for OTTI on debt securities; accumulated unrealized net gains (losses) on cash flow hedges, and other comprehensive income also would eliminate the added complication of an opt-in or opt-out approach.
Under the Original Proposal, forms of supplemental capital, other than secondary capital accounts included in net worth (as defined in § 702.2), would not have been included in the risk-based capital ratio numerator. For natural-person credit unions, the only form of supplemental capital the FCUA includes in the definition of “net worth” is secondary capital that it authorizes for low-income credit unions.
As a result, the Board received a substantial number of comments expressing concern about the omission of supplemental capital from the risk-based capital ratio numerator.
A number of commenters suggested that the Original Proposal would have regulated only the asset side of the balance sheet, representing the risk-based capital ratio denominator, while depriving credit unions of the flexibility to use supplemental capital to address the newly introduced capital requirement through the risk-based capital ratio numerator. Other commenters stated that, in order for any credit unions but low-income credit unions to use supplemental capital to meet the risk-based net worth requirement, Congress would have to amend the FCUA to give NCUA the authority to permit that use of supplemental capital. In that regard, commenters contended that the Board should have raised the supplemental capital issue with Congress before issuing the proposed rule.
Without being able to include supplemental capital in the risk-based capital ratio numerator, some commenters stated that credit unions would be forced to address capital concerns by increasing profitability (through higher fees and loan rates, etc.), shrinking assets, or both; none of which they suggested would be in a credit union's best interest.
A small number of commenters suggested that credit unions would not need supplemental capital to be effective if the Board were to devise a risk-based capital regulation that enabled credit unions to grow in a manner consistent with safety and soundness.
Other commenters protested that since the Board had altered the definition of capital in the Original Proposal, it therefore should also extend the risk-based capital ratio numerator to include supplemental capital. In making the same argument, others noted that the risk-based capital ratio numerator as proposed already included items that are not part of “net worth” as defined by the FCUA.
Commenters generally acknowledged that counting supplemental capital as part of a credit union's net worth requirement (for all but low-income credit unions) would require an authorizing amendment to the FCUA, but they maintain that, in contrast, nothing in the Act
In contrast to the lack of authority for federally chartered credit unions, other than low-income credit unions, to currently accept secondary capital, several commenters suggested that the laws of some states authorize their federally insured state chartered credit unions to raise other supplemental forms of capital. Therefore, the commenters suggested the rule should permit those federally insured state chartered credit unions that are authorized to raise other forms of capital under state law to also count that capital in the risk-based capital ratio numerator.
Commenters suggested that the FCUA already authorizes federally chartered credit unions to issue certificates of indebtedness, which function as loans from the holder to the credit union with interest paid to the holder, as well as to offer subordinated debt instruments to members and non-members. They urged the Board to allow FCUs to count those certificates of indebtedness, and those instruments that meet GAAP capital requirements, in the risk-based capital ratio numerator.
Having considered the comments on supplemental capital, the Board declines to permit credit unions (other than low-income credit unions) to include other supplemental forms of capital in the risk-based capital ratio numerator as part of this proposal, pending potential Congressional action and more specific comments as described below.
Members of Congress have introduced legislation in the past that would authorize all federally insured credit unions to accept supplemental capital.
Such authority would also raise a host of other complicated issues that would need to be addressed through additional changes to NCUA's regulations, including providing consumer protections, amending NCUSIF payout priorities, and imposing prudent limitations on the ability of non-low-income credit union to offer and include supplemental capital.
Although the FCUA does authorize federally chartered credit unions to issue certificates of indebtedness and subordinated debt instruments to members and non-members, the ability to include them in the risk-based capital ratio numerator depends on whether such supplemental forms of capital are structured to satisfy prudential capital and consumer protection requirements—issues not addressed in this rulemaking.
The Board does, however, specifically request comment on the following questions regarding additional supplemental forms of capital.
1. Should additional supplemental forms of capital be included in the risk-based capital ratio numerator and how would including such capital protect the NCUSIF from losses?
2. If yes, to be included in the risk-based capital ratio numerator, what specific criteria should such additional forms of capital reasonably be required to meet to be consistent with GAAP and the FCUA, and why?
3. If certain forms of certificates of indebtedness were included in the risk-based capital ratio numerator, what specific criteria should such certificates reasonably be required to meet to be consistent with GAAP and the FCUA, and why?
4. In addition to amending NCUA's risk-based capital regulations, what additional changes to NCUA's regulations would be required to count additional supplemental forms of capital in NCUA's risk-based capital ratio numerator?
5. For state-chartered credit unions, what specific examples of supplemental capital currently allowed under state law do commenters believe should be included in the risk-based capital ratio numerator, and why should they be included?
6. What investor suitability, consumer protection, and disclosure requirements should be put in place related to additional forms of supplemental capital?
Under the Original Proposal, proposed § 702.104(b)(2) would have provided that the elements deducted from the sum of the capital elements of the risk-based capital ratio numerator are: (1) The NCUSIF Capitalization Deposit; (2) goodwill; (3) other intangible assets; and (4) identified losses not reflected in the risk-based capital ratio numerator.
The Board received a significant number of comments, which are outlined in detail below, regarding the capital elements that would have been deducted from the risk-based capital ratio numerator. However, for the reasons explained in more detail below, the Board has decided to retain most of these aspects of the Original Proposal with a few changes that are discussed in more detail below.
The Board received a number of comments expressing concerns about the Original Proposal's treatment of the NCUSIF capitalization deposit. A majority of commenters disagreed with or questioned the treatment of the NCUSIF deposit. Commenters suggested that the NCUSIF deposit should not be deducted from the risk-based capital ratio numerator or denominator.
Commenters stated that if the risk-based capital ratio numerator is intended to reflect “equity available to cover losses in the event of liquidation,” then the NCUSIF deposit should be included because it is one of the most reliable assets available to credit unions to cover losses. Commenters suggested that the only condition under which it would not be available is during a system-wide catastrophe, in which case most other credit union assets, other than cash, would similarly be subject to substantial losses. Those commenters argued there is no reason to believe the NCUSIF capitalization deposit would not be available to cover losses or that it should be excluded from the numerator of the risk-based capital ratio.
Other commenters suggested that NCUA has control of these funds so credit unions should be able to count the deposit toward their capital requirement (
Other commenters stated that although banks expense their deposit insurance, credit unions treat the deposit as an asset. Commenters stated that while it is true that the bank's deposit insurance premiums have reduced the bank's capital, a credit union's capital has been reduced in real terms by the lost income the credit union would have earned had it placed the funds in an earning asset rather than in a non-interest-bearing deposit to NCUSIF.
Another commenter stated that it appeared that the Board was attempting to make the risk-based capital ratio numerator comparable to banks, which expense their insurance premiums paid by eliminating the NCUSIF capitalization, but that banks pay and expense their premiums for each period due and cannot get those funds back. The commenter stated further that federally insured credit unions, on the other hand, not only pay an upfront deposit of one percent of insured shares and record that as an asset, but also pay for and immediately expense periodic assessments from NCUA needed to bolster the NCUSIF. In addition, the commenter stated that federally insured credit unions can have their deposits returned if, for example, they convert to a bank, elect private insurance (in the nine states where private insurance is permitted), or complete a voluntary liquidation, and the NCUSIF capitalization deposit is an asset as recognized by GAAP, is tangible, and easily measured.
Some commenters suggested that this accounting difference is already captured as part of the higher leverage ratio for credit unions as compared to banks. They believe Congress established a capital level for credit unions two percentage points higher than the capital level for banks because one percent of a credit union's capital is dedicated to the NCUSIF and another one percent of the typical credit union's capital is dedicated to its corporate credit union. Those commenters stated that if the Board excludes the NCUSIF deposit it will create an uneven playing field between banks and credit unions
Commenters generally suggested that this new approach could bring the accounting treatment of the NCUSIF deposit into question; that if the deposit is not available to cover a credit union's risks during liquidation then that leads to the question of whether or not the deposit is an asset. Going further, other commenters suggested the Board reconsider this aspect of the Original Proposal, as it implies that the deposit is worthless and should be expensed versus the current method of capitalizing the deposit.
Conversely, another commenter stated that after experiencing the corporate credit union meltdown, it has become evident that NCUA has the superior claim on the deposit and that the credit union really cannot claim to own it. Still another commenter stated that perhaps the NCUSIF deposit should have been expensed all along, but writing it down now comes at a time when generating earnings is already a big challenge.
One commenter suggested that the NCUSIF deposit should be treated as an investment like Federal Home Loan Bank stock, which would mean assigning a risk weight to account for the possibility of the NCUSIF having to use the credit union's funds beyond normal premiums and losing some of the credit union's equity in the NCUSIF. The commenter suggested that leaving the NCUSIF deposit on the balance sheet, assigning it a risk weight, and removing the deduction from net worth is the best option for accurately measuring the ability of each credit union to weather losses. Other commenters suggested that the deposit should be assigned a risk weight of 100 percent or lower.
It was suggested that the NCUSIF deposit should not be excluded from the calculation of risk-based capital ratios at all, but that excluding it from the denominator penalizes more than excluding it from the risk-based capital ratio numerator.
Yet other commenters disagreed, suggesting that the NCUSIF deposit be excluded from the calculation of risk-based capital altogether.
One commenter suggested that the deposit be treated like any other illiquid asset instead of contra-equity.
The Board has carefully considered the comments received and continues to believe exclusion of the NCUSIF deposit from both the risk-based capital ratio numerator and denominator is the appropriate way to handle its risk-based capital treatment. Accordingly, for all the reasons discussed below, the Board has decided to retain this aspect of the Original Proposal without change.
The 1997 U.S. Treasury Report on Credit Unions supports NCUA's current position of excluding the NCUSIF deposit from the risk-based capital ratio calculation. The Treasury report concluded that the NCUSIF deposit is double counted because it is an asset on credit union balance sheets and equity in the NCUSIF.
The Board believes the NCUSIF deposit deduction needs to be addressed in the risk-based capital ratio, not just the leverage ratio, to correct for the double-counting concern in those credit unions where the risk-based capital ratio is the governing requirement.
The NCUSIF deposit is not available for a credit union to cover losses from risk exposures on its own individual balance sheet in the event of insolvency.
The NCUSIF deposit is refundable in the event of voluntary credit union charter cancellation or conversion. However, this aspect does not change the unavailability of the NCUSIF deposit to cover individual losses while the credit union is an active going concern, or its at risk stature in the event of major losses to the NCUSIF. NCUA refunds the NCUSIF deposit only in the event a solvent credit union voluntarily liquidates, or converts to a bank charter or private insurance.
Consistent with its exclusion from the risk-based capital ratio numerator, the NCUSIF deposit would also be deducted from the denominator under proposed § 702.104(c)(1), which would properly adjust the risk-based capital ratio calculation and reduce the impact of the adjustment.
Neither the Original Proposal nor this second proposal would adjust for the NCUSIF deposit twice or put credit unions at a disadvantage in relation to banks because banks have expensed premiums to build the Deposit Insurance Fund.
The Board does not agree with commenters who suggested that the NCUSIF deposit should be treated as an investment similar to FHLB stock. The NCUSIF deposit and FHLB stock have several fundamental differences. The deposit in the NCUSIF results in double counting of capital within the credit union system. Investments in FHLB stock do not. A financial institution does not need to change its charter for a FHLB stock redemption as a credit union must do for a NCUSIF deposit refund. Further, unlike FHLB stock, the NCUSIF deposit is not an income-producing asset. The NCUSIF deposit has not paid a dividend since 2006. The NCUSIF cannot pay another dividend while the Corporate Stabilization Fund loan from the Treasury is still outstanding.
The Board is not requiring credit unions to expense the NCUSIF deposit, and does not believe the risk-based capital treatment will lead to a change in how this asset is accounted for under GAAP. The Board agrees with the U.S. Treasury position as stated in its 1997 Report on Credit Unions. Treasury stated expensing the NCUSIF deposit would not strengthen the NCUSIF. The financial structure of the NCUSIF is reasonable and works well for credit unions.
The assignment of a risk weight for the NCUSIF has the potential to create additional criticisms, as a low risk weight may not capture the true nature of the account and a high risk weight could produce unnecessary concern about risk of the NCUSIF. The NCUSIF is treated similarly to other intangible assets, (
Under the Original Proposal, goodwill and other intangible assets would have been deducted from both the risk-based capital ratio numerator and denominator in order to achieve a risk-based capital ratio numerator reflecting equity available to cover losses in the event of liquidation.
Goodwill and other intangible assets contain a high level of uncertainty regarding a credit union's ability to realize value from these assets, especially under adverse financial conditions.
The Board received a number of comments regarding the treatment of goodwill under the proposal. Commenters suggested that credit unions should not be required to subtract goodwill even though doing so is consistent with Basel III and the Other Banking Agencies' capital regulations. One commenter suggested that the proposed rule and the treatment of goodwill should follow GAAP. Another commenter suggested that goodwill is an asset and should be counted as such.
Other commenters suggested that goodwill should be excluded from the risk-based capital calculation because goodwill is not immediately available to absorb losses in accordance with the intended purpose of regulatory capital, but that the Board should also consider what impact such a change could have on merger incentives in the industry. Another commenter suggested that goodwill not be immediately deducted from the numerator of the risk-based capital ratio, but instead be phased out over a 10-year period, or longer on a case-by-case basis.
Commenters generally suggested that the exclusion of goodwill disincentives merger activity, which would prevent healthy industry consolidation and the combining of unhealthy credit unions with stronger ones in the future.
Other commenters suggested that not including intangibles resulting from a merger in the risk-based capital ratio numerator causes a reduction in the risk-based capital ratio for non-goodwill intangibles, which are not included in the numerator and are deducted from the numerator when amortized.
Other commenters stated they agree with the proposed treatment of goodwill, but that the Board should only deduct those items initially included, and only to the extent of current (net) assets.
The Board also received a few comments on the treatment of other intangible assets under the proposed rule. Commenters suggested the Board should rethink the treatment of the core deposit intangible and let GAAP determine how core deposit intangible is to be written off in fairness to the surviving credit union and to encourage future mergers of both healthy and distressed institutions whether credit unions or banks.
The Board has considered the comments and, as explained above, has decided to retain the definition of goodwill and to clarify the definition of other intangibles. However, the Board recognizes that requiring the exclusion of goodwill and other intangibles associated with supervisory mergers and combinations that occurred prior to this proposal would directly reduce the credit union's risk-based capital ratio. The Board is now proposing to amend the Original Proposal in a manner that would allow credit unions to include certain goodwill and other intangibles in the risk-based capital ratio numerator. In particular, this second proposed rule would exclude from the definition of goodwill which must be deducted from the risk-based capital ratio numerator, any goodwill acquired by a credit union in a supervisory merger or consolidation that occurred before the publication of this rule in final form.
The Board notes, however, that this proposed change would not change financial reporting requirements for credit unions to use GAAP to determine how certain intangibles are valued over time.
Under this proposal, credit unions would still need to account for goodwill in accordance with GAAP and the amount of excluded goodwill and other intangibles is based on the outstanding balance of the goodwill directly related to supervisory mergers.
The Board is proposing to allow the excluded goodwill until December 31, 2024. The Board believes this date would allow most, if not all, credit unions to adjust to this change as they continue to value goodwill and other intangibles in accordance with GAAP. Also, the Board notes that this provision would only apply to goodwill and other intangibles acquired through supervisory mergers or consolidations, as that term is defined above, and is not available for goodwill and other intangibles acquired from mergers or consolidations that do not meet this definition. This change would allow affected credit unions time to revise business practices to ensure goodwill and other intangibles directly related to supervisory mergers do not adversely impact their risk-based capital calculation.
In response to commenters who sought to include goodwill and other intangibles in the risk-based capital ratio numerator, the Board reiterates that there is a high level of uncertainty regarding the ability of credit unions to realize the value of these items, particularly in times of adverse conditions. In addition, the Board notes that its proposed approach to other intangibles generally mirrors the treatment by the Other Banking Agencies.
While the Board is proposing to include a provision to address goodwill and other intangibles acquired through supervisory mergers and consolidations completed prior to this rule, the Board is now proposing to retain the requirement that all other goodwill and other intangibles be excluded from the risk-based capital ratio numerator as they are not available to cover losses. Credit unions will need to consider the impact future combinations will have on both the net worth and risk-based capital ratios. For mergers involving financial assistance from the NCUSIF, this means a credit union with higher capital may be able to outbid a competing credit union. A credit union will need to consider the impact on its capital when determining the components of a merger proposal, which may result in higher costs to the NCUSIF. However, stronger capital and a risk-based capital measure that is less lagging should reduce the number and cost of failures, resulting in a net positive benefit to the NCUSIF and the industry.
Finally, in order to improve clarity about which particular intangible assets are deducted from the risk-based capital ratio numerator, the Board is proposing to revise the definition of other intangible assets. Specifically, the Board is proposing to exclude servicing assets from the amount of intangible assets deducted from the risk-based capital ratio numerator since they have the potential for value in the event of liquidation.
The Original Proposal would have included a provision to allow for identified losses, not reflected as
The Board received no comments on this aspect of the proposal. Accordingly, the Board has decided to retain this aspect of the Original Proposal without change. However, the definition for identified losses was modified, for reasons articulated above, to make it clear any such items would be measured in accordance with GAAP.
In developing the proposed risk weights included in the Original Proposal, the Board reviewed the Basel accords and the U.S. and various international banking systems' existing risk weights.
The Board received a number of comments expressing general concerns about the proposed risk weights. A significant number of commenters suggested that the Original Proposal did not contain sufficient statistical analysis of credit union losses or failures, quantified and summarized data on historical NCUSIF loss experiences, and comparisons of the loss or failure rates at banks to rationalize the proposed asset risk weights. One commenter suggested that the risk weights reflect “socio-economic reasons” instead of “reasoned judgment about actual risks.”
A number of commenters argued that the absence of rigorous quantitative analysis accompanying the proposal's risk weights raises many questions and makes it exceedingly difficult to respond fully to the agency's proposal. Other commenters contended that the proposal provides no explanation of how the risk-based ratings were derived and how they would directly correlate to risks the proposal attempts to mitigate. Commenters suggested that the Board's proposed increases to various risk weights were excessively blunt given the small number of failures and the MLR narratives cited in the proposed rule. Other commenters suggested that some of the risk weights appear to be excessive, arbitrary, and/or appear to cover all types of risk by adopting excessive risk weight amounts.
A number of commenters suggested that the proposed risk weights would encourage credit unions to increase levels of poorer credit quality consumer loans at the expense of higher levels of even the strongest, most secure MBLs, real estate loans, and longer-term investments. A significant number of commenters expressed concerns that the Original Proposal would have been inconsistent in the treatment of the real risks associated with some on-balance sheet assets when the risk weights of various assets were compared to one another;
Other commenters suggested that the Board reconsider the limitations of any single metric at assessing risk and match the consequences of a low risk-based capital ratio to the limitations and potential inaccuracy of that metric.
One commenter suggested that, based on the proposal, the implied balance sheet structure of most credit unions would be as follows: (1) Commercial lending would be limited to roughly 15 percent of assets, because of the heavier risk weight at higher thresholds; (2) real estate lending would be limited to approximately 35 percent of assets regardless of the repricing structure of the loans; (3) home equity loans/second lien mortgage loans would be limited to 10 percent of assets; and (4) the remainder of a credit union's balance sheet would be limited to consumer loans and very short-term investments because of the risk weights.
A number of commenters suggested that asset quality (
A number of commenters suggested that the Original Proposal was biased toward lending and against investments, but that many credit unions have no other option but to purchase investments to improve their interest income to boost their overall earnings. Other commenters stated that the proposal created a bias in favor of consumer loans and short-term assets, which, along with the investment portfolio risk weights, would have forced credit unions down the yield curve to short-duration assets and impeded their ability to build capital. A number of commenters suggested that the risk weight categories and asset categories were over generalized.
A small number of commenters suggested that the rule would be better balanced if credit to the risk weights could be established with a rolling average to reward credit unions effectively managing their loan risks.
The Board generally agrees with comments related to the need for more consistency of risk weights across asset classes, and that IRR and credit risk should not be commingled in the risk weights. Therefore, the Board has decided to make corresponding changes to the risk weights in this proposal. In this second proposal, the Board would address credit risk and concentration risk to be comparable to the Other Banking Agencies.
This proposal would substantially change how the risk weights for investments would be assigned. Instead of assigning the investment risk weights based on weighted average life, the investment risk weights would be assigned based primarily on the credit quality of the underlying collateral or repayment ability of the issuer. This adjustment addresses the inconsistencies between the risk weights for loans and investments.
For example, under this proposal most first-lien residential real estate
Regarding support for the risk weights themselves, the Board notes that given the requirement in section 216(b)(1)(A)(ii) to maintain comparability with the Other Banking Agencies' PCA requirements, NCUA generally relied on risk weights assigned to various asset classes within the Basel Accords and established by the Other Banking Agencies' risk-based capital regulations to develop this proposal. Based on the comments received, the Board believes it has more precisely defined the risk weights. NCUA has tailored risk weights in this proposal for assets unique to credit unions, or where a demonstrable and compelling case existed based on contemporary and sustained performance differences as shown in Call Report data to differentiate for certain asset classes between banks and credit unions, or where a provision of the FCUA necessitated doing so. Thus, when compared to the Original Proposal, this second proposal would adjust asset classes and recalibrate risk weights, and is more comparable to the risk weights in the Other Banking Agencies' capital regulations.
Under the Original Proposal, proposed § 702.104(c)(1) would have provided that total risk weighted assets include risk-weighted on-balance sheet assets as described in § 702.104(c)(2), plus the risk-weighted off-balance sheet assets in § 702.104(c)(3), plus the risk-weighted derivative contracts in § 702.104(c)(4), minus the risk-based capital ratio numerator deductions in § 702.104(b)(2). The proposal would have required a complex credit union to calculate its risk-weighted asset amount for its on- and off-balance sheet exposures. In the proposal, risk-weighted asset amounts would have generally been determined by assigning an on-balance sheet asset to broad risk weight categories according to the asset type, collateral, and level of concentration. Similarly, risk-weighted assets amounts for off-balance sheet items would have been calculated using a two-step process: (1) Multiplying the notational principal or face value of the off-balance sheet item by a credit conversion factor (CCF) to determine a credit equivalent amount, and (2) assigning the credit equivalent amount to the relevant risk weighted category. A credit union would determine its total risk weighted assets by calculating (1) its risk weighted assets, minus (2) goodwill and other intangibles, and minus (3) the NCUSIF deposit.
The Board received no comments on the language in this paragraph and has decided to retain this aspect of the Original Proposal with the following two changes.
First, the Board proposes to add the following language to this subsection to address the assignment of a risk weight should a particular on- or off-balance sheet item meet more than one defined risk weight category: “If a particular asset, derivative contract, or off-balance sheet item has features or characteristics that suggest it could potentially fit into more than one risk weight category, then a credit union shall assign the asset, derivative contract, or off-balance sheet item to the risk weight category that most accurately and appropriately reflects its associated credit risk.” A thorough evaluation of the true credit risk associated with such an item would be the determining factor for the appropriate risk weight.
Second, the Board proposes to make minor conforming amendments to the language to further clarify the requirements.
Accordingly, under this proposal § 702.104(c)(1) would provide that risk-weighted assets includes risk-weighted on-balance sheet assets as described in §§ 702.104(c)(2) and (c)(3), plus the risk-weighted off-balance sheet assets in § 702.104(c)(4), plus the risk-weighted derivatives in § 702.104(c)(5), less the risk-based capital ratio numerator deductions in § 702.104(b)(2). In addition, the section would provide further that if a particular asset, derivative contract, or off balance sheet item has features or characteristics that suggest it could potentially fit into more than one risk weight category, then a credit union shall assign the asset, derivative contract, or off-balance sheet item to the risk weight category that most accurately and appropriately reflects its associated credit risk. The Board is proposing to add this language to account for the evolution of financial products that could lead to such products meeting the definition of more than one risk asset category. If necessary, NCUA would publish guidance to address these products, if and when developed.
Under the Original Proposal, proposed § 702.104(c)(2) would have defined the risk categories and risk weights to be assigned to each specifically defined on-balance sheet asset. All on-balance sheet assets would be assigned to one of the 10 categories and risk weights.
The Board received a significant number of comments on the proposed risk-weight categories and the risk weights assigned to particular assets and has decided to make a number of changes to this subsection, which are discussed in more detail below.
In accordance with section 216(d)(2) of the FCUA, which requires NCUA's risk-based capital requirement “to take account of any material risks against which the [6 percent] net worth ratio required for an insured credit union to be adequately capitalized may not provide adequate protection,”
The Board has addressed comments received on the Original Proposal related to specific assets in the preamble parts corresponding to the various types of assets covered by this proposal below. However, the Board received a number of general comments on total risk-weighted assets.
A number of commenters stated that NCUA did not adequately support the proposed risk weights nor show a significant correlation between losses and the current risk-based capital structure. Some commenters argued that the proposed risk weights were arbitrary and unsupported. Other commenters noted that the proposed risk weights did not take into account the quality of assets, the ability of credit unions to manage capital, liabilities on credit unions' balance sheets, or the actual loss experience of credit unions. A few commenters believed the proposal would create a bias against long-term lending and investments in favor of short-term assets. One commenter stated
After diligently considering all of the comments, and as discussed in more detail in the applicable sections, the Board is now proposing to make significant revisions to the current rule and the Original Proposal, which are discussed in more detail below, to address many of the concerns raised by commenters.
Under the Original Proposal, the proposed risk weights for cash and investments would have been assigned as follows:
The Original Proposal would have also lowered the risk weight for direct and unconditional U.S. Government obligations (FDIC-issued Guaranteed Notes, and other U.S. Government obligations) from the WAL measure to zero percent risk weight, and maintained the current zero percent risk weight for NCUA-guaranteed assets. Finally, the Original Proposal would have removed nonperpetual and perpetual capital in corporate credit unions from the >1-3 year WAL category under the current rule and assigned those assets their own specific risk weights based on factors other than the WAL.
The Board received a large number of comments on the risk weights for investments. Generally, commenters disagreed with the proposed risk weights. Specifically, many commenters felt that the risk weights were not the appropriate place to address IRR and that many of the risk weights could act to limit credit unions' investments in a way that would be detrimental to the individual credit unions and the credit union industry. In addition, many commenters cited inconsistencies between the risk weights for certain investments and the risk weights for the underlying assets, arguing that this may have the unintended consequence of encouraging credit unions to obtain riskier assets with lower risk weights rather than relatively safe investments that have much higher risk weights.
Commenters who sought lower risk weights for investment varied in exactly how to lower risk weights. Some commenters argued that no investment should have a risk weight over 100 percent. Other commenters requested a reduced number of risk weight tiers, stating that it is more appropriate to have a 20 percent risk weight on investments with WALs up to five years and a risk weight of 100 percent for investments that have a WAL greater than 5 years. Commenters suggested that overall the proposed risk weight structure penalizes credit unions for investing and unfairly discriminates against longer-term investments. Several commenters also sought an “other” category for investments that would allow credit unions to demonstrate why certain investments do not warrant the risk weight associated with their WAL. Still other commenters asked that the Board adopt the weights for investments that are included in FDIC's interim final rule.
In addition to requesting lower overall risk weights, many of the commenters addressing this topic also requested all agency and GSE securities receive a lower risk weight. Most commenters felt that securities offered by a federal agency or GSE and overnight Fed Fund deposits should have the same zero percent risk weight that is applied to NCUA- and FDIC-issued guaranteed notes and direct, unconditional U.S. Government obligations. These commenters argued that securities offered by agencies other than NCUA and FDIC and overnight Fed Fund deposits pose little to no risk to the investing credit unions and have an implicit or, in some cases, explicit guarantee of the U.S. Government. Further, commenters contend that without a lower risk weight on agency securities and overnight Fed Fund deposits, credit unions are actually incentivized to avoid these low-risk investments in favor of investments that carry greater credit risk, but offer the potential for a higher return as both types of investments carry the same risk weight. Commenters provided the
Some commenters also asked for clarification on the risk weight for long-term CDs purchased from FDIC-insured institutions and investments in Federal Home Loan Banks.
Further, a majority of the commenters addressing this section of the proposed rule argued that risk-based capital is not the appropriate medium to address IRR. Commenters stated that NCUA's attempt to regulate IRR through the risk-based capital requirement appeared arbitrary and was inconsistent with treatment provided to banks by the Other Banking Agencies. One commenter stated that, if NCUA uses the risk-based capital requirement to regulate IRR, it should note that shocks of 300 basis points are rare and have not been seen since the early 1980's. Further, commenters stated that basing risk weights on the WAL does not take into account credit risk, the funding source for the investments, whether the investment is fixed- or variable-rate, actual maturity of the investment, optionality, or the benefit of longer-term investments—all of which, commenters argue, provide a better evaluation of the risk associated with an investment than the WAL.
Some commenters also noted that the proposed risk weights for investments would lead to inconsistent treatments among various assets. Specifically, commenters argued that the risk weights on some long-term investments that pose a low degree of risk are weighted higher than other, riskier assets. To support these arguments, commenters cited examples that included: A member business loan with a seven-year balloon would carry a lower risk weight than a seven-year bullet agency security; a current credit card loan would have a lower risk weight than a 5.5-year security guaranteed by a GSE; and an indirect auto loan with a 130 percent loan-to-value would have a lower risk weight than a 5.5-year GSE guaranteed security. Other commenters questioned why the risk weight for a mortgage-backed security is higher than the underlying 30-year mortgage that backs the security.
Several commenters questioned how the proposal affects the authority in § 701.19, which allows a federal credit union to purchase investments to fund employee benefit plans without being subject to NCUA's investment rules. Generally, commenters requested lower risk weights for investments held to fund employee benefit plans and life insurance contracts held by the credit union on its executive-level employees. Commenters contend that credit unions may be less likely to offer and fund employee benefit plans because of the risk weights. Further, one commenter stated that the proposal does not take into account the purpose of the investments and their applicability to benefit plan funding, potentially creating risks from both a fiduciary standpoint and the loyalty of executives and employees. Several commenters also requested that the Board include specific risk weights for annuities and mutual funds used to fund employee benefit programs based on the underlying accounts and investment strategies. One commenter suggested that mutual funds be weighted based on the underlying investment strategy. This commenter suggested the following breakdown: State and federal government funds—20 percent; Municipal bond strategies—50 percent; Asset-backed, mortgage-backed, and bank loan funds—100 percent; Other funds—150 percent; Bonds—WAL; Equity securities—200 percent. Another commenter stated that life insurance contracts owned by the credit union should be rated at 20 percent for AAA- and AA-rated insurers.
The Board generally agrees with commenters' concerns regarding the differences between the current risk-based requirements, the Original Proposal's investment risk weights, and the risk weights assigned by the Other Banking Agencies. As discussed in the summary part of the preamble above, the Board believes that measures of IRR should be based on a credit union's entire balance sheet to take into account the offsetting risk effects of assets and liabilities (including any benefits from derivative transactions). The Board also generally agrees with commenters that the use of asset-duration risk weights in the risk-based capital scheme is overly simplistic and does not fully take into account potential risk mitigation benefits, such as liabilities and derivatives.
The Board agrees that the approach taken in the Original Proposal should be revised. Accordingly, the Board is now proposing to change the risk weights in the investment area to more closely align them with the risk weights in the Other Banking Agencies' regulations,
In particular, the Board is now proposing to eliminate the process of assigning risk weights for investments based on WAL of investments in favor of a credit-risk centered approach for investments. As discussed earlier in the document, the credit risk approach to assigning risk weights under this proposal is based on applying lower risk weights to safer investment types and higher risk weights to riskier investment types.
The Board disagrees with commenters who suggested that all investments should be assigned a risk weight of 100 percent or less. Assigning a maximum of 100 percent risk weight to all investments would not sufficiently capture the risk of equity or leveraged investments, and would unjustifiably differ from the risk weights used by the Other Banking Agencies. Based on the extensive analyses performed by the Basel Committee
Another area where commenters expressed concern was with the risk weights assigned to U.S. Government agency and GSE securities under the Original Proposal. The Board believes it has addressed these concerns in this second proposed rule by removing the IRR component from the risk weights for investments. The Board also believes this concern would be addressed for these and other investment types by assigning risk weights on long-term assets only based on the credit risk, and not IRR. For example, an 11-year WAL non-subordinated mortgage-backed security issued by a GSE would have been assigned a 200 percent risk weight under the Original Proposal, while a 2-year WAL of the same security type would have been assigned a 50 percent risk weight. Conversely, under this second proposed rule, both securities would be assigned a 20 percent risk weight, which is based only on the credit risk of the investment type.
The Board has also assigned risk weights to types of investments, such as corporate bonds, asset-backed securities and corporate equities, which are generally not available to federal credit unions. These risk weights were assigned to account for the fact that federally insured state chartered credit unions sometimes have investment authorities that allow then to invest in assets not available to FCUs. In addition, § 701.19 permits federal credit unions to purchase investments to fund employee benefits that are not otherwise available to federal credit unions under NCUA's investment regulations. For these types of assets, the Board has assigned risk weights that it believes reflect the risk of the assets that could be used to fund employee benefit plans.
The Board disagrees with commenters who suggested lower risk ratings should be applied to such assets because they were purchased for employee benefit plans. However, the Board does seek comment on whether lower risk weights should be applied to investments that fund employee benefit plans in which all of the risk of loss is held by the
The Board chose not to assign risk weights based on credit ratings, as at least one commenter requested. Consistent with the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010, which required agencies to remove all references to credit ratings, NCUA does not use credit ratings to determine risk weights for part 702.
However, the Board cannot uniformly use these criteria to measure minimum capital requirements for credit unions because of the indeterminate reporting that would be necessary and the myriad of variables available to establish a sound lending program. This second proposed rule is consistent with the regulatory capital models under the Basel framework, which are portfolio invariant.
A number of commenters stated that assigning risk weights to loans based on the risk of the underlying loans makes more sense than on the size of the portfolio. Other commenters suggested that if IRR is included in investment risk weights, it should also be included in loan risk weights.
As noted in the summary section, the Board believes the revised loan concentration risk thresholds and corresponding risk weights under this proposal would address only credit risk exposures, and to a limited extent concentration risk exposures. While certain loans contain a substantial amount of IRR, the Board does plan to consider alternative approaches to address IRR separately from this rulemaking.
Several commenters suggested that the Board remove the higher-risk components for delinquent loans because the ALLL balance is already factored into the formula. Conversely, other commenters stated that they appreciated that the Original Proposal assigned delinquent and non-delinquent loans different risk weights.
At least one commenter suggested that troubled debt restructuring loans be risk-weighted at 50 percent.
This proposal would maintain a separate, higher risk weight for loans that are not current, but would also, as discussed in detail above, eliminate the 1.25 percent cap on the ALLL in the risk-based capital ratio numerator. The Board believes the proposed higher risk weight that would be assigned to non-current loans is warranted because such loans have a higher probability of default when compared to current loans. Non-current loans are more likely to default because repayment is already impaired making them one step closer to default compared to current loans. Additionally, a higher risk weight for non-current loans is consistent with the risk weights assigned by the Other Banking Agencies.
A small number of commenters suggested that share-secured loans should have a risk weight between zero and 25 percent since they are fully secured. Also, some commenters noted that secured consumer loans generally pose less risk than unsecured consumer loans. The Board generally agrees that share-secured loans pose less risk to credit unions than other types of secured loans. Accordingly, under this second proposal share-secured loans would be assigned a 20 percent risk weight. The board does not believe a risk weight of zero percent is warranted because of the small amount of operational and transaction risk present in share-secured loans. A risk weight of 20 percent for share-secured loans is proposed because it recognizes the low amount of risk and is consistent with the 20 percent risk weight for contractual compensating balances on commercial loans that are also secured by shares on deposit.
The Board also agrees unsecured consumer loans generally pose more risk than secured consumer loans, and is therefore proposing to assign a lower risk weight of 75 percent to secured consumer loans and a higher risk weight of 100 percent to unsecured consumer loans. The 100 percent risk weight for unsecured consumer loans would be comparable to the Other Banking Agencies' risk weight for consumer loans.
A small number of commenters suggested that loans held for sale should have a 25 percent risk weight. Other commenters suggested that loans held for sale should have a 50 percent risk weight.
After considering the comments received, the Board continues to believe that loans held for sale carry identical risks to the originating credit union as other loans held in the credit union's portfolio until transfer to the purchaser is final. Until the originating credit union transfers the loan to the purchaser, the originating credit union bears the risk of the loan defaulting. If the loan defaults prior to the finalization of the transfer, the originating credit union must account for any loss from the defaulting loan, similar to other loans held on the credit union's books. Because they carry the same risks, loans held for sale would be assigned a risk weight based on the loan's type.
For purposes of the Original Proposal, “member business loans outstanding” would have consisted of loans outstanding that qualified as MBLs under NCUA's definition,
Consistent with the current rule, the Original Proposal would have applied risk weights to MBLs as a percentage of total assets. As a credit union's concentration in particular asset classes increased, incrementally higher levels of capital would have
Under the Original Proposal, MBLs that were at least 75 percent guaranteed by the federal government, typically by the Small Business Administration (SBA) or U.S. Department of Agriculture, would have received a risk weight of 20 percent regardless of the percent of the credit union assets they represented.
A substantial number of commenters addressed MBLs and generally disagreed with the proposed risk weights in the Original Proposal, noting that the risk weight assigned to commercial loans under the Other Banking Agencies' capital regulations would have been lower for such loans when held in higher concentrations.
There were, however, a few commenters that agreed that higher risk weights should be applied to MBLs held in higher concentrations.
Many commenters objected to the Board's methodology for assigning risk weights to MBLs based on concentration. Other commenters disagreed with NCUA's methodology of assigning risk weights based on concentrations of MBLs compared to total assets. These commenters argued that risk weights based on concentration levels do not take into account all pertinent information to accurately determine risk. Some commenters believed that risk weights should be assigned based on the type of loan, specifically separating loans by business purpose (commercial, agricultural, or construction and development). Some of these commenters suggested the Board should address concentration risk through supervision rather than through a rulemaking.
Some commenters questioned the interplay between exemptions from the statutory cap on MBLs and higher risk weights for credit unions that exceed the cap. These commenters pointed out that many credit unions have been given an exemption from the statutory MBL concentration limit. Some of these commenters stated that the proposed risk weights would nullify the exemptions included in the Federal Credit Union Act and may lead some credit unions to discontinue business lending, particularly in the area of agriculture. To that end, commenters requested a variety of solutions. Some commenters believed credit unions exempt from the statutory MBL cap should be given more time to comply with the MBL risk weights, while other commenters argued there should be a separate set of risk weights for exempt credit unions. Finally, some commenters requested that the Board allow credit unions exempt from the statutory MBL cap to continue following the risk weights in the current rule.
Higher capital requirements for concentrations of MBLs exist in the current rule and the Board believes completely eliminating them would be a step backwards in matching risks with minimum risk-based capital requirements. Credit unions with high commercial loan concentrations are particularly susceptible to changes in business conditions that can affect borrower cash flow, collateral value, and other factors increasing the probability of default.
NCUA does currently review credit concentrations during examinations as commenters recommended. However, as discussed in the summary section, the
Basel II states, “risk concentrations are arguably the single most important cause of major problems in banks.”
However, after consideration of the comments, the Board is proposing to modify the approach to MBLs taken in the Original Proposal assigning risk weights to “commercial loans” rather than “MBLs.” Under this second proposal the risk weights assigned to commercial loans would generally be consistent with those assigned by Other Banking Agencies and with the objectives of the Basel Committee on Banking Supervision.
Further, the 50 percent threshold and the risk weights of 100 percent and 150 percent result in nearly identical capital requirements, as compared to the current rule, for high concentrations of commercial loans. This creates parity to the Other Banking Agencies' rules
The Board
A large number of commenters addressing MBLs argued that the risk weights for credit unions should be lower than the risk weights employed by FDIC for banks. Commenters noted that the proposed risk weight of 100 percent for total MBLs of zero to 15 percent of total assets was the same as the risk weight for commercial loans under FDIC's interim final regulation. Commenters argued, however, that credit unions have historically had a lower loss rate on MBLs than community banks had for commercial loans. These commenters argued that since credit unions have a lower historical loss rate than banks, the risk weights assigned to MBLs should also be lower. Other commenters noted that NCUA's MBL regulation is more conservative than commercial lending regulations for banks, and, therefore, at a minimum the Board should adopt a 100 percent risk weight, regardless of concentration, to mirror the commercial loan risk weights for banks.
The Board does not believe the contemporary variances between bank and credit union losses on commercial loans are substantial enough to warrant assigning lower risk weights to
Further, credit unions' long-term historical MBL losses are somewhat understated because the NCUA's Call Report did not collect separate MBL data until 1992. Thus, significant MBL losses experienced in the late 1980s and early 1990s are not included in the long-term historical credit union MBL loss data.
Some commenters also questioned the disparity between NCUA's treatment of unfunded commitments and the treatment in Basel III. For this second proposal, the Board has adjusted the treatment for unfunded MBL commitments to be more comparable to the Other Banking Agencies' rules.
Under this proposal, the definition of “commercial loans,” as discussed in the definition section of this preamble, would: (1) include all commercial purpose loans regardless of dollar amount; (2) exclude one-to-four-family non-owner occupied first-lien real estate loans, which would be considered residential real estate loans for the purpose of assigning risk weights in this proposal; (3) exclude any loans secured by a vehicle generally manufactured for personal use; (4) assign to the portion of a commercial loan that is insured or guaranteed by the U.S. Government, U.S. Government agency, or a public sector entity a lower risk weight of 20 percent and not count such loans toward the 50 percent of assets concentration threshold; and (5) assign to any amount of a contractual compensating balance associated with a commercial loan and on deposit in the credit union a 20 percent risk weight and not count such amounts toward the 50 percent of assets concentration threshold. The revised definition of commercial loan would better capture the loans made for a commercial purpose that have similar risk characteristics. The portion of a commercial loan that is insured or guaranteed by the U.S. Government, U.S. Government agency, or a public sector entity would be assigned a lower risk weight of 20 percent and would not count toward the 50 percent of asset threshold. This provision is comparable to the Other Banking Agencies.
Additionally, junior-lien real estate loans, which have a significantly higher loss history, are assigned the same risk weight as first-lien mortgage real estate loans under the current rule. As a result, the current real estate loan risk weights incentivize credit unions to structure their mortgage products to minimize their capital requirements, which can impact the marketability of such loans. As discussed in more detail below, the Original Proposal would have made a number of changes to the current rule to address these concerns.
Consistent with the current rule, the Original Proposal would have continued to exclude from the real estate risk weights those real estate loans reported as MBLs. The Original Proposal would have recognized the lower loss history for current, prudently written first-lien real estate-secured loans by assigning a lower risk weight of 50 percent to the first 25 percent of assets.
Under the Original Proposal, if a credit union held the first- and junior-liens on a property, and no other party held an intervening lien, the credit union could have treated the combined exposure as a single loan secured by a first lien for the purpose of assigning the risk weight. First-lien real estate loans assigned to the 50 percent risk weight category could not have been restructured or modified loans. First-lien real estate loans modified or restructured on a permanent or trial basis solely under the U.S. Treasury's Home Affordability Mortgage Program (HAMP) would not have been considered restructured or modified.
First-lien real estate loans guaranteed by the federal government through the Federal Housing Administration (FHA) or the Department of Veterans Affairs (VA) generally would have been risk-weighted at 20 percent. While a U.S. Government guarantee against default mitigates credit risk, normally the loans
Under the Original Proposal, real estate-secured loans that did not meet the definition of a “first mortgage real estate loan” would have been defined as “other real estate loans” and assigned a higher risk weight. First-lien real estate loans delinquent for 60 days or more, or carried on non-accrual status, would have been included in the category of other real estate loans for the purpose of assigning the risk weight. Other real estate loans would have been assigned a risk weight of 100 percent for the first 10 percent of assets. To account for concentration risk, the risk weight for other real estate loans would increase to 125 percent for loans between 10 and 20 percent of assets, and other real estate loans over 20 percent of assets would have been risk-weighted at 150 percent.
The threshold of 10 percent was based on the average percentage of other real estate loans to total assets, which, as of June 30, 2013, was 6.85 percent for complex credit unions.
Under the Original Proposal, the aggregate minimum capital requirement for first- and junior-lien real estate loans would have been slightly less than the current minimum requirement.
NCUA received a significant number of comments on the proposed risk weights for real estate loans. Most commenters generally disagreed with the proposed risk weights, stating that they were too high. Commenters suggested that, given lower historical loss rates on residential mortgage loans at credit unions compared to community banks and the fact that credit unions with higher concentrations of these loans tend to experience lower loss rates than their peers, the risk weights and concentration thresholds for real estate loans should be far lower than the Original Proposal indicated and lower than what banks must meet. Commenters generally acknowledged that the proposed 50 percent risk weight (
The Board does not believe the contemporary variances between bank and credit union losses on real estate loans are substantial enough to warrant assigning lower risk weights. Based on the credit union Call Reports and FDIC Quarterly Banking reports for the years ended December 31, 2011, 2012, and 2013, credit union real estate loan loss experience is comparable to community banks. Credit unions with over $100 million in assets have an average overall real estate loan loss ratio of 0.58 percent over the past three years. Banks with assets up to $10 billion have an average real estate loan loss ratio of 0.65 percent over the same time period. Credit union first mortgage loan losses average 0.34 percent over the last three years compared to 0.49 percent for banks. Credit union home equity loan losses average 0.96 percent over the last three years compared to 0.73 percent for banks.
Another commenter suggested that NCUA's tiered risk weight approach for real estate-secured loans for both the current risk-based net worth ratio framework and the proposed risk-based capital ratio framework is arbitrary and unsupported by the administrative record, and that NCUA has not offered specific analyses or other evidence to support either framework's implied assumption that there is a correlative relationship between the size of a credit union's portfolio of real estate secured loans and the risk that portfolio presents to the NCUSIF.
Other commenters believed the proposed risk weights would discriminate against homeownership because home loans bring a positive reputation value that the rule cannot factor, and that any additional capital requirement for providing home loans to the common family is destructive. Commenters also suggested that the proposed risk weights would limit credit unions' ability to help low-income members and members with troubled real estate and impact credit unions' ability to provide members with a low cost source of funds for financing their primary residence by discouraging credit unions from making real estate loans over 25 percent or 35 percent of their total assets.
A small number of commenters suggested that the rule allow some type of waiver when it is apparent that a credit union can make sound real estate loans. Another commenter suggested that the rule exclude some parts of a credit union's first-lien mortgage portfolio.
Some commenters suggested that although significant losses did occur during the recent economic downturn, first-lien residential mortgage loans have historically been a low credit risk and an important part of credit unions' presence and mission in their communities. One commenter stated that major progress has been made in underwriting first mortgage loans following the recent recession, that high-risk mortgage products are no longer common, and the CFPB and Dodd-Frank Act regulations have eliminated the likelihood of a repeat of the circumstances that caused extensive losses for first-lien residential mortgage loans during the recession. Therefore, the commenters suggested the Board should eliminate the higher risk weights for a concentration of first-lien residential mortgage loans.
A small number of commenters acknowledged that there is a great deal of differentiation across mortgage products that make it difficult to determine the best framework to identify those higher-risk mortgages without imposing an untenable reporting requirement. Given the delicate balance between regulatory burden and meaningful reporting, many commenters suggested the Board should maintain the proposed definition for non-delinquent first mortgage real estate loans and risk weight them all at 50 percent, regardless of concentration level. Commenters argued that such a change would provide parity with the banking system and obviate the need for more onerous reporting. Commenters argued the Board should adopt a similar approach for other real estate-secured loans by eliminating the concentration thresholds and, consistent with the Other Banking Agencies' rules, risk-weight them all at 100 percent.
A number of other commenters suggested various specific risk weight schemes for real estate loans, but did not explain why their suggested risk weights would more accurately account for risk than those originally proposed by the Board.
Higher capital requirements for concentrations of real estate loans exists in the current rule, and the Board believes completely eliminating them would be a step backwards in matching risks with minimum risk-based capital requirements. Credit unions with high real estate loan concentrations are particularly susceptible to changes in the economy and housing market because a significant portion of their assets are focused in one industry.
NCUA does currently review credit concentrations during examinations as commenters recommended. However, as discussed in the summary section, the FCUA requires that NCUA's risk-based capital requirement account for material risks that the 6 percent net worth ratio may not provide adequate protection, including credit and concentration risks.
Credit concentration risk can be a material risk under certain circumstances. The Board generally agrees that CFPB's new ability-to-repay regulations should improve credit quality. However, the extent to which this will alter loss experience rates remains to be seen.
NCUA has also been advised by its OIG and GAO to address real estate credit concentration risk. NCUA's OIG completed several MLRs where failed credit unions had large real estate loan concentrations. The NCUSIF incurred losses of at least $25 million in each of these cases. The credit unions reviewed held substantial residential real estate loan concentrations in either first-lien mortgages, home equity lines of credit, or both.
However, after consideration of the comments, the Board proposes to modify the real estate loan risk weights presented in the Original Proposal. Under this second proposal the risk weights assigned to residential real estate loans would generally be consistent with those assigned by Other Banking Agencies.
First- and junior-lien residential real estate loans that are not current would be assigned 100 percent and 150 percent risk weights respectively. This change to a single, higher concentration risk threshold would simplify the risk weight framework and calibrate it to only pick up outliers. The concentration thresholds are roughly two standard deviations from the mean for both first and junior-liens. This means that roughly 90 percent of credit unions with more than $100 million in assets operate at levels below the concentration thresholds proposed for residential real estate loans, and only two credit unions operate above both thresholds (based on December 2013 Call Report data). Thus, most credit unions would operate at a level in which the risk weights assigned to residential real estate loans would be the same as the risk weights of the Other Banking Agencies.
The Board believes the single higher concentration threshold would simplify the risk weight framework and better calibrate it to apply only to credit unions with outlying levels of concentration risk. The revised approach taken in this second proposal would be more comparable with the approaches taken by the Other Banking Agencies' rules
The Board does not agree that the proposed risk weights would slow residential real estate loan origination, stifle homeownership, or limit credit unions' ability to assist low-income members because the revised risk weights provide credit unions with continued flexibility to assist members in a sustainable manner while maintaining sufficient minimum capital.
Commenters stated that credit unions should not be penalized for having high-quality, performing first mortgage loan portfolios, suggesting that risk weights should be lowered on first mortgage real estate portfolios that demonstrate strong performance through lower charge-off ratios. Numerous commenters suggested that the risk weights should take underwriting into account that offsets the risk of these loans (
A small number of commenters suggested the mortgage risk weights could be better balanced by providing credit unions with some type of earned credit based on managed risk performance.
Another commenter suggested that low-income credit unions that are Community Development Financial Institutions have loan portfolios that are primarily made up of non-prime and sub-prime loans, which have a greater propensity for delinquency. The commenter suggested that such institutions should not be penalized for
The Board agrees with commenters that credit scores, loan underwriting, portfolio seasoning, and portfolio performance are good measures to evaluate a residential real estate lending program. However, broadly applicable regulatory capital models are portfolio invariant. This means the capital charge for a particular loan category is consistent among all credit union portfolios based on the loan characteristics, rather than the individual credit union's portfolio performance or characteristics. Taking into account each credit union's individual characteristics would be too complicated for many credit unions and NCUA for minimum capital requirements.
NCUA will continue to take into account loan underwriting practices, portfolio performance and loan seasoning as part of the examination and supervision process. This method of review is consistent with the Basel three-pillar framework: minimum capital requirements, supervisory review, and market discipline.
The Board also agrees LTV ratios are an informative measure to assess risk. However, it is not a practical measure to assess minimum capital requirements because of volatility in values and the corresponding reporting burden for credit unions tracking LTVs and keeping them current. There also is no historical data across institutions upon which to base varying risk weights according to LTVs and other underwriting criteria (like credit scores). Examiners take LTVs into consideration during the examination process. Supervisory experience has demonstrated LTV verification requires on-site review and application of credit analytics to validate the most current information. On-site review also minimizes reporting requirements on credit unions.
Commenters questioned why real estate loans were risk-weighted differently than GSE and other mortgage-backed securities. Under the Original Proposal, a 30-year first mortgage loan would have been assigned a 50 percent risk weight while a federal agency mortgage-backed security that has an average life of six years would have been assigned a 150 percent risk weight. Numerous commenters remarked that the differences between these two risk weights seemed inappropriate because the two assets have similar interest-rate risk, and that the security has less credit risk and is more marketable. Commenters stated that one way credit unions can lower the risk of holding first mortgage loans on their balance sheets is to securitize them, making them more readily available to serve as collateral to borrow against or to sell as a security. Commenters also suggested that the higher risk weight that would apply to securitized mortgages would discourage credit unions from using this strategy.
The Board agrees with the commenters' concerns regarding consistency of risk weights across assets classes. As noted above, by removing consideration of IRR from the risk weights for purposes of this second proposal, analogous risk across loans and investments would be more consistently risk-weighted.
Commenters suggested that the rule should distinguish between variable-rate first mortgage loans and fixed-rate first mortgage loans, with lower risk weights associated with the variable-rate loans and shorter-term fixed-rate loans in order to capture the lower IRR associated with such loans as compared to 30-year fixed-rate first mortgage loans. Other commenters suggested that the capital requirement for adjustable-rate mortgages and shorter-maturity fixed-rate mortgage loans should be lowered to take into consideration the reduced risk associated with these adjustable and shorter-term mortgage loan products. Commenters also suggested that the IRR may in fact be lower for junior-lien loans because many are home equity lines of credit with variable rates. The Board notes, as discussed above, removal of consideration of IRR from the risk weights for purposes of this second proposal resolves these commenters' concerns.
Commenters questioned the risk weight for junior-lien mortgage loans, suggesting such loans represent no more risk than first mortgage loans if underwritten at appropriate loan-to-value ratios. Some of these commenters stated that many credit unions have established loan-to-value and combined loan-to-value limits for junior-lien real estate loans of 75-80 percent (or less) as a means of managing risk. Commenters suggested that consideration should also be given to the equity position and not just the lien position when setting risk weights.
A small number of commenters stated that no clear explanation or rationale was offered for why junior-lien mortgage loans have higher risk weights than first mortgage loans.
Conversely, other commenters stated that while they have many concerns about the risk weights, they agree that the proposed risk weights for home equity/second mortgages seem appropriate based on losses at comparable banks and credit unions.
The Board continues to believe junior-lien residential real estate loans warrant a higher risk weight based on loss history. Call Report data indicates credit unions over $100 million in asset size reported three times the rate of loan losses (0.96 percent) on other real estate loans
After carefully considering the comments, the Board is now proposing to modify the definitions and risk weights for loans secured by residential real estate. Three substantive changes are discussed in more detail below.
First, one-to-four family non-owner-occupied residential real estate loans would now be included in the definition of either first- or junior-lien residential real estate loan.
Second, for a loan to be included in the definition of a first-lien residential
Finally, this second proposal would provide a risk weight of 20 percent for the portion of real estate loans with a government guarantee and exclude this amount from the calculation of the concentration threshold. The Board believes this change would better reflect the risk and encourage credit unions to take advantage of available programs designed to reduce their risk of loss.
The Board received a number of comments regarding the risk weights for consumer loans. A number of commenters recommended the Board lower the risk weights for performing collateralized consumer loans, and that data on such loans is reflected on the Call Report and could easily be incorporated into the risk weights.
Several commenters asked why a secured auto loan was assigned the same risk weight as an unsecured credit card loan under the Original Proposal when credit card loans have a delinquency rate more than four times that of auto loans.
Other commenters stated the rule should take into account the type of consumer loan (unsecured versus secured, loss history, and term of the loan) and generation source (direct versus indirect) because different loan types and generation sources have different performance experiences historically and should be evaluated as part of the rulemaking.
Another commenter stated that the proposal would have made no distinction between indirect loans and loans originated in-house, which would have encouraged “buy rate” indirect lending (
Other commenters suggested different risk weights should be applied to consumer loans based on credit score ranges.
A small number of commenters suggested that consumer loans have significantly less IRR than first-mortgage loans, but are assigned a 75 percent risk weight while first-mortgage loans are assigned a 50 percent risk weight, suggesting that only credit risk was considered in setting the risk weight for consumer loans.
A small number of commenters suggested that consumer loans should be assigned a 20 percent risk weight because credit loss risk is covered in the ALLL.
A number of other commenters suggested that the proposed risk weights for consumer loans seemed appropriate based on losses at comparable banks and credit unions.
The Board generally agrees with commenters who suggested that secured and unsecured consumer loans have different levels of risk exposure. To address the different risks between these two loan types, this second proposal would assign separate risk weights for secured and unsecured consumer loans. To differentiate between these two loan types, this proposed rule would include new definitions for secured consumer loans and unsecured consumer loans. Loans meeting the definition of a current secured consumer loan would receive a risk weight of 75 percent, and those meeting the definition of a current unsecured consumer loan would be assigned a 100 percent risk weight. This would account for the higher risk associated with unsecured loans given their lack of collateral.
The Board also generally agrees that credit scores, staff qualifications, loan underwriting, portfolio seasoning, and portfolio performance are good measures to evaluate a lending program. However, the Board cannot uniformly use these criteria to measure minimum capital requirements for all credit unions because of the indeterminate reporting requirements that would be necessary and the myriad variables used to establish sound lending programs.
The Board disagrees that credit loss risk would be entirely covered in the ALLL. The ALLL is intended to cover expected losses as of the balance sheet date. The ALLL is not intended to cover unexpected losses. While a credit union's funding of the ALLL through provision expenses decreases retained earnings, the proposed new risk-based capital ratio calculation would add back in the balance of the ALLL without limit.
A small number of commenters questioned why delinquent consumer loans were assigned a 150 percent risk weight under the Original Proposal
Under the Original Proposal, investments in CUSOs were assigned a risk weight of 250 percent and loans to CUSOs were assigned a risk weight of 100 percent. A majority of the commenters addressed these risk weights and, nearly unanimously, opposed them. There were, however, a few commenters who generally agreed with the proposed risk weights.
In brief, commenters generally maintained that the originally proposed risk weight for investments in CUSOs was too high. Some commenters argued that the Original Proposal was arbitrary and unsupported by analytical data. Others stated that the risk weights did not take into account the requirements of the CUSO regulation or the nature and business of individual CUSOs. Finally, some commenters believed the Original Proposal would have a chilling effect on CUSOs and could lead credit unions to seek out more expensive third-party vendors.
Some commenters questioned why the Original Proposal included different risk weights for investments and loans. Other commenters argued that there should be only one risk weight and that it should not exceed 100 percent. Several commenters suggested risk weights below 100 percent, stating that higher risk weights would diminish the cooperative nature of credit unions. A few commenters advocated eliminating risk weights for CUSOs altogether, claiming that assigning risk weights to these assets would be detrimental to credit unions forming and utilizing CUSOs.
Other commenters stated that NCUA should address risk in CUSOs through supervision of the credit union investors, rather than assigning risk weights to investments and loans.
One commenter expressed concern about investments in CUSOs being included in the risk-based capital ratio calculation on an unconsolidated basis, combined with including a CUSO's mortgage servicing assets (MSAs) on a consolidated basis. This commenter stated that if mortgage servicing assets represent a significant portion of the equity of a CUSO on an unconsolidated basis, then the credit union's MSAs would effectively be weighted at 500 percent.
Several commenters argued that the risk weights for CUSO loans and investments should be lower because the actual degree of risk from CUSOs is relatively low. A few commenters noted that credit unions have less than 0.2 percent of total assets invested in CUSOs, which, they argued, is an immaterial risk to the credit union industry.
Other commenters stated that the requirements in the recently finalized CUSO rule effectively reduce risk from CUSOs, thereby eliminating the need for higher risk weights.
Several commenters expressed concern that the 250 percent risk weight on investments in CUSOs would restrict or reduce the benefits from using CUSOs. Some of these commenters argued that credit unions would be forced to contract with higher-priced third-party vendors for services because third-party vendors do not carry a capital risk weight.
Several commenters also questioned the mechanics of the two risk weights that would have applied to CUSOs. One commenter stated that the risk weight for loans did not take into account collateral for the loan or the quality of any such collateral.
Another commenter stated that there was no reason for a risk weight if the amount of an investment in a CUSO was fully offset by net income or cost savings generated by the CUSO. Other commenters suggested that NCUA not apply a risk weight to both the cash investment made in the CUSO and the CUSO's appreciated value.
Several commenters stated that the Original Proposal would have double counted exposure for majority-owned CUSOs. They reasoned that because risk-based capital is based on a credit union's consolidated balance sheet, adding a schedule that shows unconsolidated results is essentially double counting.
Several commenters addressed a comparison made in the Original Proposal between CUSOs and an unsecured equity investment by a bank in a non-publicly traded entity. These commenters argued that this comparison is not analogous and NCUA should abandon this approach. These commenters stated further that the regulations applying to credit union investments in CUSOs and the collaborative platform between CUSOs and credit unions makes this relationship sufficiently different, such that it should not be treated the same as a bank's unsecured equity investment in a non-publicly traded entity.
Finally, several commenters requested that risk weights for CUSOs take into account certain aspects of the specific CUSO. Many of these commenters stated that they supported risk weights that were based on the CUSO's business function. Others stated that risk weights should take into account the CUSO's historical profitability, if it is generating income for its investors, the complexity of the CUSO's operations, or how long it has been in operation. Several commenters argued that a “one-sized-fits-all” approach is not sufficient to accurately risk weight investments in CUSOs.
After diligent consideration of the comments discussed above, the Board has decided to rely on GAAP accounting standards to determine the reporting basis upon which any CUSO equity investments and loans are assigned risk weights. For CUSOs subject to consolidation under GAAP, the amount of CUSO equity investments and loans are eliminated from the consolidated financial statements because the loans and investments are intercompany transactions. The related CUSO assets that are not eliminated are added to the consolidated financial statement and receive risk-based capital treatment as part of the credit union's statement of financial condition. For CUSOs not subject to consolidation, the recorded value of the credit union's equity investment would be assigned a 150 percent risk weight, and the balance of any outstanding loan would be assigned a 100 percent risk weight.
NCUA recognizes the uniqueness of CUSOs and the support they provide. However, an equity investment in a CUSO is an unsecured, at-risk equity investment (first loss position), which is analogous to an investment in a non-publicly traded entity. There is no price transparency and extremely limited marketability associated with CUSO equity exposures. In addition, unlike the Other Banking Agencies, NCUA has no enforcement authority over third-party vendors, including CUSOs.
The Board recognizes there are statutory limits on how much a federal credit union can loan to and invest in CUSOs. However, the limitations are not as stringent for some state charters, and only binding for federal credit unions at the time the loan or investment is made (that is, the position can grow in proportion to assets over time). In setting capital standards (
In addition, while a CUSO must predominantly serve credit unions or their members (more than 50 percent) to be a CUSO, it can be owned and controlled primarily by persons and organizations other than credit unions. Therefore, it may not only serve non-credit unions, it can be majority-controlled by a party or parties with interests not necessarily aligned with the credit union's interests.
Also, given the equity investment in a CUSO is in a first loss position, is an unsecured equity investment in a non-publicly traded entity, the significant history of losses to the NCUSIF related to CUSOs, and the fact NCUA lacks vendor authority, the risk weight should be higher than 100 percent.
Loans to CUSOs, on the other hand, have a higher payout priority in the event of bankruptcy of a CUSO and therefore warrant a lower risk weight of 100 percent, which corresponds to the base risk weight for commercial loans.
The Board notes it may be possible to make more meaningful risk distinctions between the risk various types of CUSOs pose once the CUSO registry is in place and sufficient trend information has been collected.
Under the Original Proposal, the risk weights were derived from a review of FDIC's capital treatment of bank service organizations. FDIC's rule looks across all equity exposures.
The Board recognizes the complexity of FDIC's approach and continues to believe that a simplified risk weight approach is more appropriate given the limited amount of credit union assets in CUSOs and the value CUSOs provide to credit unions in achieving economies of scale.
The Original Proposal would have assigned a 250 percent risk weight to MSAs to address the complexity and volatility of these assets. In the preamble to the Original Proposal, the Board noted that MSAs typically lose value when interest rates fall and borrowers refinance or prepay their mortgage loans, leading to earnings volatility and erosion of capital.
A large number of commenters addressed this provision and generally disagreed with the 250 percent risk weight. Most commenters addressing this topic maintained that the risk weight was too high and would have been punitive to credit unions. Further, some of these commenters noted that MSAs are an important hedge for credit unions and that MSAs are very liquid assets with an active secondary market.
A few commenters provided suggestions on how to amend this provision of the rule. Most suggested lowering the risk weight to 100 percent. Others, however, suggested a phase-in approach of the 250 percent risk weight or assigning a risk weight above 100 percent when a credit union reaches a certain concentration level of MSAs.
One commenter suggested that assigning the same risk weight to all MSAs, as if they are all equivalent, is not an accurate representation of the actual risk involved. One other commenter stated that the rule should include a mechanism for differentiating between loans sold with and without recourse.
Another commenter stated, “For many credit unions, maintaining the personal member relationship throughout the life of a transaction is of strategic importance. If the practical effect of a regulation is to force the sale of a mortgage or the servicing rights, the supervisory necessity of such a regulation must be unquestionably clear.”
Finally, a few commenters predicted that a 250 percent risk weight on MSAs could discourage loan participations and limit the options available to manage balance sheet risk. One commenter further suggested that risk weights for loan participations should be lowered not to exceed the weight of the underlying loan participated.
After considering these comments, the Board continues to believe that the 250 percent risk weight is appropriate in light of the relatively greater risks inherent in these assets, and to maintain comparability with the risk weight assigned to these assets by the Other Banking Agencies.
While the Board acknowledges that MSAs may provide some hedge against falling rates under certain circumstances, it further believes that MSAs' effectiveness as a hedge, relative to particular credit unions' balance sheets, is subject to too many variables to conclude that MSAs warrant a lower risk weight. More importantly, since IRR has been removed from the risk weights of this proposal, this argument is no longer directly applicable.
Furthermore, NCUA does not agree with commenters who suggested that the proposed 250 percent risk weight assigned to this relatively small asset class would significantly disincentivize credit unions from granting loans, engaging in loan participations, and retaining servicing of their member loans. NCUA notes that banks have been subject to at least as stringent (if not more so) of a risk weight for MSAs for some time and continue to sell loans and retain MSAs.
The Board believes the proposed January 1, 2019 effective date for this rule would provide credit unions sufficient time to adjust to this second proposal and would provide credit unions with a phase-in period comparable to that given to banks following a similar change to the Other Banking Agencies' capital regulations.
The Board received a number of comments regarding the proposed risk weights for other on-balance sheet assets.
A small number of commenters suggested that under Basel III loans held for sale are risk-weighted at zero as long as they are sold within 120 days because such assets are more of a receivable than a loan.
Commenters suggested that a 100 percent risk weight for land and building was excessive and that speculative land should be risk weighted at 50 percent and a financial institution building should be risk-weighted at 25 percent, less depreciation. Other commenters stated that all credit unions must invest in fixed assets (such as buildings, furniture and equipment) and that the current 5 percent cap on fixed assets helps to manage risk and credit unions seeking to exceed the 5 percent cap must obtain prior NCUA approval. Commenters suggested that consideration should be given to assigning a lower risk weight to investments in fixed assets when the 5 percent cap is maintained. Other commenters suggested that assigning a 100 percent risk weight on land, building and fixed assets would discourage investments in growing branch networks or modernizing equipment.
A small number of commenters suggested that accounts receivable, prepaid income items, accrued interest, and other small items that have no credit risk or IRR should be assigned a zero percent risk weight. These commenters suggested that a 100 percent risk weight assigned to accrued interest on loans and accrued interest on investments is excessive.
As with the Original Proposal, in this second proposal, where the rule does not assign a specific risk weight to an asset or exposure type, the applicable risk weight would be 100 percent. For example, premises, fixed assets, and other real estate owned would receive a risk weight of 100 percent.
The Board determined the 100 percent risk weight would be appropriate for this class of assets since the difference between the book balance of some particular fixed assets and the value of the assets in the event of liquidation can be substantial. For example, in an area that has experienced a decline in the value of real estate, the book value of a fairly recently constructed credit union headquarters could be well below the fair value. Differentiating between the risks of types of assets not otherwise identified is not currently possible due to lack of data, would add complexity to the rule, and require even more Call Report data.
The 100 percent risk weight would also be appropriate when considering that most assets in this group are predominately non-earning assets which can hinder a credit union's ability to increase capital.
Further, the proposed risk weights match the risk weights in the Other Banking Agencies' capital regulations.
This proposal would include loans held for sale within the pool of loans subject to assignment of risk weights by loan type to avoid the added complexity of determining the age of the loans held for sale.
Proposed § 702.104(c)(2)(i) would provide that a credit union must assign a zero percent risk weight to the following on-balance sheet assets:
• The balance of cash, currency and coin, including vault, automatic teller machine, and teller cash.
• The exposure amount of:
○ An obligation of the U.S. Government, its central bank, or a U.S. Government agency that is directly and unconditionally guaranteed, excluding detached security coupons, ex-coupon securities, and principal and interest only mortgage-backed STRIPS.
○ Federal Reserve Bank stock and Central Liquidity Facility stock.
• Insured balances due from FDIC-insured depositories or federally insured credit unions.
Consistent with the Original Proposal, this second proposal would continue to assign a zero percent risk weight for cash, which includes the balance of cash, currency and coin, including vault, automatic teller machine, and other teller cash.
This proposal would change the assignment of risk weights for cash on deposit, assigning a zero percent risk weight to insured cash on deposit and a 20 percent risk weight for all uninsured
This proposal would apply a risk weight of zero percent to the exposure amounts of an obligation of the U.S. Government, its central bank, or a U.S. Government agency that is directly and unconditionally guaranteed—excluding detached security coupons, ex-coupon securities, and principal and interest only mortgage-backed STRIPS. This zero percent risk weight would also exclude indirect ownership and securities collateralized with zero percent risk weight assets.
This proposal would apply a risk weight of zero percent to these types of exposures because they have no or very limited credit risk.
However, exposures that are through a trust, or similar vehicle, would not receive a zero percent risk weight. In addition, conditional guarantees that can be revoked if a condition(s) is not met would not receive a zero percent risk weight.
For example, the following types of investment exposures would be assigned a zero percent risk weight:
• U.S. Treasury Securities
• GNMA securities (not including principal and interest only STRIPS)
• SBA pools (not including principal and interest only STRIPS)
• SBA loan participations
• FDIC-guaranteed securities
• NCUA-guaranteed securities
This proposal would also apply a zero percent risk weight to Federal Reserve Bank stock and Central Liquidity Facility stock. Under the applicable statutes, these two types of “stocks” do not carry a risk of loss of principal
This proposed rule would materially increase the amount of zero risk-weighted investments compared to the current rule. The proposed zero percent risk weight category is consistent with risk weights applicable to banks.
The Board requests comments on whether any items currently listed in this category should be assigned a higher risk weight and why. In addition, the Board requests comments on whether additional items should be assigned a zero percent risk weight and why.
Proposed § 702.104(c)(2)(ii) would provide that a credit union must assign a 20 percent risk weight to the following on-balance sheet assets:
• The uninsured balances due from FDIC-insured depositories, federally insured credit unions, and all balances due from privately insured credit unions.
• The exposure amount of:
○ A non-subordinated obligation of the U.S. Government, its central bank, or a U.S. Government agency that is conditionally guaranteed, excluding principal and interest only mortgage-backed STRIPS.
○ A non-subordinated obligation of a GSE other than an equity exposure or preferred stock, excluding principal and interest only GSE obligation STRIPS.
○ Securities issued by public sector entities in the United States that represent general obligation securities.
○ Investment funds whose portfolios are permitted to hold only part 703 permissible investments that qualify for the zero or 20 percent risk categories.
○ Federal Home Loan Bank stock.
• The balances due from Federal Home Loan Banks.
• The balance of share-secured loans.
• The portions of outstanding loans with a government guarantee.
• The portions of commercial loans secured with contractual compensating balances.
This proposal would apply a 20 percent risk weight to uninsured balances due from FDIC-insured depositories and federally insured credit unions, and all balances due from privately insured credit unions. The proposed 20 percent risk weight is consistent with the risk weights applicable to banks.
This proposal would also apply a risk weight of 20 percent to non-subordinated obligations of the U.S. Government, its central bank, or a U.S. Government agency that is conditionally guaranteed, excluding principal- and interest-only mortgage-backed STRIPS. This 20 percent risk weight is also applied to indirect and unconditionally guaranteed exposures to the U.S. Government, its central bank, or a U.S. Government agency. Additionally, a risk weight of 20 percent would be applied to non-subordinated exposures of a GSE, other than an equity exposure or preferred stock, excluding principal- and interest-only GSE obligation STRIPS.
The following are exposures that would be assigned a 20 percent risk weight:
• Farm Credit System
• Federal Home Loan Bank System
• Federal Home Loan Mortgage Corporation
• Federal National Mortgage Association
• Financing Corporation
• Resolution Funding Corporation
• Tennessee Valley Authority
• United States Postal Service
The above list is not meant to be comprehensive and includes mortgage-backed securities issued and guaranteed by U.S. Government agencies and GSEs, excluding principal- and interest-only mortgage-backed STRIPS that are assigned a 100 percent risk weight. The above risk weights are generally consistent with the risk weights applicable to banks,
This proposal would also apply a 20 percent risk weight to securities issued by public sector entities in the United States that represent a general obligation. General obligation securities are backed by the full faith and credit of a public sector entity, which warrants the low risk weight. This risk weight is consistent with risk weights applicable to banks.
Indirect unconditionally guaranteed exposures to the U.S. Government, its Central Bank, or a U.S. Government agency would receive a 20 percent risk weight. An example is U.S. Treasury securities in a trust that are sold to an investor. The U.S. Treasury security would be an indirect obligation since the obligation is to the trust and not the credit union. Being indirect adds a layer of risk, which would increase the level of risk from risk-free to low, which warrants the 20 percent risk weight. This risk weight is also consistent with Other Banking Agencies' corresponding risk weight.
Another example of an indirect unconditional guarantee would be a U.S. Treasury security in an investment fund. The obligation is to the investment fund, and not the owner of the fund. This is why an investment fund, or individual asset in an investment fund, cannot have a risk weight of less than 20 percent. This proposal would apply a 20 percent risk weight to investment funds with portfolios permitted to hold only part 703 permissible investments that qualify for the zero to 20 percent risk categories. This restriction must be stated in the fund documentation (
Based on June 2014 Call Report data, approximately 93 percent of investments held by complex credit unions would receive a risk weight of 20 percent or less, with the majority of investments receiving a 20 percent risk weight.
As discussed earlier, the Board agrees with commenters who suggested that share-secured loans present a lower risk than other loan types and has added a new category in this proposal for share-secured loans under the 20 percent risk weight, as well as for portions of compensating balances on commercial loans.
The Board requests comments on whether any items currently listed in this category should be assigned a higher or lower risk weight and why. In addition, the Board requests comments
Proposed § 702.104(c)(2)(iii) would provide that a credit union must assign a 50 percent risk weight to the following on-balance sheet assets:
• The outstanding balance (net of government guarantees), including loans held for sale, of current first-lien residential real estate loans less than or equal to 35 percent of assets.
• The exposure amount of:
○ Securities issued by PSEs in the U.S. that represent non-subordinated revenue obligation securities.
○ Other non-subordinated, non-U.S. Government agency or non-GSE guaranteed, residential mortgage-backed security, excluding principal- and interest-only STRIPS.
As discussed earlier, this proposal would include the use of a single concentration threshold for current first-lien residential real estate loans. All current first-lien residential real estate loans less than or equal to 35 percent of assets would receive a 50 percent risk weight.
The proposal would also apply a risk weight of 50 percent to the exposure amount of securities issued by PSE in the U.S. that represent non-subordinated revenue obligation securities (revenue bonds). These securities are backed by the revenue assigned when the security is issued. An example is a revenue security backed by tolls on the toll road for which the funding was used. This risk weight is comparable to the Other Banking Agencies' capital regulations,
The proposal would also apply a risk weight of 50 percent to other non-subordinated, non-agency and non-GSE guaranteed, residential mortgage-backed securities (RMBS), excluding principal-and interest-only STRIPS. The underlying loans in the security must be first-lien residential real estate loans, in order to qualify. Furthermore, the security must be in the most senior position in the securitization if losses are applied to the securitization. The senior position is not based on allocation of principal, only losses. This risk weight would be consistent with the 50 percent risk weight that would be assigned to first-lien residential real estate loans under this proposal and FDIC's capital regulation.
The Board requests comments on whether certain items currently listed in this category should be assigned a higher or lower risk weight and why. In addition, the Board requests comments on whether additional items should be assigned a 50 percent risk weight and why.
Proposed § 702.104(c)(2)(iv) would provide that a credit union must assign a 75 percent risk weight to the outstanding balance (net of government guarantees), including loans held for sale, of the following on-balance sheet assets:
• Current first-lien residential real estate loans greater than 35 percent of assets.
• Current secured consumer loans.
This proposal would apply to the amount of first-lien residential real estate loans above the single concentration threshold of 35 percent of assets, which is a reduction in the amount of capital required due to exceeding the concentration thresholds when compared to the Original Proposal.
This proposed rule would apply separate risk weights for current consumer loans based on whether they are secured or unsecured. Current secured consumer loans would receive a 75 percent risk weight because they generally have a lower credit risk than unsecured consumer loans due to the collateral available for secured loans.
The Board requests comments on whether any items currently listed in this category should be assigned a higher or lower risk weight and why. In addition, the Board requests comments on whether additional items should be assigned a 75 percent risk weight and why.
Proposed § 702.104(c)(2)(v) would provide that a credit union must assign a 100 percent risk weight to the following on-balance sheet assets:
• The outstanding balance (net of government guarantees), including loans held for sale, of:
○ First-lien residential real estate loans that are not current.
○ Current junior-lien residential real estate loans less than or equal to 20 percent of assets.
○ Current unsecured consumer loans.
○ Current commercial loans, less contractual compensating balances that comprise less than 50 percent of assets.
○ Loans to CUSOs.
• The exposure amount of:
○ Industrial development bonds.
○ All stripped mortgage-backed securities (interest only and principal only STRIPS).
○ Part 703 compliant investment funds, with the option to use the look-through approaches in § 702.104(c)(3)(ii) of this section.
○ Corporate debentures and commercial paper.
○ Nonperpetual capital at corporate credit unions.
○ General account permanent insurance.
○ GSE equity exposure or preferred stock.
• All other assets listed on the statement of financial condition not specifically assigned a different risk weight under this subpart.
Unless otherwise noted below, the investment risk weights are also consistent with the risk weights applicable to banks,
Industrial development bonds (IDB) are issued under the auspices of a state or political subdivision but are an obligation of a private party or enterprise and are therefore akin to a corporate exposure. An example of an IDB is a security issued by an airport authority for a terminal of an airliner. The security would be issued by the airport authority and be an obligation of the airliner.
Stripped mortgage-backed securities (interest-only and principal-only STRIPS) represent either the payments of principal or interest from an underlying pool of mortgages. The Board believes the increased risk associated with these two structures warrants a higher risk weight compared to non-principal-only and non-interest-only STRIPS with similar collateral. The Board chose to include principal-only STRIPS in the 100 percent risk weight category due to the explicit prohibition of this structure in part 703. The Board
The proposal would assign a risk weight of 100 percent to part 703 compliant investment funds, with the option to use the look-through approaches in the proposal. For an investment fund to be assigned a 100 percent risk weight, compliance with part 703 of NCUA's regulations must be stated in the investment fund's documentation (such as the prospectus) and must be binding (intent alone is insufficient).
The credit union also has the ability to choose an alternate approach for investment funds. The risk weight for investment funds deviates slightly from the approach applicable to banks. The Board has added a standard risk weight of 100 percent for part 703 compliant funds, in addition to adopting the approach applicable to banks,
The proposal would assign a risk weight of 100 percent to the balance of nonperpetual capital at corporate credit unions. Nonperpetual capital is subordinate to deposits in a corporate credit union, which warrants a higher risk weight than deposits.
The proposal would apply the 100 percent risk weight to general account permanent insurance. This type of insurance is typically associated with the funding of employee benefits. General account permanent insurance with returns indexed to equity returns should have the same risk weight as publically traded equity investments, unless it has a positive return floor. The 100 percent risk weight is reflective of the moderate risk associated with this asset.
Some commenters argued for lower risk weights for investments funding employee benefits. However, the Board disagrees with those commenters and, consistent with the general approach taken in assigning risk weights under this proposal, believes that the risk weight assigned to investments funding employee benefits should be based on the credit risk and not the purpose of the asset. The Board notes this is comparable to the approach taken by the Other Banking Agencies.
Under this proposal, first-lien residential real estate loans that are not current would be assigned a 100 percent risk weight reflecting the increased credit risk and consistent with the risk weights for similar loans held by banks under the Other Banking Agencies' regulations.
Under this proposal, current junior-lien residential real estate loans under the single concentration threshold would be assigned a 100 percent risk weight, which would be consistent with the risk weight for similar residential real estate loans assigned by the Other Banking Agencies.
The 125 percent risk category that was included in the Original Proposal would be eliminated. The 125 percent risk category applied to the portion of other real estate loans that made up between 10 to 20 percent of a credit union's total assets. The reduction in the number of concentration thresholds applicable to junior-lien real estate loans resulted in the elimination of the 125 percent risk weight.
Under this proposal, secured and unsecured consumer loans would be separated into different risk-weight categories, with current unsecured consumer loans assigned a 100 percent risk weight. The higher risk weight for current unsecured consumer loans would reflect the elevated risk from this loan type compared to current secured consumer loans. Generally, unsecured loans reflect higher levels of delinquency and charge-offs, as reported on the quarterly Call Report, and, therefore, expose the credit union to higher risk than secured loans.
The Board notes that under this proposal, student loans would be incorporated into the definition of consumer loans and risk-weighted accordingly.
The approach for assigning the risk weight for commercial loans would be comparable to the Other Banking Agencies' rules.
Consistent with the Original Proposal, this proposed rule would assign a 100 percent risk weight to the outstanding balance of unconsolidated loans to CUSOs.
This proposal would assign a 100 percent risk weight to all other balance sheet assets not specifically assigned a different risk weight under this subpart, but reported on the statement of financial condition. This 100 percent risk weight is consistent with the risk weight applicable to banks
Proposed § 702.104(c)(2)(vi) would provide that a credit union must assign a 150 percent risk weight to the following on-balance sheet assets:
• The outstanding balance, net of government guarantees and including loans held for sale, of:
○ Current junior-lien residential real estate loans that comprise more than 20 percent of assets.
○ Junior-lien residential real estate loans that are not current.
○ Consumer loans that are not current.
○ Current commercial loans (net of contractual compensating balances), which comprise more than 50 percent of assets.
○ Commercial loans (net of contractual compensating balances), which are not current.
• The exposure amount of:
○ Perpetual contributed capital at corporate credit unions.
○ Equity investments in CUSOs.
Under the Original Proposal, the risk weight for perpetual contributed capital at corporate credit unions would have
Under this proposal, current junior-lien residential real estate loans that exceed 20 percent of assets would be assigned a 150 percent risk weight. Additionally, any junior-lien residential real estate loans that are not current, as defined in the proposal, would receive the 150 percent risk weight reflecting the higher credit risk of such loan than current junior-lien real estate loans up to 20 percent of assets, which would receive a 100 percent risk weight.
The Board also proposes that consumer loans that are non-current be assigned a 150 percent risk weight, as in the Original Proposal. The Board believes the proposed higher risk weight that would be assigned to non-current loans is warranted because such loans have a higher probability of default when compared to current loans. Non-current loans are more likely to default because repayment is already impaired making them one step closer to default compared to current loans. This rule would more clearly define those loans that are assigned a 150 percent risk weight through new definitions for consumer loan and current loan. The 150 percent risk weight for non-current consumer loans is also consistent with the risk weight for non-current consumer loans assigned by the Other Banking Agencies.
This proposal would maintain higher risk weights for high concentrations of commercial loans as GAO and OIG recommend. A high concentration is defined as commercial loans over 50 percent of assets, which would receive the 150 percent risk weight. The amount of commercial loans subject to the 150 percent concentration risk weight would be determined as follows:
As discussed earlier, due to the higher credit risk of non-current commercial loans, they would receive a 150 percent risk weight.
The Board requests comments on whether any items currently listed in this category should be assigned a higher or lower risk weight and why. In addition, the Board requests comments on whether additional items should be assigned a 150 percent risk weight and why.
Proposed § 702.104(c)(2)(vii) would provide that a credit union must assign a 250 percent risk weight to the carrying value of mortgage servicing assets (MSAs) held on-balance sheet.
As discussed above, MSA valuations are highly sensitive to unexpected shifts in interest rates and prepayment speeds. As noted above, MSAs are also sensitive to the costs associated with servicing. These risks contribute to the high level of uncertainty regarding the ability of credit unions to realize value from such assets, especially under adverse financial conditions, and support this proposed rule's treatment for MSAs. Given there is no differentiation between the risk as it relates to MSAs for credit unions versus banks, the Board believes this treatment would generally maintain comparability with the Other Banking Agencies' capital regulations.
The Board requests comments on whether any items currently listed in this category should be assigned a higher or lower risk weight and why. In addition, the Board requests comments on whether additional items should be assigned a 250 percent risk weight and why.
Proposed § 702.104(c)(2)(viii) would provide that a credit union must assign a 300 percent risk weight to the exposure amount of the following on-balance sheet assets:
• Publicly traded equity investments, other than a CUSO investment.
• Investment funds that are not in compliance with 12 CFR part 703, with the option to use the look-through approaches in § 702.104(c)(3)(ii) of this section.
• Separate account insurance, with the option to use the look-through approaches in § 702.104(c)(3)(ii).
The 300 percent risk weight category would be a new category relative to current rule and the Original Proposal. This second proposal would apply a 300 percent risk weight to the exposure amount of publicly traded equity
Publicly traded equities have no contractual returns, no maturity date, and are generally considered more volatile than fixed-income investments. Furthermore, publically traded equities have a greater risk of loss since they are in a first loss position versus the debt of a company. Non-part 703 compliant investment funds and separate account insurance may contain equities, or other volatile and risky investments, which warrants the 300 percent risk weight. The risk exposure of both of these investments comes from the underlying assets supporting the investment fund or separate account insurance. Thus, credit unions would have the option of applying one of the look-through approaches discussed in more detail below for investment funds and separate account insurance risk weights to lower risk weights for investment funds and separate account insurance, if a credit union chooses to use one of the alternative approaches.
This proposal would allow the 300 percent risk weight to apply to all publicly traded equity exposures, both directly and indirectly. The 300 percent risk weight for publicly traded equities is generally consistent with the risk weight applicable to banks
The risk weights for investment funds and separate account insurance deviate slightly from the Other Banking Agencies' capital regulations.
The Board believes the 300 percent risk weight that would be assigned to non-part 703 compliant investment funds and separate account insurance is appropriate due to the potential risk the underlying assets may have. The risk weight of 300 percent for these exposures is due to the wide availability of equity-based investment funds and equity-based separate account insurance in the market. The Board notes that credit unions may get a lower risk weight if they use a look-through approach for investment funds and separate account insurance.
The Board requests comments on whether any items currently listed in this category should be assigned a higher or lower risk weight and why. In addition, the Board requests comments on whether additional items should be assigned a 300 percent risk weight and why.
Proposed § 702.104(c)(2)(ix) would provide that a credit union must assign a 400 percent risk weight to the exposure amount of non-publicly traded equity investments that are held on-balance sheet, other than equity investments in CUSOs.
This 400 percent risk weight is due to the greater relative risk versus publicly traded equity investments, which have a 300 percent risk weight. The greater risk is due to non-publicly traded equity investments not having the reporting requirements and active market that a publicly traded equity has. The 400 percent risk weight for non-publicly traded equity investments is consistent with the risk weight applicable to banks
The 400 percent risk weight category is a new category when compared to the current rule and the Original Proposal. This risk weight is unlikely to have an effect on most credit unions due to federal and state restrictions on credit union purchases of these types of investments. The Board, however, believes it is a necessary category to have in the unlikely event a credit union would own a non-publically traded non-CUSO investment. The proposed addition of this category would also be comparable to the Other Banking Agencies' capital regulations.
The Board requests comments on whether any items currently listed in this category should be assigned a higher or lower risk weight and why. In addition, the Board requests comments on whether additional items should be assigned a 400 percent risk weight and why.
Under the Original Proposal, proposed § 702.104(c)(2)(x) would have required a credit union to assign a 1,250 percent risk weight to an asset-backed investment for which the credit union is unable to demonstrate, as required under § 702.104(d), a comprehensive understanding of the features of the asset-backed investment that would materially affect its performance. A 1,250 percent risk weight is equivalent to holding capital equal to 100 percent of the investment's balance sheet value.
During the recent financial crisis, it became apparent that many federally insured financial institutions relied exclusively on ratings issued by Nationally Recognized Statistical Organizations (NRSOs) and did not perform internal credit analysis of asset-backed investments.
Complex credit unions must be able to demonstrate a comprehensive understanding of any investment, particularly an understanding of the features of an asset-backed investment that would materially affect its performance. Upon purchase, and on an ongoing basis, the credit union must evaluate, review, and update as appropriate the analysis performed on an asset-backed investment. In the event a credit union is unable to demonstrate a comprehensive understanding of an asset-backed investment, the Original Proposal would have provided for assigning a risk weight of 1,250 percent to that investment.
The Board received a significant number of comments on the assignment of the 1,250 percent risk weight to certain investments and the proposed due diligence requirements in § 702.104(d). Commenters generally agreed that credit unions should have a
One commenter stated that the proposal gave the Board broad discretion to require dollar-for-dollar capital on asset-backed investments that NCUA determines the credit union is unable to demonstrate a comprehensive understanding. The commenter stated that while such an investment may represent a significant safety and soundness concern, an elevated capital requirement is not an appropriate means of addressing that risk. The commenter suggested that if a credit union does not understand an investment on its books, the regulator should rectify the situation through the supervisory process. The commenter stated further that, although this provision was adopted in the bank rule, use of these types of products is more limited in the credit union industry and risks can and should be addressed through examinations.
Other commenters suggested that the Board minimize the regulatory burdens of this provision by limiting the proposed reporting requirements to investments identified during the supervisory process as a potential concern.
A number of commenters expressed concern that NCUA would not apply the requirements in a fair and consistent manner across credit unions. A small number of commenters suggested that the Board should be required to perform an on-site evaluation and reach a joint determination with the state regulator before recommending a 1,250 percent risk weight on a state-chartered institution.
Commenters suggested that the rule should clarify the administrative level within NCUA at which this determination will be made because such a finding could have a dramatic impact on a credit union's PCA classification and major implications for that credit union's balance sheet and management structure. Other commenters suggested that the rule should specify that a 1,250 percent risk weight constitutes a material supervisory determination that is subject to appeal.
A number of commenters stated that the term “asset-backed investment” is not defined, which they stated could lead to wide interpretation both of the 1,250 percent risk weight as well as potential examiner expectations of the initial and ongoing depth of the review, analysis, and documentation of asset-backed investments. Commenters suggested that such depth of review is appropriate for some types of investments, but not others. For example, commenters contended that a government agency-guaranteed mortgage-backed security does not warrant the type of analysis and documentation outlined in the Original Proposal because the lack of inherent credit risk in the government agency security should reduce the concern of a large credit loss on the investment and therefore should reduce the depth of review and analysis.
Other commenters suggested if the Board determines it can provide a clear definition of “asset-backed investments,” it should do so in a new proposed rule that also outlines reasonable expectations and provides a method for fair and consistent application of the due diligence requirements.
One commenter agreed that complex asset backed investments (private label) with inherent credit risk exposure should have additional due diligence requirements, but argued a 250 percent risk weight would be more appropriate. Another commenter suggested that the rule should make it clear that the due diligence requirement does not apply to any asset backed investments guaranteed by the U.S. Government or any U.S. Government agency.
Based on a diligent review of these comments the Board has significantly revised this section and now proposes to require a 1,250 percent risk weight only for subordinated tranches of any investments. Specifically, the Board is proposing to change application of a 1,250 percent risk weight from “asset-backed investments,” to “subordinated tranche” investments.
Commenters requested clarity on the interpretation on what investments would be considered asset-backed investments. The Board believes subordinated tranche is a clearer term, has provided a corresponding definition, and thus will eliminate the ambiguity cited by commenters.
The Board also believes this proposed change will more accurately apply risk weights based on risk while providing clarity and consistency.
However, NCUA still expects credit unions to perform appropriate credit analysis on non-subordinated tranches of mortgage- and asset-backed securities. NCUA will address deficiencies in the credit analysis of non-subordinated tranches through the supervision process.
The Board is also proposing changes to address concerns raised by commenters with respect to securities issued by the U.S. Government and NCUA's ability to use its discretion to apply a 1,250 percent risk weight.
First, the Board is proposing to specifically exclude senior tranches and most securities issued by the U.S. Government, any U.S. Government agency, or GSEs. The Board believes this change would address a major concern expressed by commenters.
The Board is also proposing to remove the discretion for NCUA to impose a 1,250 percent risk weight by allowing credit unions to choose the standard 1,250 percent risk weight or allowing credit unions the option to use the gross-up approach, which is explained in more detail below. The Board believes that removing NCUA discretion to impose a 1,250 risk weight also addresses a major concern by commenters. As previously noted, deficiencies in credit analysis will be addressed in supervision.
The Board believes a 1,250 percent risk weight is appropriate for subordinated tranches based on the leveraged nature of the credit risk in these investments. In addition, this approach is consistent with the approach applicable to banks,
The Board intends for the 1,250 percent risk weight to apply to subordinated tranches of MBS, asset-backed securities, revenue bonds, and areas where there is subordinated credit risk in a structured product. Subordinated MBS and asset-backed securities are the most common form of subordinated tranches, and include any MBS or asset-backed securities that take credit losses before a more senior class. Senior mezzanine tranches
Subordinated revenue bonds would typically involve a bond similar to an asset-backed security that is issued as a revenue bond. An example is a subordinated revenue bond issued by a state corporation that facilitates the granting of student loans. The performance of these types of subordinated bonds is based on the revenue provided by the underlying loans, as in the case of an asset-backed security.
Structured products that take credit losses based on a reference pool would be considered subordinated tranches. An example would be the loss sharing bonds that are issued by Fannie Mae and Freddie Mac. These structured securities are Fannie Mae or Freddie Mac debentures that pay less than par to investors if the reference pool takes a certain amount of losses. In this case the majority of the credit risk comes from the principal payout formula, not the issuer.
As discussed above, subordinated tranches are leveraged. This leverage allocates a disproportionate amount of losses to subordinated tranches in relation to the pool of collateral, or reference pool. By applying a 1,250 percent risk weight, the Board is ensuring that the risk of highly leveraged subordinated tranches would be captured.
The Board is also proposing to provide credit unions with the ability to use the gross-up approach to apply a lower risk weight to less leveraged subordinated tranches, which may result in a lower risk weight. The gross-up approach is discussed in more detail below.
Accordingly, under this proposal, § 702.104(c)(2)(x) would provide that a credit union must assign a 1,250 percent risk weight to the exposure amount of any subordinated tranche of any investment held on balance sheet, with the option to use the gross-up approach in § 702.104(c)(3)(i).
The Board is not retaining the due diligence requirement that would have been contained in § 702.104(d) of the Original Proposal. Proposed § 702.104(d) would have contained a list of due diligence requirements credit unions would have been required to implement to demonstrate a comprehensive understanding of the features of an asset-backed investment and a requirement that if a credit union is unable to demonstrate a comprehensive understanding of the features of an asset-backed investment exposure that would materially affect the performance of the exposure, the credit union must assign a 1,250 percent risk weight to the asset-backed investment exposure. The Original Proposal would have also required that the credit union's analysis be commensurate with the complexity of the asset-backed investment and the materiality of the position in relation to regulatory capital according to this part. As noted above, the Board is deleting this section from this proposal in conjunction with the changes it is making to the requirements to apply a 1,250 percent risk weight.
While it remains a best practice for credit unions to understand the features that would affect the performance of all investments, not just asset-based investments, any weakness with investment purchase analysis and documentation can be addressed through the supervision process.
The Board requests comments on this provision of the proposal.
Proposed § 702.104(c)(3) would provide that instead of using the risk weights assigned in § 702.104(c)(2), a credit union may determine the risk weight of investment funds and subordinated tranches of any investment using the approaches which are discussed in more detail below. The Board believes these alternative approaches would provide a credit union with the ability to risk weight based on the underlying exposure of the subordinated tranche or investment fund without exposing the NCUSIF to additional risk. This approach may also allow for lower risk weights compared to the standard risk weights proposed.
Proposed § 702.104(c)(3)(i) would provide that a credit union may use the gross-up approach under 12 CFR 324.43(e) to determine the risk weight of the carrying value of any subordinated tranche of any investment. As noted above, the Board is allowing for the use of the gross-up approach, included in the Other Banking Agencies' capital rules, when applying risk weights to subordinated tranches of any investment. The Board believes this approach is appropriate in applying risk weights, if the credit union chooses to use it, since it captures the total exposure the subordinate tranche is supporting.
However, the credit union can only use one methodology to calculate the risk weight for subordinate tranches, either the gross-up approach or a 1,250 percent risk weight.
The basic logic behind the gross-up approach is that the risk weight should reflect the entire amount of exposure the subordinated tranche is supporting. Said another way, the credit union must hold capital for the subordinated tranche, as well as all the senior tranches for which the subordinated tranche provides credit support.
When calculating the risk weight using the gross-up approach, the credit union must have the following information:
• Exposure amount of the subordinated tranche;
• Current outstanding par value of the credit union's subordinated tranche;
• Current outstanding par value of the total amount of the entire tranche where the credit union has exposure;
• Current outstanding par value of the more senior positions in the securitization that are supported by the tranche the credit union owns the subordinated tranche; and
• The weighted average risk weight applicable to the assets underlying the securitization.
The following is an example of the application of the gross-up approach:
A credit union owns $4 million (exposure amount and outstanding par value) of a subordinated tranche of a private label mortgage-backed security backed by first-lien residential mortgages. The total outstanding par value of the subordinated tranche that the credit union owns part of is $10 million. The current outstanding par value for the tranches that are senior to and supported by the credit union's tranche is $90 million.
In this example, under the gross-up approach, the credit union would be required to risk weight the subordinated tranche at $20,000,000. Conversely, under the 1,250 percent risk weight approach, the credit union would be required to risk weight the subordinated tranche at $50 million (1250 percent times $4 million). The Board believes this example shows the benefit to credit unions of the proposed inclusion of the gross-up approach.
In the case of master trust
Proposed § 702.104(c)(3)(ii) would provide that a credit union may use one of the look-through approaches under 12 CFR 324.53 to determine the risk weight of the fair value of mutual funds that are not in compliance with part 703 of this chapter, the recorded value of separate account insurance; or part 703 compliant mutual funds. The Board is proposing this approach to allow credit unions to use the look-through approach in the Other Banking Agencies' regulations for investment funds. This proposed provision responds to commenters who requested this authority.
Specifically, for purposes of applying risk weights to investment funds, the Board is proposing to give credit unions the option of using the three look-through approaches that FDIC allows its regulated institutions to use under 12 CFR 324.53 of its regulations, instead of using the standard risk weights of 20, 100 and 300 percent that would be assigned under proposed § 702.104(c)(2). The Board believes that including these alternative approaches makes NCUA's risk-based capital requirement more comparable to the Other Banking Agencies' regulations and grants credit unions additional flexibility.
The first of the three full look-through approaches under 12 CFR 324.53 would require a credit union to look at the underlying assets owned by the investment fund and apply an appropriate risk weight. The other two approaches under 12 CFR 324.53 would require a credit union to use the information provided in the investment fund's prospectus. The minimum risk weight for any investment fund asset would be 20 percent, regardless of which approach was used.
The Board notes that regardless of the look-through approach selected, the credit union must include any derivative contract that is part of the investment fund, unless the derivative contract is used for hedging rather than speculative purposes and does not constitute a material portion of the fund's exposure.
The following examples outline each of the three look-through approaches:
Using the above example, the investment fund would have a weighted average risk weight of 56 percent, which would be lower than the 100 percent standard risk weight for part 703 compliant investment funds or the standard 300 percent risk weight for investment funds not compliant with part 703.
Using the above example, the
Using the
Under the Original Proposal, proposed § 702.104(b)(3), which has been re-numbered as § 702.104(b)(4) under this proposal, would have
• A 75 percent conversion factor with a 100 percent risk weight for unfunded commitments for MBLs.
• A 75 percent conversion factor with a 100 percent risk weight for MBLs transferred with limited recourse.
• A 75 percent conversion factor with a 50 percent risk weight for first mortgage real estate loans transferred with limited recourse.
• A 75 percent conversion factor with a 100 percent risk weight for other real estate loans transferred with limited recourse.
• A 75 percent conversion factor with a 100 percent risk weight for non-federally guaranteed student loans transferred with limited recourse.
• A 75 percent conversion factor with a 75 percent risk weight for all other loans transferred with limited recourse.
• A 10 percent conversion factor with a 75 percent risk weight for total unfunded commitments for non-business loans.
Under the Original Proposal, a credit union would have calculated the exposure amount of an off-balance sheet component, which is typically the contractual amount multiplied by the applicable credit conversion factor (CCF). This treatment would have applied to specific off-balance sheet items, including loans transferred with limited recourse, unfunded commitments for business loans, and other unfunded commitments. The Original Proposal would have improved risk sensitivity and implemented capital requirements for certain exposures through a simple methodology.
The Board received a number of comments on the proposed risk weights for off-balance sheet activities. Commenters suggested that the off-balance sheet computations seemed excessive and added unnecessary risk assets.
One commenter disagreed with the 75 percent conversion factor with a 100 percent risk weight for unfunded commitments for MBLs, if that meant that a $10,000 line of credit that is funded to $6,000 would require a risk-based capital funding of $10,000 times 0.75, which would equal $7,500 for a $4,000 unfunded commitment.
A number of commenters suggested that under the proposed rule, credit unions would have been penalized for having unfunded commitments on non-business loans and business loans. Other commenters suggested that unfunded commitments on non-business loans and business loans should be assigned lower risk weights because the proposed risk weights would encourage credit unions to terminate or decrease lines of credit to consumers or small business owners to improve their risk-based capital classification. Another commenter agreed with including off-balance sheet activities in the assets denominator.
Others stated the 75 percent conversion factor for unfunded business loans did not give appropriate consideration to the liability side of off-balance sheet items to offset some of this risk or other risks needs to be considered for lowering the assets denominator. Another commenter appreciated the proposed approach to capture off-balance sheet items.
Still others stated that the reporting of off-balance sheet loans sold with limited recourse creates a negative impact on a credit union's balance sheet. One other commenter suggested that the rule should include a mechanism for differentiating between loans sold with and without recourse.
A number of commenters stated that some credit unions that sell conforming first mortgages through the Federal Home Loan Banks' (FHLB) mortgage partnership finance (MPF) program retain a limited contractual portion of the credit risk. Those commenters suggested that the proposed risk weight is much too high for these loans because credit unions must generate their net earnings on such transactions at origination. Those commenters stated further that to generate sufficient income under the proposed risk weights, credit unions would have to charge rates on the MPF loans that would be very high and would not be competitive with bank rates for the same types of mortgages. Other commenters suggested that MPF loans sold to FHLBs should be assigned a conversion factor of 50 percent or less (along with the proposed 50 percent risk weight) because of their low risk exposure and to allow credit unions to compete in the mortgage market. Those commenters observed that the MPF program is a unique secondary market outlet for conforming fixed rate residential mortgages, in which participating FHLB members provide a credit enhancement (CE) based on the characteristics of mortgages being originated and sold under the Program. Those commenters stated further that the CE is a fixed dollar exposure for a specific pool of loans or Master Commitment, and one piece of the credit support that absorbs losses in a specific loan pool which exceed homeowners' equity, primary mortgage insurance and an FHLB-provided first loss account (FLA). Those commenters explained that in exchange for providing the CE, members receive ongoing credit enhancement fee income over the life of the loans. Those commenters stated that this approach rewards FHLB-member credit unions for quality underwriting and provides a superior execution because it removes inefficiencies associated with charging guarantee fees based on the possible future performance of loans because, instead of assessing charges to cover projected losses, actual losses are covered by private capital provided by the FHLB and its members, resulting in strong historic performance of the MPF loans. In addition, those commenters suggested that due to the FLA covering the majority of the credit risk on MPF loans, participating member credit unions do not retain any interest rate or concentration risk on the sold loans. Those commenters recommended that, based on the historic performance of MPF loans and the very small amount of sustained credit losses, the capital charge under the Original Proposal was too high and a lower conversion factor should be used that recognizes the FLA and the strong historic performance of MPF loans.
After considering the comments, the Board continues to believe that the risks associated with recourse loans and unfunded commitments are analogous to those associated with similar on-balance sheet loans. For this reason, these items will continue to be included in the risk-based capital ratio calculation. The Board generally agrees, however, that some specific changes should be made to more accurately measure the risks this subsection of the proposal is intended to account.
In particular, the Board generally agrees that a credit union's risk-based capital ratio calculation relating to off-balance sheet items should be limited to the amount of the credit union's contractual exposure. Accordingly, the Board has amended this proposal to require that the credit equivalent amount that is applied to the appropriate risk weight category for all off-balance sheet items be determined by multiplying the off-balance sheet exposure, which is newly defined in this rule, by the appropriate credit conversion factor.
This proposal would retain the 10 percent credit conversion factor for non-commercial unused lines of credit. Commenters suggested that to improve their risk-based capital ratio credit unions would have looked to either terminate or decrease their lines of credit to consumers. Open lines of
The Board generally agrees with commenters' who stated that the credit conversion factor for unfunded commercial loans, in the Original Proposal, was too high and could have created a competitive disadvantage for credit unions in relation to banks. Accordingly, the Board is proposing to reduce the credit conversion factor for commercial loans from 75 percent to 50 percent. This change would be consistent with the credit conversion factor applied to longer-term commitments not unconditionally cancelable under the Other Banking Agencies' regulations.
The Board also generally agrees with commenters that, based on the structure of the CE provided through the FHLBs' MPF or similar programs, loans sold under these programs should be categorized and risk-weighted separately from other types of loans transferred with limited recourse. In an effort to better match the minimum capital requirements for loans sold as part of the MPF or similar programs, the proposed credit conversion factor, which converts the off-balance sheet exposure to a credit equivalent amount, would be set at 20 percent and applied a 50 percent risk weight (the same risk weight applied to first-lien residential real estate loans), resulting in an effective minimum capital requirement of one percent of the outstanding balance.
In addition, under this proposed rule, credit unions would be able to deduct any associated established valuation allowance when determining the off-balance sheet exposure amount that is multiplied by the CCF to obtain the credit equivalent amount.
The Board recognizes commenters' concerns that the conversion factors and risk weights applicable to loans transferred with limited recourse could result in a competitive disadvantage. Therefore, the Board has changed its approach with respect to loans transferred with limited recourse to amend the conversion factors to better match those used by the Other Banking Agencies. Under this proposed rule, the Board has further clarified that the conversion factors and risk weights only apply to the maximum amount of the loan exposure, rather than the whole loan
As shown in the charts and proposed rule text below, the Board has amended many of the conversion factors and applicable risk weights in an effort to lower the burden on credit unions while still retaining the necessary safety and soundness components of this section of the rule.
First, the Board has lowered the conversion factor for unfunded commitments for commercial loans to achieve parity with the Other Banking Agencies' approach.
However, under this proposal the conversion factor is applied only to the credit union's off-balance sheet exposure. The Board is also proposing to apply a lower credit conversion factor to loans sold under the FHLBs' MPF to more accurately account for historical losses in this program and to reduce the risk-based capital requirement as each loan pays down.
The following tables summarize the risk weights and conversion factors included in this proposal:
For the reasons discussed above, the Board has revised this section of the proposed rule and lowered many of the conversion factors and applicable risk weights. Accordingly, proposed § 702.104(b)(4) would provide that the risk-weighted amounts for all off-balance sheet items are determined by multiplying the off-balance sheet exposure amount by the appropriate credit conversion factor and the assigned risk weight as follows:
• For the outstanding balance of loans transferred to a Federal Home Loan Bank under the MPF program, a 20 percent CCF and a 50 percent risk weight.
• For other loans transferred with limited recourse, a 100 percent CCF applied to the off-balance sheet exposure and:
○ For commercial loans, a 100 percent risk weight.
○ For first-lien residential real estate loans, a 50 percent risk weight.
○ For junior-lien residential real estate loans, a 100 percent risk weight.
○ For all secured consumer loans, a 75 percent risk weight.
○ For all unsecured consumer loans, a 100 percent risk weight.
• For unfunded commitments:
○ For commercial loans, a 50 percent CCF with a 100 percent risk weight.
○ For first-lien residential real estate loans, a 10 percent CCF with a 50 percent risk weight.
○ For junior-lien residential real estate loans, a 10 percent CCF with a 100 percent risk weight.
○ For all secured consumer loans, a 10 percent CCF with a 75 percent risk weight.
○ For all unsecured consumer loans, a 10 percent CCF with a 100 percent risk weight.
The Board requests comments on this provision of the proposal.
This section of the Original Proposal addressed the risk weights for derivative contracts. Based on NCUA's recently finalized derivatives rule, the Board is proposing to make minor changes and additions to the treatment of derivative contracts. Further, the Board is proposing to move derivative contracts to its own section of the rule for clarity and ease of reading. The full discussion of derivative contracts is included below in § 702.105.
As discussed above, proposed new § 702.105 below would replace current § 702.105 regarding weighted-average life of investments. The definition of weighted-average life of investments and the term “weighted-average life of investments” would be removed from this proposed rule altogether.
This proposal separates derivatives into its own section, § 702.105, and includes a cross reference in the general risk weight category that indicates that all derivatives must be risk-weighted in accordance with § 702.105. This new proposed section includes all of the language from § 702.104(c)(4) of the Original Proposal, with only a few minor amendments. In addition, this proposed section addresses cleared transactions, provides further authority for recognizing the credit risk mitigation benefits of collateral, and addresses derivatives transactions by federally insured state chartered credit unions that are impermissible under NCUA's rules.
The Board is proposing to focus only on interest rate related derivatives in the proposed rule and to refer credit unions to FDIC's rules for all non-interest-rate-related derivatives. The Board is making this distinction because federal credit unions are restricted to interest rate-related contracts under the final derivatives rule approved in January 2014; however, federally insured, state-chartered credit unions may have broader authorization to use non-interest-rate contracts if approved by the respective state banking authorities. As of September 30th, 2014, NCUA is not aware of any non-interest rate derivative contracts being used by federally insured, state-chartered credit unions (as per the Call Report data) for derivative contracts.
Second, the Board is proposing to delete two subsections from the Original Proposal's section on potential future credit exposure, §§ 702.104(d)(4)(B)(2) and (3) of the Original Proposal. Section 702.104(d)(4)(B)(2) stated that for a derivatives contract that is structured such that on specified dates any outstanding exposure is settled and the terms are reset so that the fair value of the contract is zero, the remaining maturity equals the time until the next reset date. Section 702.104(d)(4)(B)(3) stated that for an interest rate derivative contract with a remaining maturity of greater than one year that meets these criteria, the minimum conversion factor is 0.005. In place of these two sections, the Board is now proposing to add the following:
A credit union must use an OTC interest rate derivative contract's effective notional principal amount (that is, the apparent or stated notional principal amount multiplied by any multiplier in the OTC interest rate derivative contract) rather than the apparent or stated notional principal amount in calculating potential future exposure (PFE).
The Board is making these changes to improve how credit unions will calculate the PFE given the high probability of only having interest rate-related contracts. The Board believes these proposed changes make the rule clearer and more closely align this section with other changes it is proposing throughout this rule.
Including the changes discussed above, the following is a description of the process a credit union would undertake under this proposal to determine the risk weight for OTC derivative contracts. The Board is proposing to require that to determine the risk-weighted asset amount for a derivatives contract; under this proposal, a credit union would first determine its exposure amount for the contract. It would then recognize the credit mitigation of financial collateral, if qualified, and then apply to that amount a risk weight based on the counterparty or recognized collateral or exchange (Derivatives Clearing Organization or DCO). For a single interest rate derivatives contract that is not subject to a qualifying master netting agreement, the proposed rule would require the exposure amount to be the sum of (1) the credit union's current credit exposure (CCE), which is the greater of fair value or zero, and (2) PFE, which is calculated by multiplying the notional principal amount of the derivatives contract by the appropriate conversion factor, in accordance with the table below. Non-interest rate derivative contract conversion factors can be referenced in 12 CFR 324.34 of the FDIC rule.
For multiple interest rate derivatives contracts subject to a qualifying master netting agreement, a credit union would calculate the exposure amount by adding the net CCE and the adjusted sum of the PFE amounts for all derivatives contracts subject to that qualifying master netting agreement.
The net CCE is the greater of zero and the net sum of all positive and negative fair values of the individual derivatives contracts subject to the qualifying master netting agreement. The adjusted sum of the PFE amounts would be calculated as described in proposed § 702.105(a)(2)(ii)(B).
Under this proposal, to recognize the netting benefit of multiple derivatives contracts, the contracts would have to be subject to the same qualifying master netting agreement. For example, a credit union with multiple derivatives contracts with a single counterparty could net the counterparty exposure if the transactions fall under the same International Swaps and Derivatives Association, Inc. (ISDA) Master Agreement and Schedule.
If a derivatives contract is collateralized by financial collateral, a credit union would first determine the exposure amount of the derivatives contract as described in §§ 702.105(a)(i) or (ii). Next, to recognize the credit risk mitigation benefits of the financial collateral, the credit union would use the approach for collateralized transactions as described in § 702.105(c) of the proposed rule, which is discussed in more detail below.
As noted above, the Board received only a few comments on the proposed derivatives section of the Original Proposal. However, the majority of the comments the Board did receive requested that NCUA's rules align with the rules for banks. Specifically, commenters pointed out that the derivatives industry is migrating toward clearing and that clearing provides a valuable risk- reducing component to a derivatives transaction.
Other commenters requested examples of calculations and clarification on the process by which a credit union can recognize the risk mitigation benefits of collateral and how derivatives in federally insured, state-chartered credit unions would be treated under the Original Proposal.
After carefully considering the comments and its recent final derivatives rule, the Board agrees that NCUA's risk-based capital regulations should more closely align with the Other Banking Agencies' capital regulations. To that end, the Board is now proposing to include provisions to address clearing, a more robust collateral process, and the treatment of derivatives outside of NCUA's rule. The Board notes that this is consistent with its statement in the Original Proposal that it would amend any final rule regarding NCUA's risk-based capital requirements to take into account changes made in the final derivatives rule.
As noted above, the Board is now proposing to include a separate risk weight for cleared derivatives transactions. The approach in this section mirrors the approach taken by the Other Banking Agencies and will allow credit unions to account for the lower degree of risk for cleared transactions.
In NCUA's final derivatives rule, the Board discussed recent CFTC final rules
For cleared derivatives transactions, each party to the swap submits the transaction to a DCO
Proposed § 702.105 would adopt an approach to assign risk weights to derivatives that is generally consistent with the approach adopted by the Other Banking Agencies.
The differing risk weights for cleared transactions take into account the risk that collateral will not be there because of a default or other event, which further exposes the credit union to loss. However, cleared transactions pose very low probability that collateral will not be available in the event of a default, which is reflected in the low overall risk weights. Again, the Board notes that this is the same approach employed by the Other Banking Agencies.
Generally, the risk weight assigned to the collateralized portion of the exposure would be no less than 20 percent. However, the collateralized portion of an exposure may be assigned a risk weight of less than 20 percent for the following exposures. Derivatives
Under this proposal, before a credit union recognizes collateral for credit risk mitigation purposes, it should: (1) Conduct sufficient legal review to ensure, at the inception of the collateralized transaction and on an ongoing basis, that all documentation used in the transaction is binding on all parties and legally enforceable in all relevant jurisdictions; (2) consider the correlation between risk of the underlying direct exposure and collateral in the transaction; and (3) fully take into account the time and cost needed to realize the liquidation proceeds and the potential for a decline in collateral value over this time period.
A credit union should also ensure that the legal mechanism under which the collateral is pledged or transferred ensures that the credit union has the right to liquidate or take legal possession of the collateral in a timely manner in the event of the default, insolvency, or bankruptcy (or other defined credit event) of the counterparty and, where applicable, the custodian holding the collateral.
Finally, a credit union should ensure that it: (1) Has taken all steps necessary to fulfill any legal requirements to secure its interest in the collateral so that it has, and maintains, an enforceable security interest; (2) has set up clear and robust procedures to ensure satisfaction of any legal conditions required for declaring the borrower's default and prompt liquidation of the collateral in the event of default; (3) has established procedures and practices for conservatively estimating, on a regular ongoing basis, the fair value of the collateral, taking into account factors that could affect that value (for example, the liquidity of the market for the collateral and deterioration of the collateral); and (4) has in place systems for promptly requesting and receiving additional collateral for transactions with terms requiring maintenance of collateral values at specified thresholds.
When collateral other than cash is used to satisfy a margin requirement, then a haircut is applied to incorporate the credit risk associated with collateral, such as securities. The Board is proposing to include this concept in the revised rule so that credit unions can accurately recognize the risk mitigation benefit of collateral. The Board notes that this is the same approach taken by the Other Banking Agencies.
The table below illustrates an example of the calculations for Risk Weighted Asset Amounts for both OTC and clearing derivatives agreements. For this example both the OTC and clearing are considered to be a multiple contracts under a Qualified Master Netting Agreement. Credit unions can use this as a guide in confirming the calculations involved to produce a risk-weighted asset for derivatives. (See the number references below for each line number of the table example.)
1. The Agreement Type indicates the transaction legal agreement between the credit union and the counterparty.
2. The examples provide, but are not limited to the basis calculations required for various collateral and agreement approaches.
3. Variation Margin (amount as basis for margin calls which are satisfied with collateral) collateral used for these examples.
4. The Risk Weight of Collateral is applied when utilizing the Simple Approach in the recognition of credit risk of collateralized derivative contracts.
5. To recognize the risk-mitigating effects of financial collateral, a credit union may use the “Simple Approach” or the “Collateral Haircut Approach”.
6. The Collateral Haircut is determined by using Table 2 to § 702.105 in the rule text: “Standard Supervisor Market Price Volatility Haircuts.”
7. Counterparty risk weights are determined in § 702.104 for OTC and § 702.105 for clearing.
8-16. Are calculations based on the approach and types of agreement, collateral, fair values and notional amounts of the credit union derivatives transactions.
The Board has also considered the following two approaches to addressing derivatives held by FISCUs that are not permissible under NCUA's rules, and invites stakeholders to comment on each:
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The Board is interested in the comments of stakeholders on the pros and cons of each of these approaches, as well as any other approaches that may adequately address derivatives transactions by federally insured, state-chartered credit unions.
Consistent with the Original Proposal, this proposed rule would eliminate current § 702.106 regarding the standard RBNW requirement. The current rule is structured so that credit unions have a standard measure and optional alternatives for measuring a credit union's RBNW. The proposed rule, on the other hand, would contain only a single measurement for calculating a credit union's risk-based capital ratio. Accordingly, current § 702.106 would no longer be necessary and would be removed by this proposed rule.
Consistent with the Original Proposal, this proposed rule would eliminate current § 702.107 regarding the use of
The Original Proposal would have eliminated current § 702.108 regarding the risk mitigation credit. The risk mitigation credit provides a system for reducing a credit union's risk-based capital requirement if it can demonstrate significant mitigation of credit risk or IRR. Credit unions have rarely taken advantage of risk mitigation credits; only one credit union has ever received a risk mitigation credit.
The Board did receive a few comments regarding the elimination of the provision for risk mitigation credit in the current rule. Commenters suggested that there should continue to be a risk mitigation credit and that the agency has well-developed procedures for credit unions under current § 701.108, as well as for examiners under its “Guidelines for Evaluation of an Application for a PCA Risk Mitigation Credit.” Commenters suggested that this authority could provide an important incentive for credit unions to manage certain risks more proactively—and receive an added benefit of seeing their risk-based capital requirements at least somewhat reduced as a result. Other commenters suggested that by not allowing for some method of recognizing credit unions' ability to manage risks, the Board runs the risk of de-incentivizing credit unions to invest in the resources necessary to manage and mitigate risks, which could encourage a dangerous mind-set among credit unions to hold additional capital in place of a well-managed risk mitigation program.
Consistent with the Original Proposal, this proposed rule would eliminate current § 702.108 regarding the risk mitigation credit. The review of a credit union's application for a risk mitigation credit requires a substantial commitment of NCUA and credit union resources. In practice, it is very difficult to determine the validity of the credit union's mitigation efforts and how much mitigation credit to allow. The Board appreciates the issues raised by commenters, but continues to believe that maintaining the risk mitigation credit option is unjustified given the burden it imposes on NCUA and credit unions, its limited use in the past, and its improbable use in the future.
Section 216(a)(2) of the FCUA directs the Board to take “prompt corrective action to resolve the problems of insured credit unions.”
This proposal would generally maintain the existing mandatory and discretionary supervisory actions (PCA actions) currently contained in §§ 702.201 through 702.204,
Generally consistent with the Original Proposal, this proposed rule would renumber current § 702.201 as proposed § 702.106, and would make only minor conforming amendments to the text of the section. Consistent with the proposed elimination of the regular reserve requirement in current § 702.401(b), proposed § 702.106(a) would be amended to remove the requirement that adequately capitalized credit unions transfer the earnings retention amount from undivided earnings to their regular reserve account.
Generally consistent with the Original Proposal, this proposed rule would renumber current § 702.202 as proposed § 702.107, and would make only minor conforming amendments to the text of the section. Consistent with the proposed elimination of the regular reserve requirement in current § 702.401(b), proposed § 702.107(a)(1) would be amended to remove the requirement that undercapitalized credit unions transfer the earnings retention amount from undivided earnings to their regular reserve account.
Generally consistent with the Original Proposal, this proposed rule would renumber current § 702.203 as proposed § 702.108, and would make only minor conforming amendments to the text of the section. Consistent with the proposed elimination of the regular reserve requirement in current § 702.401(b), proposed § 702.108(a)(1) would be amended to remove the requirement that significantly undercapitalized credit unions transfer the earnings retention amount from undivided earnings to their regular reserve account.
Generally consistent with the Original Proposal, this proposed rule would renumber current § 702.204 as proposed § 702.109, and would make only minor conforming amendments to the text of the section. Consistent with the proposed elimination of the regular reserve requirement in current § 702.401(b), proposed § 702.109(a)(1) would be amended to remove the requirement that critically undercapitalized credit unions transfer the earnings retention amount from undivided earnings to their regular reserve account.
Generally consistent with the Original Proposal, this proposed rule would renumber current § 702.205 as proposed § 702.110, and would make only minor conforming amendments to the text of the section.
Generally consistent with the Original Proposal, this proposed rule would renumber current § 702.206 as proposed § 702.111, and would make only minor conforming amendments to the text of most of the subsections, with a few exceptions discussed in more detail below.
Consistent with the Original Proposal, proposed § 702.111(c)(1)(i) would provide that the contents of an NWRP must specify a quarterly timetable of steps the credit union will take to increase its net worth ratio
In addition, consistent with the proposed elimination of the regular reserve requirement in current § 702.401(b), proposed § 702.111(c)(1)(ii) would be amended by removing the requirement that credit unions transfer the earnings retention amount from undivided earnings to their regular reserve account.
Consistent with the Original Proposal, proposed § 702.111(g)(4) would provide that the submission of more than two NWRPs that are not approved is considered an unsafe and unsound condition and may subject the credit union to administrative enforcement actions under section 206 of the FCUA.
Consistent with the Original Proposal, proposed § 702.111(j) would provide that, for purposes of part 702, an NWRP terminates once the credit union has been classified as adequately capitalized or well capitalized and for four consecutive quarters. The proposed paragraph would also provide as an example that if a credit union with an active NWRP attains the classification as adequately capitalized on December 31, 2015, this would be quarter one and the fourth consecutive quarter would end September 30, 2016. The proposed paragraph is intended to provide clarification for credit unions on the timing of an NWRP's termination.
Generally consistent with the Original Proposal, this proposed rule would renumber current § 702.401 as proposed § 702.112. Consistent with the text of current § 702.401(a), this proposal also would require that each credit union shall establish and maintain such reserves as may be required by the FCUA, by state law, by regulation, or, in special cases, by the Board or appropriate state official.
As mentioned above, this proposed rule would eliminate current § 702.401(b) regarding the regular reserve account from the earnings retention process. The process and substance of requesting permission for charges to the regular reserve would be eliminated upon the effective date of a final rule. Upon the effective date of a final rule, a federal credit union would close out the regular reserve balance into undivided earnings. A state-chartered, federally insured credit union may, however, still be required to maintain a regular reserve account by its respective state supervisory authority.
In the past, the Board initially included the regular reserve in part 702 for purposes of continuity from past regulatory expectations that involved this account to ease credit unions' transition to the then-new PCA rules. The regular reserve account is not necessary to satisfying the statutory “earnings retention requirement” and is not required under GAAP. CUMAA requires credit unions that are not well capitalized to “annually set aside as net worth an amount equal to not less than 0.4 percent of its total assets.”
The regular reserve was initially incorporated into the earnings retention process because of familiarity. Prior to PCA, credit unions used the regular reserve account under the former reserving process prescribed by the now-repealed section 116 of the FCUA.
For these reasons, the Board considers the regular reserve account requirement to be obsolete and is proposing to eliminate it upon the effective date of a final rule. The proposed rule would also eliminate the cross references to the regular reserve requirement as discussed in more detail in each corresponding part of the section-by-section analysis.
Generally consistent with the Original Proposal, this proposed rule would renumber current § 702.402 as proposed § 702.113, and would make only minor conforming amendments to the text of
Consistent with the proposed elimination of the regular reserve requirement which is discussed above, proposed § 702.113(d) would remove paragraph (d)(4) of the current rule, which provides that the maintenance of an ALLL shall not affect the requirement to transfer earnings to a credit union's regular reserve when required under subparts B or C of part 702.
In addition, the proposed rule would remove paragraph (d)(3) of the current rule, which provides that adjustments to the valuation ALLL will be recorded in the expense account “Provision for Loan and Lease Losses.” This is to clarify that the ALLL is to be maintained in accordance with GAAP, as discussed above.
The remaining provisions in paragraph (d) of the current rule would be amended as follows:
Proposed § 702.113(d)(1) would amend current § 702.401(d)(1) to provide that charges for loan
Proposed § 702.113(d)(2) would amend current § 702.401(d)(2) to eliminate the detailed requirement and simply provide that the ALLL must be maintained in accordance with GAAP. This is necessary to provide full and fair disclosure to a credit union member, NCUA, or, at the discretion of a credit union's board of directors, to creditors to fairly inform them of the credit union's financial condition and operations.
Proposed § 702.113(d)(3) would retain the language in current § 702.401(d)(5) with no changes.
Generally consistent with the Original Proposal, this proposed rule would renumber current § 702.402 as proposed § 702.114 and make a number of amendments to the text of paragraphs (a) and (b).
The Board received several comments to the Original Proposal regarding the proposed restrictions on the payments of dividends. Commenters generally stated that the rule should not prohibit states from authorizing FISCUs to declare dividends. Other commenters suggested that NCUA should not be able to restrict dividend payments.
The Board disagrees with commenters and continues to believe that reasonable restrictions on dividend payments for credit unions that are less than adequately capitalized are necessary to protect the NCUSIF. The restrictions in § 702.402 of the current rule are prudent restrictions that were brought forward into the Original Proposal and now into this proposal. The changes would simply clarify what funds are available for dividends under GAAP. Accordingly, the Board is proposing the following amendments to the current rule.
Since the implementation of PCA for credit unions, FASB has issued accounting standards that impact the accounting for credit union equity items. Most specifically in December 2007, the FASB issued Accounting Standards Codification (ASC) Topic 805,
In June of 2010,
Current § 702.402(a) permits credit unions with a depleted undivided earnings balance to pay dividends out of the regular reserve account without regulatory approval, as long as the credit union will remain at least adequately capitalized. Under this proposal, § 702.114(a), however, only credit unions that have substantial net worth, but no undivided earnings, would be allowed to pay dividends without regulatory approval. Due to the removal of the regular reserve account, as discussed above, and to conform with GAAP, this proposal would amend the language to further clarify that dividends may be paid when there is sufficient net worth. Net worth may incorporate accounts in addition to undivided earnings. Accordingly, § 702.114(a) of this proposal would provide that dividends shall be available only from net worth, net of any special reserves established under § 702.112, if any.
This proposed rule would eliminate the language in current § 702.403(b) and § 702.114(b) and (c) of the Original Proposal entirely and replace it with a new provision. Under this proposal, § 702.114(b) would provide that the board of directors must not pay a dividend or interest refund that will cause the credit union's capital classification to fall below adequately capitalized under subpart A of part 702 unless the appropriate regional director and, if state-chartered, the appropriate state official, have given prior written approval (in an NWRP or otherwise). Paragraph (b) would provide further that the request for written approval must include the plan for eliminating any negative retained earnings balance.
Historically, credit unions with a net worth ratio below adequately capitalized were restricted from making a dividend payment without regional director approval and, if state-chartered, approval of the appropriate state official. This proposed rule would not remove the existing regulatory requirement for credit unions to obtain prior approval from the regional director and, if state-chartered, the appropriate state official, to pay a dividend if the credit union's net worth classification is, or if the dividend payment will cause the credit union's net worth
However, as addressed above, special circumstances can result in a credit union reporting a negative balance in retained earnings while reporting a much larger positive balance of acquired equity which produces a total positive GAAP equity position and a different amount of positive total net worth. The Board believes it is prudent for credit unions with negative retained earnings to develop a plan to eliminate that negative balance to ensure long-term viability and sustainability. As such, this proposal would require a credit union that must request written approval to pay dividends because the payment would cause its net worth classification to fall below adequately capitalized to also include a plan for eliminating the negative retained earnings balance as part of the written request. This will ensure credit unions that are classified below adequately capitalized and have negative retained earnings have in place a plan to increase retained earnings and thereby increase net worth.
Consistent with the Original Proposal, this proposed rule would add new subpart B, which would contain most of the capital adequacy rules that apply to “new” credit unions. Section 216(b)(2) of the FCUA requires NCUA to prepare regulations that apply to new credit unions.
The current net worth measures, net worth classification, and text of the PCA requirements applicable to new credit unions would be renumbered. They would remain mostly unchanged under the proposed rule, except for minor conforming changes and the following substantive amendments:
(1) Clarification of the language in current § 702.301(b) regarding the ability of credit unions to become “new” again due to a decrease in asset size after having exceed the $10 million threshold.
(2) Elimination of the regular reserve account requirement in current § 702.401(b) and all cross references to the requirement;
(3) Addition of new § 701.206(f)(3) clarifying that the submission of more than two revised business plans would be considered and unsafe and unsound condition; and
(4) Amendment of the language of current § 702.402 regarding the full and fair disclosure of financial condition.
(5) Amendment of the requirements of current § 702.403 regarding the payment of dividends.
Consistent with the Original Proposal, this proposed rule would renumber current § 702.301 as proposed § 702.201. The proposed rule would also clarify that a credit union may not regain a designation of “new” after reporting total assets in excess of $10 million.
Section 216(b)(2)(B)(iii) of the FCUA defines a “new” credit union as one that has been in operation for 10 years or less, or has $10 million or less in total assets.
In general, credit unions attaining an asset size of $10 million begin to offer a greater range of services and loans, which increase the credit union's sophistication and risk to the NCUSIF. In the event a new credit union reports total assets of over $10 million and then subsequently declines to under $10 million, the additional PCA regulatory requirements under the proposed rule would not be substantially increased. Both new credit unions and non-new credit unions with net worth ratios of less than 6 percent, but over 2 percent, are required under either § 702.206 or § 702.111 of the proposal to operate under substantially similar plans to restore their net worth. For example, a new credit union with a net worth ratio of 5 percent is required to operate under a revised business plan, and a non-new credit union with a net worth ratio of 5 percent is required to operate under a NWRP. Accordingly, the Board believes any burden associated with the proposed change to the requirements of part 702 would be minimal.
Consistent with the Original Proposal, this proposed rule would renumber current § 702.302 as proposed § 702.202, and would make only minor technical edits and conforming amendments to the text of the section.
Consistent with the Original Proposal, this proposed rule would renumber current § 702.303 as proposed § 702.203, and would make only minor conforming amendments to the text of the section. Consistent with the proposed elimination of the regular reserve requirement in current § 702.401(b), proposed § 702.203 would also be amended to remove the requirement that adequately capitalized credit unions transfer the earnings retention amount from undivided earnings to their regular reserve account.
Consistent with the Original Proposal, this proposed rule would renumber current § 702.304 as proposed § 702.204, and would make only minor conforming amendments to the text of the section. Consistent with the proposed elimination of the regular reserve requirement in current § 702.401(b), which is discussed in more detail below, proposed § 702.204(a)(1) would be amended to remove the requirement that such credit unions transfer the earnings retention amount from undivided earnings to their regular reserve account.
Consistent with the Original Proposal, this proposed rule would renumber current § 702.305 as proposed § 702.205,
Consistent with the Original Proposal, this proposed rule would renumber current § 702.306 as proposed § 702.206, would make mostly minor conforming amendments to the text of the section, and would add new § 702.206(g)(3). Consistent with the proposed elimination of the regular reserve requirement in current § 702.401(b), which is discussed in more detail below, proposed § 702.206(b)(3) would be amended to remove the requirement that new credit unions transfer the earnings retention amount from undivided earnings to their regular reserve account.
Consistent with the Original Proposal, proposed § 702.206(g)(3) would provide that the submission of more than two RBPs that were not approved is considered an unsafe and unsound condition and may subject the credit union to administrative enforcement actions under section 206 of the FCUA.
Consistent with the Original Proposal, this proposed rule would renumber current § 702.307 as proposed § 702.207, and would make only minor conforming amendments to the text of the section.
Consistent with the Original Proposal, this proposed rule would add new § 702.208 regarding reserves for new credit unions to the rule and, consistent with the text of the current reserve requirement in § 702.401(a), would require that each new credit union establish and maintain such reserves as may be required by the FCUA, by state law, by regulation, or in special cases, by the Board or appropriate state official.
As explained under § 702.112, the proposed rule would eliminate the regular reserve account under current § 702.402(b) from the earnings retention requirement. Additionally, the process and substance of requesting permission for charges to the regular reserve would be eliminated upon the effective date of a final rule. Upon the effective date of a final rule, a federal credit union would close out the regular reserve balance into undivided earnings. A federally insured, state-chartered credit union would still be required to maintain a regular reserve account as per state law or its state supervisory authority.
Generally consistent with the Original Proposal, this proposed rule would renumber current § 702.402 as § 702.209 and would make only minor conforming amendments to the text of this section with the exception of the changes to paragraph (d) that are discussed in more detail below.
Consistent with the proposed elimination of the regular reserve requirement in current § 702.401(b), proposed § 702.209(d) would remove paragraph (d)(4) of the current rule, which provides that the maintenance of an ALLL shall not affect the requirement to transfer earnings to a credit union's regular reserve when required under subparts B or C of part 702. In addition, this proposed rule would remove paragraph (d)(3) of the current rule, which provides that adjustments to the valuation ALLL will be recorded in the expense account “Provision for Loan and Lease Losses.” As discussed in § 702.113, the changes in the section emphasize the need to record the ALLL in accordance with GAAP.
The remaining provisions in paragraph (d) of the current rule would be amended as follows:
Proposed § 702.209(d)(1) would amend current § 702.401(d)(1) to provide that charges for loan
Proposed § 702.209(d)(2) would amend current § 702.401(d)(2) to eliminate the detailed requirement and simply provide that the ALLL must be maintained in accordance with GAAP.
This is necessary to provide full and fair disclosure to a credit union member, NCUA, or, at the discretion of a credit union's board of directors, to creditors to fairly inform them of the credit union's financial condition and operations.
Proposed § 702.209(d)(3) would retain the language in current § 702.401(d)(5) with no changes.
Generally consistent with the Original Proposal, this proposed rule would reorganize the rules regarding the payment of dividends contained in the current § 702.403, which also apply to new credit unions, to new § 702.210 of the proposed rule. The proposed rule also would make a number of amendments to the text of paragraphs (a) and (b) of the current rule. Each of these changes is discussed in more detail below.
Current § 702.402(a) permits small credit unions with a depleted undivided earnings balance to pay dividends out of the regular reserve account without regulatory approval, as long as the credit union will remain at least adequately capitalized. Proposed § 702.210(a), however, would provide that, for small credit unions, dividends shall be available only from net worth, net of any special reserves established under § 702.208, if any.
This proposed rule would eliminate the language in current § 702.403(b) and § 702.210(b) and (c) of the Original Proposal entirely and replace it with a new provision. Under this proposal, § 702.210 would provide that the board of directors must not pay a dividend or interest refund that will cause the credit union's capital classification to fall below adequately capitalized under
As noted earlier in the section of this preamble associated with § 702.114(b), the changes in this section would retain the restrictions on payment of dividends included in the current rule. However, this proposal would require a credit union that must request written approval to pay dividends because the payment would cause its net worth classification to fall below adequately capitalized to also include a plan for eliminating the negative retained earnings balance as part of the written request. This will ensure credit unions that are classified below adequately capitalized and have negative retained earnings to have in place a plan to increase retained earnings and thereby increase net worth.
In addition to the amendments discussed above, and consistent with the Original Proposal, this proposed rule would make minor conforming amendments to §§ 700.2, 701.21, 701.23, 701.34, 703.14, 713.6, 723.7, 747.2001, 747.2002, and 747.2003. The conforming amendments would primarily involve updating terminology and cross citations to proposed part 702 and proposed § 747.2006. No substantive changes are intended by these amendments.
The Original Proposal included an effective date of 18 months from the date of publication of a final rule. An overwhelming majority of commenters addressed this provision and nearly all disagreed with an 18-month effective date. They argued that 18 months would be insufficient to allow credit unions to make adjustments to internal systems, balance sheets, and operations in advance of the effective date.
Some commenters cited the phased-in implementation period that the Other Banking Agencies' rules provided in their final rules on risk-based capital for banks, and requested that the Board consider the same. Other commenters suggested implementation time frames from three years to nine years, with some suggesting each credit union have its own implementation period based on the complexity of its operations. The majority position, however, was that the effective date be three years from the date of publication of a final rule.
The Board agrees with the comments that a longer implementation period is necessary. Therefore, the Board is proposing an implementation date of January 1, 2019 to provide both credit unions and NCUA sufficient time to make the necessary adjustments, such as systems, processes, and procedures, and to reduce the burden on affected credit unions in meeting the new requirements.
In response to commenters who asked the Board to phase in the implementation, the Board has concluded that phasing in the new capital rules for credit unions would add additional complexity with minimal benefit, and therefore has provided for an extended implementation period. The Board believes this increase would provide credit unions with sufficient time to make the necessary adjustments to systems and operations before the effective date of this final rule. In addition, as noted above, an extended effective date would generally coincide with the full phase-in of FDIC's.
A substantial number of commenters on the Original Proposal suggested NCUA underestimated the adverse effect the proposal would have had on credit unions. A number of commenters stated that they believed that more credit unions than the Board indicated in the proposal would be impacted because their net worth would fall to just barely over well capitalized or adequately capitalized levels. The Board has considered the concerns that were raised by commenters and has made substantial modifications in this proposal, as summarized above, to refine the scope and improve the targeting of the proposed risk-based capital requirements. These changes would reduce the number of affected credit unions substantially.
This proposal would apply to credit unions with $100 million or greater in total assets. As of December 31, 2013, there were 1,455 credit unions (21.5 percent of all credit unions) with assets of $100 million or greater. This proposal would therefore exempt almost 80 percent of all credit unions.
Based on December 2013 Call Report data, NCUA estimates over 98 percent of credit unions with over $100 million in assets already have sufficient capital to remain well capitalized under this proposal.
Based on December 2013 Call Report data, NCUA estimates that if the risk-based capital requirements in the current proposal were applied today, the proposed risk weights would result in a ratio of total risk-weighted assets (in the aggregate) to total assets of 57.4 percent. Further, the aggregate average risk-based capital ratio would be 18.2 percent with an average risk-based capital ratio of 19.3 percent.
Various commenters suggested that as many as 1,000 credit unions would have been required to raise anywhere from $2 billion to $7 billion in additional capital under the original proposal to retain the same “buffers” that exist today to be considered well capitalized. Commenters stated that credit unions cannot easily manage their capital to the exact dollar level that equates to NCUA's proposed standards, and that the management of credit unions typically strives to maintain sufficient space or buffers between their actual net worth ratios and the minimum required levels to be well capitalized because the consequences of missing the net worth standards would be very serious. Commenters stated that to regain their buffer, credit unions would only have three choices: (1) Rebalance their assets, recognizing an opportunity cost when they forego higher earnings which would diminish their ability to grow; (2) ration services, stifling asset and membership growth; or (3) ask members to pay more, resulting in fewer member benefits and increased competition from banks.
The Board believes sound capital levels are vital to the long-term health of all financial institutions. Further, provided it is not otherwise unsafe or unsound, it is a business decision on the part of a credit union to maintain capital levels above those required by regulation. Balancing proper capital accumulation with product offering and pricing strategies helps ensure credit unions are able to provide affordable member services over time. Credit unions are already expected to incorporate into their business models and strategic plans provisions for maintaining prudent levels of capital.
This proposal is intended to ensure minimum regulatory capital levels are better correlated to risk. Regulatory capital levels correlated to risk help reduce the incentive for credit unions to hold levels of capital significantly higher than required, unless it is the credit union's choice to do so to meet member service and strategic objectives. The Board does recognize that unduly high minimum regulatory capital requirements could lead to less than optimal outcomes.
Some commenters suggested that for some credit unions the Original Proposal would have increased the amount of capital required to be well-capitalized above the current level of seven percent of total assets depending on the ratio of risk assets to total assets. The commenter claimed that on net, across all potentially affected credit unions (those with more than $40 million in assets), the total amount of capital necessary to be well capitalized would increase by $7.6 billion, or in other words, that the proposal would have increased the net worth ratio required to be well capitalized, on average, from seven percent to 7.76 percent. It is not the Board's intent to systematically increase capital requirements for all credit unions. Rather, the Board's goals are to ensure capital is commensurate with risk, thereby aligning incentives for managing risk with required capital levels, and to increase regulatory tools for addressing outliers. The Board believes this proposal will be effective in achieving these goals.
As shown in the table below, this proposal is estimated to raise minimum required capital levels above the current net worth ratio requirement for only 59 complex credit unions (four percent of the credit unions subject to the proposal). The proposed risk-based capital rule achieves a reasonable balance between requiring credit unions posing an elevated risk of failure to hold more capital while not over burdening lower-risk credit unions.
Unlike the Original Proposal, which was more closely tied to existing Call Report data, there are greater limitations in estimating the impact of this second proposal. Some of the key differences between the Original Proposal and the current proposal include: Assigning a risk weight to loans secured by non-owner-occupied residential property (First-Lien, 1-4 Family) of 50 percent rather than 100 percent; assigning a risk weight to insured and Federal Reserve deposits of zero percent; and assigning a risk weight to all loans with government guarantees or portions of commercial loans with compensating balances on deposit of 20 percent. These differences, among others, would benefit credit unions, as the lower risk-weights would result in lower capital requirements than those measured under the Original Proposal. Thus, NCUA reasonably believes, based on its estimates using the Call Report data currently available, that this second proposal would have a lower impact than the Original Proposal. Further, these estimates are believed to be conservative, with the expected benefit to credit unions likely being larger than projected, potentially resulting in even fewer adversely impacted credit unions than estimated.
As noted earlier, concentration risk is a material risk that NCUA addresses in this proposed rule. Based on December 31, 2013 Call Report data, if this proposal were applied today, NCUA estimates that this additional capital requirement for concentration risk would have the following impact:
The Regulatory Flexibility Act (RFA) generally requires that, in connection with a notice of proposed rulemaking, an agency prepare and make available for public comment an initial regulatory flexibility analysis that describes the impact of a proposed rule on small entities. A regulatory flexibility analysis is not required, however, if the agency certifies that the rule will not have a significant economic impact on a substantial number of small entities (defined for purposes of the RFA to include credit unions with assets less than $50 million) and publishes its certification and a short, explanatory statement in the
The proposed amendments to part 702 would primarily affect complex credit unions, which are those with $100 million or more in assets. As a result, small credit unions with assets less than $50 million are much less affected by the proposed rule. NCUA recognizes, however, that even small credit unions will be affected by the proposed amendments to some minor extent in that credit unions may need to collect additional data for the NCUA Call Report.
In particular, the proposed rule, if finalized as-is, would likely impose some one-time minimal costs on credit unions mostly related to training and updates to internal data systems. NCUA estimates that for any small credit union that does have to change its current practices to deal with the expanded reporting required, it would take, on average, less than an additional three hours per quarter per credit union. For many small credit unions, it would take even less time because they would not need to collect as much data because of the simplicity of their operations and products and services offered. The costs associated with this would also be minimal. The Call Report changes prompted by this proposed rule are the kind that would easily be handled as part of the normal and routine maintenance of a credit union's data reporting system. Accordingly, the costs and other effects of this proposal on small credit unions are minor, and NCUA certifies that this proposal will not have a significant economic impact on a substantial number of small credit unions.
The Paperwork Reduction Act of 1995 (PRA) applies to rulemakings in which an agency by rule creates a new paperwork burden on regulated entities or increases an existing burden.
NCUA has determined that the proposed changes to part 702 will have costs associated with updating internal policies, and updating data collection and reporting systems for preparing Call Reports. Based on December 2013 Call Report data, NCUA estimates that all 6,554 credit unions would have to amend their procedures and systems for preparing Call Reports. NCUA will address the costs and provide notice of these changes in other collections, such as the NCUA Call Report and Profile as part of its regular amendments separate from this proposed rule.
Finally, NCUA estimates that approximately 21.5 percent, or 1,455 credit unions, will be defined as “complex” under the proposed rule and would have additional data collection requirements related to the new risk-based capital requirements.
One-time burden for policy review and revision, (20 hours times 5,099 credit unions (non-complex), or 40 hours times 1,455 credit unions (complex)). The total one-time cost for non-complex credit unions totals 101,980 hours or $3,252,142, an average
Evaluating whether the proposed collection of information is necessary for the proper performance of the functions of NCUA, including whether the information will have a practical use;
Evaluating the accuracy of NCUA's estimate of the burden of the proposed collection of information, including the validity of the methodology and assumptions used;
Enhancing the quality, usefulness, and clarity of the information to be collected; and
Minimizing the burden of collection of information on those who are to respond, including through the use of appropriate automated, electronic, mechanical, or other technological collection techniques or other forms of information technology;
Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the principles of the executive order to adhere to fundamental federalism principles. This proposed rule will apply to all federally insured natural-person credit unions, including federally insured, state-chartered natural-person credit unions. Accordingly, it may have, to some degree, a direct effect on the states, on the relationship between the national government and the states, or on the distribution of power and responsibilities among the various levels of government. The Board believes this impact is minor, and it is an unavoidable consequence of carrying out the statutory mandate to adopt a system of PCA to apply to all federally insured, natural person credit unions. Throughout the rulemaking process, NCUA has consulted with representatives of state regulators regarding the impact of PCA on state-chartered credit unions. Comments and suggestions of those state regulators are reflected in this proposed rule.
NCUA has determined that this proposed rule will not affect family well-being within the meaning of section 654 of the Treasury and General Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681 (1998).
Credit unions.
Credit, Credit unions, Insurance, Reporting and recordkeeping requirements.
Credit unions, Reporting and recordkeeping requirements.
Credit unions, Investments, Reporting and recordkeeping requirements.
Bonds, Credit unions, Insurance.
Credit unions, Loan programs-business, Reporting and recordkeeping requirements.
Administrative practice and procedure, Bank deposit insurance, Claims, Credit unions, Crime, Equal access to justice, Investigations, Lawyers, Penalties.
For the reasons discussed above, the Board proposes to amend 12 CFR parts 700, 701, 702, 703, 713, 723, and 747 as follows:
12 U.S.C. 1752, 1757(6), 1766.
12 U.S.C. 1752(5), 1755, 1756, 1757, 1758, 1759, 1761a, 1761b, 1766, 1767, 1782, 1784, 1786, 1787, 1789. Section 701.6 is also authorized by 15 U.S.C. 3717. Section 701.31 is also authorized by 15 U.S.C. 1601
12 U.S.C. 1766(a), 1790d.
(a)
(b)
(c)
(d)
Unless otherwise provided in this part, the terms used in this part have the same meanings as set forth in FCUA sections 101 and 216, 12 U.S.C. 1752, 1790d. The following definitions apply to this part:
(1) The amortized cost for investments classified as held-to-maturity and available-for-sale, and the fair value for trading securities.
(2) The outstanding balance for Federal Reserve Bank Stock, Central Liquidity Facility Stock, Federal Home Loan Bank Stock, nonperpetual capital and perpetual contributed capital at corporate credit unions, and equity investments in CUSOs.
(3) The carrying value for non-CUSO equity investments, and investment funds.
(4) The carrying value for the credit union's holdings of general account permanent insurance, and separate account insurance.
(5) The amount calculated under § 702.105 of this part for derivative contracts.
(1) The credit union made a reasonable and good faith determination at or before consummation of the loan that the member will have a reasonable ability to repay the loan according to its terms; and
(2) In transactions where the credit union holds the first-lien and junior lien(s), and no other party holds an intervening lien, for purposes of this part the combined balance will be treated as a single first-lien residential real estate loan.
(1) The retained earnings balance of the credit union at quarter-end as determined under GAAP, subject to paragraph (3) of this definition.
(2) For a low income-designated credit union, net worth also includes secondary capital accounts that are uninsured and subordinate to all other claims, including claims of creditors, shareholders, and the NCUSIF.
(3) For a credit union that acquires another credit union in a mutual combination, net worth also includes the retained earnings of the acquired credit union, or of an integrated set of activities and assets, less any bargain purchase gain recognized in either case to the extent the difference between the two is greater than zero. The acquired retained earnings must be determined at the point of acquisition under GAAP. A mutual combination, including a supervisory combination, is a transaction in which a credit union acquires another credit union or acquires an integrated set of activities and assets that is capable of being conducted and managed as a credit union.
(4) The term “net worth” also includes loans to and accounts in an insured credit union, established pursuant to section 208 of the Act [12 U.S.C. 1788], provided such loans and accounts:
(i) Have a remaining maturity of more than 5 years;
(ii) Are subordinate to all other claims including those of shareholders, creditors, and the NCUSIF;
(iii) Are not pledged as security on a loan to, or other obligation of, any party;
(iv) Are not insured by the NCUSIF;
(v) Have non-cumulative dividends;
(vi) Are transferable; and
(vii) Are available to cover operating losses realized by the insured credit union that exceed its available retained earnings.
(1) For loans transferred under the Federal Home Loan Bank mortgage partnership finance program, the outstanding loan balance as of the reporting date, net of any related valuation allowance.
(2) For all other loans transferred with limited recourse or other seller-provided credit enhancements and that qualify for true sales accounting, the maximum contractual amount the credit union is exposed to according to the agreement, net of any related valuation allowance.
(3) For unfunded commitments, the remaining unfunded portion of the contractual agreement.
(1) The agreement creates a single legal obligation for all individual transactions covered by the agreement upon an event of default, including upon an event of conservatorship, receivership, insolvency, liquidation, or similar proceeding, of the counterparty;
(2) The agreement provides the credit union the right to accelerate, terminate, and close out on a net basis all transactions under the agreement and to liquidate or set off collateral promptly upon an event of default, including upon an event of conservatorship, receivership, insolvency, liquidation, or similar proceeding, of the counterparty, provided that, in any such case, any exercise of rights under the agreement will not be stayed or avoided under applicable law in the relevant jurisdictions, other than in receivership, conservatorship, resolution under the Federal Deposit Insurance Act, Title II of the Dodd-Frank Wall Street Reform and Consumer Protection Act, or under any similar insolvency law applicable to GSEs;
(3) The agreement does not contain a walkaway clause (that is, a provision that permits a non-defaulting counterparty to make a lower payment than it otherwise would make under the agreement, or no payment at all, to a defaulter or the estate of a defaulter, even if the defaulter or the estate is a net creditor under the agreement); and
(4) In order to recognize an agreement as a qualifying master netting agreement for purposes of this part, a credit union must conduct sufficient legal review, at origination and in response to any changes in applicable law, to conclude with a well-founded basis (and maintain sufficient written documentation of that legal review) that:
(i) The agreement meets the requirements of paragraph (2) of this definition; and
(ii) In the event of a legal challenge (including one resulting from default or from conservatorship, receivership, insolvency, liquidation, or similar proceeding), the relevant court and administrative authorities would find the agreement to be legal, valid, binding, and enforceable under the law of relevant jurisdictions.
(1) An assisted merger or purchase and assumption where funds from the NCUSIF were provided to the continuing credit union;
(2) A merger or purchase and assumption classified by NCUA as an “emergency merger” where the acquired credit union is either insolvent or “in danger of insolvency” as defined under appendix B to part 701 of this chapter; or
(3) A merger or purchase and assumption that included NCUA's or the appropriate state official's identification and selection of the continuing credit union.
(1)
(2)
(3)
(4)
(a)
(1) The net worth ratio; and
(2) If determined to be applicable under § 702.103, the risk-based capital ratio.
(b)
(2) A credit union defined as complex must have a process for assessing its overall capital adequacy in relation to its risk profile and a comprehensive written strategy for maintaining an appropriate level of capital.
(c)
(1)
(2)
(3)
(d)
(2) Failure to timely file a Call Report as required under this section in no way alters the effective date of a change in capital classification under paragraph (b) of this section, or the affected credit union's corresponding legal obligations under this part.
(a)
(1)
(i)
(ii)
(2)
(i)
(ii)
(iii) Does not meet the definition of a well capitalized credit union.
(3)
(i)
(ii)
(4)
(i) The credit union has a net worth ratio of 2.0 percent or more but less than 4.0 percent; or
(ii) The credit union has a net worth ratio of 4.0 percent or more but less than 5.0 percent, and either—
(A) Fails to submit an acceptable net worth restoration plan within the time prescribed in § 702.110;
(B) Materially fails to implement a net worth restoration plan approved by the NCUA Board; or
(C) Receives notice that a submitted net worth restoration plan has not been approved.
(5)
(b)
(1)
(2)
(c)
(d)
For purposes of § 702.102, a credit union is defined as “complex” and the risk-based capital ratio measure is applicable only if the credit union's quarter-end total assets exceed one hundred million dollars ($100,000,000), as reflected in its most recent Call Report.
A complex credit union must calculate its risk-based capital ratio in accordance with this section.
(a)
(b)
(1)
(i) Undivided earnings;
(ii) Appropriation for non-conforming investments;
(iii) Other reserves;
(iv) Equity acquired in merger;
(v) Net income
(vi) ALLL, maintained in accordance with GAAP;
(vii) Secondary capital accounts included in net worth (as defined in § 702.2); and
(viii) Section 208 assistance included in net worth (as defined in § 702.2).
(2)
(i) NCUSIF Capitalization Deposit;
(ii) Goodwill;
(iii) Other intangible assets; and
(iv) Identified losses not reflected in the risk-based capital ratio numerator.
(c)
(2)
(i)
(A) The balance of cash, currency and coin, including vault, automatic teller machine, and teller cash.
(B) The exposure amount of:
(
(
(C) Insured balances due from FDIC-insured depositories or federally insured credit unions.
(ii)
(A) The uninsured balances due from FDIC-insured depositories, federally insured credit unions, and all balances due from privately-insured credit unions.
(B) The exposure amount of:
(
(
(
(
(
(C) The balances due from Federal Home Loan Banks.
(D) The balance of share-secured loans.
(E) The portions of outstanding loans with a government guarantee.
(F) The portions of commercial loans secured with contractual compensating balances.
(iii)
(A) The outstanding balance (net of government guarantees), including loans held for sale, of current first-lien residential real estate loans less than or equal to 35 percent of assets.
(B) The exposure amount of:
(
(
(iv)
(A) Current first-lien residential real estate loans greater than 35 percent of assets.
(B) Current secured consumer loans.
(v)
(A) The outstanding balance (net of government guarantees), including loans held for sale, of:
(
(
(
(
(
(B) The exposure amount of:
(
(
(
(
(
(
(
(C) All other assets listed on the statement of financial condition not specifically assigned a different risk weight under this subpart.
(vi)
(A) The outstanding balance, net of government guarantees and including loans held for sale, of:
(
(
(
(
(
(B) The exposure amount of:
(
(
(vii)
(viii)
(A) Publicly traded equity investment, other than a CUSO investment.
(B) Investment funds that are not in compliance with part 703 of this Chapter, with the option to use the look-
(C) Separate account insurance, with the option to use the look-through approaches in paragraph (c)(3)(ii) of this section.
(ix)
(x)
(3)
(i)
(ii)
(4)
(i) For the outstanding balance of loans transferred to a Federal Home Loan Bank under the mortgage partnership finance program, a 20 percent CCF and a 50 percent risk weight.
(ii) For other loans transferred with limited recourse, a 100 percent CCF applied to the off-balance sheet exposure and:
(A) For commercial loans, a 100 percent risk weight.
(B) For first-lien residential real estate loans, a 50 percent risk weight.
(C) For junior-lien residential real estate loans, a 100 percent risk weight.
(D) For all secured consumer loans, a 75 percent risk weight.
(E) For all unsecured consumer loans, a 100 percent risk weight.
(iii) For unfunded commitments:
(A) For commercial loans, a 50 percent CCF with a 100 percent risk weight.
(B) For first-lien residential real estate loans, a 10 percent CCF with a 50 percent risk weight.
(C) For junior-lien residential real estate loans, a 10 percent CCF with a 100 percent risk weight.
(D) For all secured consumer loans, a 10 percent CCF with a 75 percent risk weight.
(E) For all unsecured consumer loans, a 10 percent CCF with a 100 percent risk weight.
(5)
(a)
(1)
(A)
(B)
(
(ii)
(A)
(B)
(
(
(3)
(b)
(2)
(ii) A credit union's total risk-weighted assets for cleared transactions is the sum of the risk-weighted asset amounts for all its cleared transactions.
(3)
(i) The exposure amount for the derivative contract or netting set of derivative contracts, calculated using the methodology used to calculate exposure amount for OTC interest rate derivative contracts under paragraph (a) of this section; plus
(ii) The fair value of the collateral posted by the credit union and held by the, clearing member, or custodian.
(4)
(i) Two percent if the collateral posted by the credit union to the DCO or clearing member is subject to an arrangement that prevents any losses to the credit union due to the joint default or a concurrent insolvency, liquidation, or receivership proceeding of the clearing member and any other clearing member clients of the clearing member; and the clearing member credit union has conducted sufficient legal review to conclude with a well-founded basis (and maintains sufficient written documentation of that legal review) that in the event of a legal challenge (including one resulting from an event of default or from liquidation, insolvency, or receivership proceedings) the relevant court and administrative authorities would find the arrangements to be legal, valid, binding and enforceable under the law of the relevant jurisdictions; or
(ii) Four percent if the requirements of paragraph (b)(4)(i) are not met.
(5)
(c)
(2) As an alternative to the simple approach, a credit union may recognize the credit risk mitigation benefits of financial collateral that secures such a contract or netting set if the financial collateral is marked-to-fair value on a daily basis and subject to a daily margin maintenance requirement by applying a risk weight to the exposure as if it were uncollateralized and adjusting the exposure amount calculated under paragraph (a) or (b) of this section using the collateral approach in paragraph (c)(3) of this section. The credit union must substitute the exposure amount calculated under paragraphs (b) or (c) of this section in the equation in paragraph (c)(3) of this section.
(3)
(ii)
(A) The collateral must be subject to a collateral agreement for at least the life of the exposure;
(B) The collateral must be revalued at least every six months; and
(C) The collateral and the exposure must be denominated in the same currency.
(iii)
(B) A credit union must apply a risk weight to the unsecured portion of the exposure based on the risk weight applicable to the exposure under this subpart.
(iv)
(A) A credit union may assign a zero percent risk weight to an exposure to a derivatives contract that is marked-to-market on a daily basis and subject to a daily margin maintenance requirement, to the extent the contract is collateralized by cash on deposit.
(B) A credit union may assign a 10 percent risk weight to an exposure to an derivatives contract that is marked-to-market daily and subject to a daily margin maintenance requirement, to the extent that the contract is collateralized by an exposure that qualifies for a zero percent risk weight under § 702.104(c)(2)(i).
(v) A credit union may assign a zero percent risk weight to the collateralized portion of an exposure where:
(A) The financial collateral is cash on deposit; or
(B) The financial collateral is an exposure that qualifies for a zero percent risk weight under § 702.104(c)(2)(i), and the credit union has discounted the fair value of the collateral by 20 percent.
(4)
(ii) The collateral haircut approach applies to both OTC and cleared interest rate derivatives contracts discussed in this section.
(iii) A credit union must determine the exposure amount for a collateralized derivative contracts by setting the exposure amount equal to the max{0,[(exposure amount—value of collateral)+(sum of current fair value of collateral instruments * market price volatility haircut of the collateral instruments)]}, where:
(A) The value of the exposure equals the exposure amount for OTC interest rate derivative contracts (or netting set) calculated under paragraphs (a)(1)(i) and (ii) of this section.
(B) The value of the exposure equals the exposure amount for cleared interest rate derivative contracts (or netting set) calculated under paragraph (b)(3) of this section.
(C) The value of the collateral is the sum of cash and all instruments under the transaction (or netting set).
(D) The sum of current fair value of collateral instruments as of the measurement date.
(E) A credit union must use the standard supervisory haircuts for market price volatility in Table 2 to § 702.105 of this section.
(d)
(a)
(b)
(1) Is necessary to avoid a significant redemption of shares; and
(2) Would further the purpose of this part.
(c)
(d)
(a)
(1)
(2)
(3)
(i)
(A) The assets of the credit union are increasing consistent with the approved plan; and
(B) The credit union is implementing steps to increase the net worth ratio consistent with the approved plan;
(ii)
(A) Total accounts receivable and accrued income on loans and investments; or
(B) Total cash and cash equivalents; or
(C) Total loans outstanding, not to exceed the sum of total assets plus the quarter-end balance of unused commitments to lend and unused lines of credit provided however that a credit union which increases a balance as permitted under paragraphs (a)(3)(ii)(A), (B) or (C) of this section cannot offer rates on shares in excess of prevailing rates on shares in its relevant market area, and cannot open new branches;
(4)
(b)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(c)
(a)
(1)
(2)
(3)
(4)
(b)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(c)
(a)
(1)
(2)
(3)
(4)
(b)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(i) Entering into any material transaction not within the scope of an approved net worth restoration plan (or approved revised business plan under subpart C of this part);
(ii) Extending credit for transactions deemed highly leveraged by the NCUA Board or, if state-chartered, by the appropriate state official;
(iii) Amending the credit union's charter or bylaws, except to the extent necessary to comply with any law, regulation, or order;
(iv) Making any material change in accounting methods; and
(v) Paying dividends or interest on new share accounts at a rate exceeding the prevailing rates of interest on insured deposits in its relevant market area;
(13)
(14)
(c)
(i)
(ii)
(iii)
(2)
(3)
(ii)
(A) Has been in substantial compliance with an approved net worth restoration plan requiring consistent improvement in net worth since the date the net worth restoration plan was approved;
(B) Has positive net income or has an upward trend in earnings that the NCUA Board projects as sustainable; and
(C) Is viable and not expected to fail.
(iii)
(A) Recertify the credit union if it continues to satisfy the criteria of paragraph (c)(3)(ii) of this section; or
(B) Promptly place the credit union into liquidation, pursuant to 12 U.S.C. 1787(a)(3)(A)(ii), if it fails to satisfy the criteria of paragraph (c)(3)(ii) of this section.
(4)
(d)
(a)
(1) The NCUA Board shall seek the views of the appropriate state official (as defined in § 702.2), and give him or her an opportunity to take the proposed action;
(2) The NCUA Board shall, upon timely request of the appropriate state official, promptly provide him or her with a written statement of the reasons for the proposed conservatorship or liquidation, and reasonable time to respond to that statement; and
(3) If the appropriate state official makes a timely written response that disagrees with the proposed conservatorship or liquidation and gives reasons for that disagreement, the NCUA Board shall not place the credit union into conservatorship or liquidation unless it first considers the views of the appropriate state official and determines that—
(i) The NCUSIF faces a significant risk of loss if the credit union is not placed into conservatorship or liquidation; and
(ii) Conservatorship or liquidation is necessary either to reduce the risk of loss, or to reduce the expected loss, to the NCUSIF with respect to the credit union.
(b)
(c)
(a)
(2)
(3)
(4)
(b)
(c)
(1) Specify—
(i) A quarterly timetable of steps the credit union will take to increase its net worth ratio, and risk-based capital ratio if applicable, so that it becomes adequately capitalized by the end of the term of the NWRP, and to remain so for four (4) consecutive calendar quarters;
(ii) The projected amount of net worth increases in each quarter of the term of the NWRP as required under § 702.106(a), or as permitted under § 702.106(b);
(iii) How the credit union will comply with the mandatory and any discretionary supervisory actions imposed on it by the NCUA Board under this subpart;
(iv) The types and levels of activities in which the credit union will engage; and
(v) If reclassified to a lower category under § 702.102(b), the steps the credit union will take to correct the unsafe or unsound practice(s) or condition(s);
(2) Include pro forma financial statements, including any off-balance sheet items, covering a minimum of the next two years; and
(3) Contain such other information as the NCUA Board has required.
(d)
(1) Complies with paragraph (c) of this section;
(2) Is based on realistic assumptions, and is likely to succeed in restoring the credit union's net worth; and
(3) Would not unreasonably increase the credit union's exposure to risk (including credit risk, interest-rate risk, and other types of risk).
(e)
(f)
(2)
(3)
(g)
(2)
(3)
(4)
(h)
(i)
(j)
Each credit union shall establish and maintain such reserves as may be required by the FCUA, by state law, by regulation, or in special cases by the NCUA Board or appropriate state official.
(a)
(b)
(c)
(d)
(1) Charges for loan and lease losses shall be made timely and in accordance with GAAP;
(2) The ALLL must be maintained in accordance with GAAP; and
(3) At a minimum, adjustments to the ALLL shall be made prior to the distribution or posting of any dividend to the accounts of members.
(a)
(b)
(a)
(b)
(c)
(d)
(a)
(b)
(c)
(1)
(2)
(3)
(4)
(5)
(6)
(d)
(e)
Beginning on the effective date of classification, an adequately capitalized new credit union must increase the dollar amount of its net worth by the amount reflected in its approved initial or revised business plan in accordance with § 702.204(a)(2), or in the absence of such a plan, in accordance with § 702.106 until it is well capitalized.
(a)
(1)
(2)
(i) Has not increased its net worth ratio consistent with its then-present approved business plan;
(ii) Has no then-present approved business plan; or
(iii) Has failed to comply with paragraph (a)(3) of this section; and
(3)
(b)
(c)
(a)
(1)
(2)
(i) Has not increased its net worth ratio consistent with its then-present approved business plan;
(ii) Has no then-present approved business plan; or
(iii) Has failed to comply with paragraph (a)(3) of this section; and
(3)
(b)
(c)
(1)
(2)
(i) The effective date of classification as uncapitalized; or
(ii) The last day of the calendar month following expiration of the time period provided in the credit union's initial business plan (approved at the time its charter was granted) to remain uncapitalized, regardless whether a revised business plan was rejected, approved or implemented.
(3)
(d)
(a)
(i) The last of the calendar month following the end of the calendar quarter that the credit union's net worth ratio has not increased consistent with the-present approved business plan;
(ii) The effective date of classification as less than adequately capitalized if the credit union has no then-present approved business plan; or
(iii) The effective date of classification as less than adequately capitalized if the credit union has increased the total amount of member business loans in violation of § 702.204(a)(3).
(2)
(3)
(b)
(1) Address changes, since the new credit union's current business plan was approved, in any of the business plan elements required for charter approval under chapter 1, section IV.D. of appendix B to part 701 of this chapter, or for state-chartered credit unions under applicable state law;
(2) Establish a timetable of quarterly targets for net worth during each year in which the RBP is in effect so that the credit union becomes adequately capitalized by the time it no longer qualifies as “new” per § 702.201;
(3) Specify the projected amount of earnings of net worth increases as provided under § 702.204(a)(1) or § 702.205(a)(1);
(4) Explain how the new credit union will comply with the mandatory and discretionary supervisory actions imposed on it by the NCUA Board under this subpart;
(5) Specify the types and levels of activities in which the new credit union will engage;
(6) In the case of a new credit union reclassified to a lower category under § 702.202(d), specify the steps the credit union will take to correct the unsafe or unsound condition or practice; and
(7) Include such other information as the NCUA Board may require.
(c)
(1) Addresses the items enumerated in paragraph (b) of this section;
(2) Is based on realistic assumptions, and is likely to succeed in building the credit union's net worth; and
(3) Would not unreasonably increase the credit union's exposure to risk (including credit risk, interest-rate risk, and other types of risk).
(d)
(e)
(2)
(3)
(f)
(2)
(3)
(g)
(h)
(a)
(b)
(c)
Each new credit union shall establish and maintain such reserves as may be required by the FCUA, by state law, by regulation, or in special cases by the NCUA Board or appropriate state official.
(a)
(b)
(c)
(d)
(1) Charges for loan and lease losses shall be made timely in accordance with generally accepted accounting principles (GAAP);
(2) The ALLL must be maintained in accordance with GAAP; and
(3) At a minimum, adjustments to the ALLL shall be made prior to the distribution or posting of any dividend to the accounts of members.
(a)
(b)
12 U.S.C. 1757(7), 1757(8), 1757(15).
12 U.S.C. 1761a, 1761b, 1766(a), 1766(h), 1789(a)(11).
The revision reads as follows:
(a)(1) * * *
12 U.S.C. 1756, 1757, 1757A, 1766, 1785, 1789.
12 U.S.C. 1766, 1782, 1784, 1785, 1786, 1787, 1790a, 1790d; 42 U.S.C. 4012a; Pub. L. 101-410; Pub. L. 104-134; Pub. L. 109-351; 120 Stat. 1966.
Federal Communications Commission.
Final rule.
In this document, the Federal Communications Commission (Commission) takes momentous strides towards fully implementing a modernized universal service regime capable of meeting consumer demands for 21st century networks. The Commission also finalizes decisions necessary to proceed with the offer of support to price cap carriers in early 2015.
Effective February 26, 2015, except for §§ 54.313(a)(e) and 54.320 which contain new or modified information collection requirements that will not be effective until approved by the Office of Management and Budget. The Federal Communications Commission will publish a document in the
Alexander Minard, Wireline Competition Bureau, (202) 418-0428 or TTY: (202) 418-0484.
This is a summary of the Commission's Report and Order, WC Docket Nos. 10-90, 14-58, 14-192; FCC 14-190, adopted on December 11, 2014 and released on December 18, 2014. The full text of this document is available for public inspection during regular business hours in the FCC Reference Center, Room CY-A257, 445 12th Street SW., Washington, DC 20554. Or at the following Internet address:
1. With this Report and Order (Order), the Commission takes another momentous stride towards fully implementing a modernized universal service regime capable of meeting consumer demands for 21st century networks. The Commission finalizes the decisions necessary to proceed with the offer of support to price cap carriers in early 2015, thereby paving the way for the deployment of new broadband infrastructure to millions of unserved Americans. In the coming months, the Commission will turn our attention to finalizing the rules for the Phase II competitive bidding process that will occur in those states where the price cap carrier declines the offer of model-based support.
2. Throughout the universal service reform process, the Commission has sought to ensure that all consumers “have access to . . . advanced telecommunications and information services” and benefit from the historic technology transitions that are transforming our nation's communications services. This Report and Order continues down that path. The Commission adopts several revisions to Connect America Phase II to account for changes in the marketplace since the
3. The Commission adopts targeted changes to the framework established for the offer of model-based support to price cap carriers. Specifically, the Commission makes an adjustment to the term of support, adopts more evenly spaced interim deployment milestones, and concludes that adjustments of up to five percent in the number of locations that must be served with corresponding support reductions are appropriate to ensure that deployment obligations recognize conditions in the real world. The Commission also forbears from the federal high-cost universal service obligation of price cap carriers to offer voice service in low-cost areas where they do not receive high-cost support, in areas served by an unsubsidized competitor, and in areas where the price cap carrier is replaced by another eligible telecommunications carrier (ETC).
4. In addition, the Commission addresses where Phase II support will be available, both for the offer of model-based support to price cap carriers and the subsequent Phase II competitive bidding process. First, the Commission will exclude from the offer of Phase II model-based support any census block served by a subsidized facilities-based terrestrial competitor that offers fixed residential voice and broadband services meeting or exceeding 4 Mbps downstream and 1 Mbps upstream (4/1 Mbps), using 3 Mbps downstream/768 kbps upstream (3 Mbps/768 kbps) as a proxy for this standard, as determined by the Wireline Competition Bureau (Bureau) upon completion of the Phase II challenge process. The Commission also reaffirms its decision to exclude from the offer of model-based support any census block served by an unsubsidized competitor that meets or exceeds the 3 Mbps/768 kbps performance metrics. Second, the Commission concludes that those high-cost blocks served by a subsidized carrier that are excluded from the offer of model-based support—including blocks with service meeting or exceeding the new 10 Mbps downstream/1 Mbps upstream (10/1 Mbps) speed requirement—will be eligible for support in the Phase II competitive bidding process. Third, the Commission concludes that any area served by an unsubsidized facilities-based terrestrial competitor that offers 10/1 Mbps will be ineligible for support in the Phase II competitive bidding process.
5. In the April 2014
6. In this Order, the Commission focuses on near-term reforms for rate-of-return carriers. Specifically, the Commission adopts a revised methodology for applying the cap on high-cost loop support to distribute that support on a more equitable basis. The Commission also addresses the proposals from the
7. In the
8. The actions the Commission takes in this Order, combined with the implementation of the rural broadband experiments and the reforms the Commission implemented earlier in the year, will allow the Commission to continue to advance further down the path outlined in the
9.
10. The most recent State Broadband Initiative (SBI) data for December 2013 show that 99 percent of Americans living in urban areas have access to fixed broadband with speeds of at least 10 Mbps downstream/768 kbps upstream (10 Mbps/768 kbps), and a majority of Americans have already chosen to adopt such service. Moreover, fixed broadband services with even higher speeds, such as 25 Mbps downstream/3 Mbps upstream (25/3 Mbps) or higher, are available to the vast majority of urban households. In contrast, the SBI data indicate that 31 percent of the population residing in rural census blocks lack access to fixed broadband providing at least 10 Mbps/768 kbps speeds.
11. Our objective with high-cost support is to extend broadband-capable infrastructure to as many high-cost locations as efficiently as possible, and at the same time ensure that the Commission is best utilizing the funds that consumers and businesses pay into the universal service system. The Commission finds that raising the minimum downstream speed requirement to 10 Mbps is an appropriate way at the present time to implement the statutory language in section 254 regarding reasonable comparability. As noted above, where available, a majority of households adopt fixed broadband with speeds of at least 10 Mbps/768 kbps. This is not surprising, as fixed broadband with speeds of at least 10 Mbps downstream offers more functionality to consumers than 4 Mbps downstream, particularly when multiple users are relying upon the broadband connection. For users browsing the Web, the total time needed to load a page decreases with higher speeds up to about 10 Mbps. High definition video requires 5 Mbps downstream. Although VoIP services are adequately supported by lower speeds, VoIP quality may suffer when household bandwidth is shared by other services. When rural households have access to speeds of 10 Mbps or more, they are just as likely to adopt a 10 Mbps service as households in urban areas.
12. The Commission is setting a standard that is achievable in the near term with support from the Connect America Fund, while mindful of the need to balance the interests of both recipients and contributors to the Fund. The Commission encourages recipients of funding to deploy to the extent possible future proof infrastructure that will be capable of meeting evolving broadband performance obligations over the longer term. That will ensure that our policies will continue to support an evolving level of universal service in the future.
13. Based on the record before us, the Commission finds ample basis for revising the current broadband performance obligations to require minimum speeds of 10 Mbps downstream. In contrast, while a few commenters supported raising the upstream speed, there is little analysis in this docket regarding the potential advantages and disadvantages associated with raising the minimum upstream speed above 1 Mbps for purposes of high-cost funding. The Commission therefore does not adjust the minimum upstream speed required for high-cost support recipients at this time, but expect to consider the matter again when the Commission revisits our broadband performance obligations for recipients of high-cost support in the future. Accordingly, pursuant to section 254, the Commission adopts a minimum speed standard of 10/1 Mbps to ensure that Connect America funding is used efficiently, to deploy broadband-capable networks to meet ever evolving consumer demand.
14. As the Commission explained in the
15. The Commission is not persuaded by arguments that increasing the downstream speed benchmark to 10 Mbps requires fundamental changes in the terms of the offer to price cap carriers that accept a state-level commitment. Although price cap carriers generally support a 10 Mbps
16. Although the Commission recognizes that carriers upgrading their networks may incur additional capital investment costs to offer 10/1 Mbps as opposed to 4/1 Mbps, how much more costly this is in the real world depends on circumstances that vary by carrier, such as the location of existing facilities and distances to unserved locations. The fact that achieving this revised standard may require additional network investment than would be the case if the speed standard remained 4/1 Mbps is not a justification, however, for not adjusting the standard at all. Rather as discussed more fully below, the Commission makes other modest adjustments to the Phase II framework to ensure that the support provided is sufficient to meet the obligations that are accepted through the state-level commitment. To the extent a carrier believes the support offered is insufficient to meet the obligations, it may turn down the offer of Phase II model-based support.
17. The Commission expects carriers planning upgrades to their networks today would take into account near term and future consumer demand. As noted above, current data show that a majority of broadband subscribers today purchase at least 10/1 Mbps. A comparison of adoption rates from 2011 to 2013 show a steady increase in adoption for this level of service. The Commission therefore finds that it is reasonable to assume that many carriers upgrading their networks with Phase II support would aim to provide the capability to provide at least 10/1 Mbps, with higher speeds available to a subset of locations.
18. Rate-of-return carriers are expected to take into account the revised 10/1 Mbps speed standard when considering whether and where to upgrade existing plant in the ordinary course of business and will be required to report on progress toward this goal in annual updates to their five-year service quality plans. As the Commission emphasized in proposing the revised speed standard, however, a rate-of-return carrier will only be required to meet the higher speed standard if the request for service is reasonable. Rate-of-return carriers will be able to comply with the revised speed standard because the Commission already has adopted a more flexible approach to determining compliance with our broadband performance obligations for this segment of the industry. The Commission previously have stated that a “reasonable request is one where the carrier could cost-effectively extend a voice and broadband-capable network to that location. In determining whether a particular upgrade is cost effective, the carrier should not consider only its anticipated end-user revenues, for the services to be offered over that network, both voice and broadband internet access, but also other sources of support, such as federal and, where available, state universal service funding.” Among other things, the Commission has explained that a request would not be reasonable if the incremental cost of undertaking the necessary upgrades to a particular location exceed the revenues that could be expected from that upgraded line. The Commission has determined that carriers may take into account backhaul costs or other unique circumstance that make it cost-prohibitive to extend service to particular customers. Moreover, rate-of-return carriers have no obligation to extend broadband-capable infrastructure in any census block that is served by a competitor that meets the Commission's revised performance standards.
19. Nor is the Commission persuaded that increasing the broadband speed requirement requires enlarging the budget for rate-of-return carriers. As discussed above, carriers evaluating whether or not a request for service is reasonable may consider the cost of upgrading the network and the support available. If, for instance, the cost of extending fiber sufficiently close to a requesting customer to be able to offer 10/1 Mbps service is more than a rate-of-return carrier could cover with existing universal service support and anticipated end-user revenues, but it would be able to cover the cost of extending fiber to provide 4/1 Mbps service, the Commission would expect the carrier to extend 4/1 Mbps service.
20. The Commission is confident that these carriers will deploy broadband-capable infrastructure meeting these new requirements to the extent economically feasible in their communities and will continue to work on creative ways to partner with each other and other entities to provide service meeting these requirements. The Commission notes that rate-of-return carriers have continued to deploy broadband-capable infrastructure since the Commission adopted the landmark reforms in the
21. The Commission also rejects arguments that the Commission should increase the high-cost universal service budget, as a means of advancing broadband deployment in rural areas to an even greater degree than the Commission already does in this Order. “[T]he Commission has to balance the principles of section 254(b) to ensure that support is sufficient but does not impose an excessive burden on all ratepayers.” The Commission previously conducted just such a balancing in adopting the budget at issue here, and the Commission is not persuaded to depart from it at this time. In particular, “any determination about whether the Commission has adequately implemented section 254 must look at the cumulative effect of the four support programs, acting together.” The Commission has been undertaking comprehensive reforms of its universal service programs to facilitate broadband deployment, and the Commission continues to advance that objective through the reforms adopted in this Order. Although the Commission recognizes that there are possible broadband goals the Commission could
22. In that regard, the record here does not persuade the Commission that an increased high-cost budget is warranted. When comprehensively reforming the high-cost support mechanism to better advance broadband deployment, the Commission began implementing certain reforms immediately, while setting out a plan to advance broadband even more widely over time through additional initiatives. For example, noting that some areas may be too costly to serve with traditional wireline or terrestrial wireless broadband technologies, the Commission established the Remote Areas Fund to provide support for such “extremely high-cost” areas and set a budget of “at least” $100 million. In April 2014, the Commission concluded that extremely high-cost areas would be eligible for the Phase II competitive bidding process. In the coming year, the Commission expects to develop the rules for the Phase II auction and how to address the areas that remain unserved after that competitive bidding process. The Commission also is considering, among other things, long term high-cost universal service reforms for rate-of-return study areas. Against the backdrop of these and other existing and planned efforts, some commenters nonetheless advocate making increased high-cost support available here, but fail to meaningfully quantify or demonstrate—even in an aggregate way—the incremental cost (and associated burden on ratepayers) required to achieve an incremental advancement of broadband deployment beyond what the Commission already is achieving through the reforms adopted here and through our universal service programs more broadly. The Commission thus is not persuaded to increase high-cost universal service support further. Instead, the Commission advances our broadband universal service goals through the high-cost fund to the extent the Commission is able within the existing budget. The Commission also notes that the states have an important role to play in advancing universal service goals. The Commission welcomes and encourages states to supplement our federal funding, whether through state universal service funds or other mechanisms.
23. Finally, the Commission concludes that recipients of support through the Phase II competitive bidding process will be required to meet an evolving broadband speed standard over the ten-year term. Given the historical and anticipated trajectory of broadband speeds, the Commission anticipates that consumers will increasingly demand greater upstream speeds as well as downstream speeds. The Commission would expect to initiate a proceeding to review the performance standards for the Connect America Fund no later than 2018. While the Commission will establish the specific performance obligations and auction design in an upcoming order regarding the Phase II competitive bidding process, the Commission decides now that 10/1 Mbps should not be our end goal for recipients of support over a ten-year term. The Commission recognizes that competitive bidding is likely to be more efficient if potential bidders can predict what their performance obligations will be for the length of the term. The Commission therefore now adopts a methodology for determining the minimum speeds that will be required by the end of the ten-year term for entities receiving support through the Phase II competitive bidding process. The Commission concludes that the minimum speed shall be based on the highest speed adopted by a majority of households, as reported in the most recent Form 477 data available at the time the Commission next revisits the specific performance obligations for the Connect America Fund. The Commission encourages parties receiving ten years of support through the Phase II competitive bidding process to deploy future-proof networks that are capable of meeting future demand.
24. The Commission makes a modest adjustment to the framework the Commission adopted in 2011 for the Connect America Fund and adopts a six-year term of support, which will begin in 2015 and extend through 2020, with an option for a seventh year in certain circumstances. The Commission recognizes that upgrading existing networks to provide 10/1 Mbps requires deploying fiber further into the distribution network. The Commission is not persuaded, however, that the ten-year term advocated by some is warranted. When the Commission adopted the five-year term it emphasized “the limited scope and duration of the state-level commitment procedure” and expected that “support after such five-year period will be awarded through a competitive bidding process in which all eligible providers will be given an equal opportunity to compete.” The Commission continues to believe that it should move to competitive bidding processes in a timely manner in those areas where support initially is awarded through the acceptance of state-level commitments. In particular, the Commission expects to conduct a competitive bidding process no later than the end of 2019 to ensure there is continuity and a transition path to Connect America Phase III.
25. To the extent a price cap carrier that accepts the offer of Phase II model-based support in a particular state is a winning bidder in the Phase III auction, it will commence receiving that support in 2021. In the event that carrier either does not win in the Phase III auction, or chooses not to bid on such support, its term of Phase II support will be completed at the end of 2020. The Commission will provide such carriers the option to elect one additional year of support, however, with Phase II support continuing in calendar year 2021 as a gradual transition to the elimination of support. This is consistent with the principle established in the
26. In the
27. Here, the Commission addresses flexibility for price cap carriers accepting Phase II model-based support. The Commission expects to provide similar flexibility to recipients of support awarded through the Phase II competitive bidding process, which will be addressed in a future order adopting the rules for the competitive bidding process.
28. The Commission modifies the build-out requirements established for price cap carriers accepting model-based support to create straight line interim milestones over the revised six-year term, rather than front-loading the deployment obligations in the first three years of the term. When the Commission adopted the interim deployment milestone of deploying to 85 percent of locations by the end of the third year, it noted that “there were few concrete suggestions in the record on what those interim milestones should be.” The Commission recognizes that the first task for any major network upgrade is to complete an overall plan and then undertake detailed engineering analyses in the field to plan the construction of particular routes. Recipients of support—whether price cap carriers or bidders in a competitive auction—will likely then proceed incrementally, route by route, working to complete construction evenly over the course of the term required for deployment. For that reason, rather than requiring price cap carriers accepting a state-level commitment to offer broadband service meeting the minimum requirements to at least 85 percent of their high-cost locations by the end of the third year, the Commission instead adopts evenly spaced annual interim milestones for price cap carriers to offer at least 10/1 Mbps to an additional 20 percent of the requisite number of high-cost locations each year, as shown in Table 1 below. Completing construction to 40 percent of the requisite number of locations in a state by the end of calendar year 2017, instead of 85 percent by mid-2018 year, is a more realistic expectation, given that carriers will not accept the offer of support until mid-year in 2015 and once authorized to receive support, will then be developing detailed network construction plans.
29. The Commission recognizes that price cap carriers may choose to prioritize construction in certain states in any given year and therefore do not expect them to be deploying new facilities in every state in every year of the Phase II term. However, the Commission does require that carriers annually deploy new infrastructure to some locations that previously lacked 4/1 Mbps in the earlier years of the Phase II term so that consumers benefit from the availability of new broadband services as early as possible. By the end of calendar year 2017, the Commission requires that, at the holding company level, at least five percent of the nationwide total of funded locations that have been reported as newly served in the annual reports must be locations that previously lacked 4/1 Mbps.
30. In addition, the Commission recognizes that the “facts on the ground” when price cap carriers are deploying facilities may necessitate some additional flexibility regarding the scope of the deployment obligations. At the outset, the Commission notes that there may be some variance between the number of funded locations as specified by the forward-looking cost model adopted by the Bureau and the actual number of locations in a given area. For instance, the price cap carrier model utilizes GeoResults study area boundaries, which in some instances may be inaccurate, which in turn may result in the inaccurate assignment of certain locations to a particular price cap territory. The model also utilizes GeoResults business location data, which in some instances may be inaccurate in terms of either business counts or actual physical locations; this in turn may result in too many or too few locations in a given census block. While these minor inaccuracies should cancel one another out in most instances across multiple census blocks, the Commission recognizes that in particular areas that may not be the case, and the total number of locations assigned to a particular price cap carrier in a given state according to the model simply does not necessarily reflect the actual number of locations. The Commission also recognizes that there may be a variety of unforeseen factors, after the initial planning stage, that can cause significant changes as a network is actually being deployed in the field, and a variety of factors that can affect the time needed to deploy a planned route. Finally, the Commission notes that the customer location data utilized in the model reflect location data at a particular point in time. The precise number of locations in some funded census blocks is likely to change over time for a variety of reasons, which may impact the orderly progress of the planned construction cycle.
31. Given all of these factors, rather than requiring deployment to 100 percent of funded locations as identified by the model in a given state, the Commission will permit a modest adjustment to the number of model-determined funded locations in a given state with a corresponding reduction in support in certain instances. Price cap carriers taking advantage of this flexibility will be required to refund support based on the number of required locations without access to broadband. The Commission balances this flexibility with our goal of advancing the availability of broadband to these high-cost locations. Therefore, the Commission will require deployment to at least 95 percent of the funded locations, but in order for a price cap carrier to take advantage of this flexibility, the Commission requires them to identify by December 31, 2015, any specific census blocks where they do not intend to meet their deployment commitments, with those blocks covering at least two percent of their total eligible locations in a state. The Commission recognizes there may be discrete census blocks identified during the early planning stages that will be challenging to serve. By requiring the price cap carriers to identify up front those particular census blocks that they know they will not deploy to during Phase II, the Commission can make those census blocks eligible for support in the Phase II competitive bidding process. For those carriers that elect to
32. The Commission finds that requiring deployment to at least 95 percent of the number of funded locations will provide some flexibility to price cap carriers in meeting their deployment obligations. The Commission is not persuaded by commenters who argue that the Commission should provide much more flexibility. For example, price cap carriers argue that those accepting a state-level commitment should be permitted to deploy to as few as 90 percent of their funded locations. Although they propose to forego funding on a pro rata basis for the remaining locations, the Commission is concerned that providing that degree of flexibility across the board is inconsistent with the Commission's rationale for providing these carriers the offer of model-based support in the first instance: to ensure ubiquitous coverage. Rather, the Commission may address unique situations through the waiver process where specific circumstances justify additional flexibility.
33. Nor is the Commission persuaded by commenters who argue that requiring anything less than 100 percent would allow recipients to “cherry pick” and opt out of serving the highest-cost locations. As discussed above, there are a number of legitimate reasons why it may not be possible for a provider—whether a price cap carrier or a competitive provider awarded support in a competitive bidding process—to deploy to 100 percent of the funded locations in Phase II areas by the end of the deployment term. The Commission concludes that the benefits of providing some flexibility to a price cap carrier to address any variance between the cost model and real world circumstances outweigh the theoretical risk that the carrier could systematically identify and exclude the five percent of locations that are highest-cost and are likely sprinkled throughout its funded territory.
34. The Commission will require price cap Phase II recipients that have deployed to at least 95 percent, but less than 100 percent, of the number of funded locations to refund support based on the number of funded locations left unserved in the state at the end of their support term. The Commission recognizes that many factors determine a carrier's deployment decisions, and affect costs even after those decisions are made, so the Commission doubts that a carrier would or could systematically exclude the highest cost locations. At the same time, it is reasonable to assume that many of the locations left unserved would have higher than the average costs calculated by the model. A higher amount per location than the average therefore is appropriate. Moreover, the Commission wants to provide more incentive to carriers to build out to 100 percent of the required number of locations. On a nationwide basis, the average support for the top five percent of the highest-cost funded locations is 3.77 times the average support for all funded locations. The Commission recognizes that costs will vary by state and carrier, but find that the administrative simplicity of using one-half of the nationwide aggregate factor outweighs the benefits of false precision. Accordingly, the Commission will require a price cap carrier at the end of its support term to refund an amount based on the number of locations left unserved and the average Phase II support the carrier receives in a state multiplied by 1.89.
35. The Commission concludes that the administrative simplicity of this method outweighs the potential benefit of reducing support based on a more complicated determination based on the relative costs of particular locations as determined by the forward-looking cost model. As discussed below, the Commission will require price cap carriers to include in the final annual progress report that they submit with their section 54.313 reports the total number and geocodes of all funded locations to which they have deployed facilities capable of delivering broadband meeting the requisite requirements, which will provide an objective, easily verifiable basis for USAC to determine the amount of support to recover in the event there is less than 100 percent compliance with the deployment obligation.
36. Finally, for those carriers accepting Phase II model-based support, the Commission declines to adopt the proposal to substitute unserved locations within partially served census blocks for locations within funded census blocks. While the Commission will continue to explore this issue, questions remain in the record how best to determine whether or not a particular location in a partially served block is served or unserved without placing significant burdens on interested parties and Bureau staff. The Commission notes that all parties potentially interested in Connect America support—both incumbents and new entrants alike—have an interest in building economically efficient networks, and those networks do not neatly align with census boundaries. Therefore, the Commission encourages all stakeholders interested in the Phase II competitive bidding process to work together to propose for future Commission consideration an administratively feasible method for ensuring that unserved consumers in partially served census blocks are not left behind.
37.
38. Because the amount of frozen support may in some cases be greater than the amount of model-based support, the Commission must reserve sufficient funds for frozen support before generally making the offer of support to price cap carriers in order to ensure that the Commission does not exceed the overall budget for the offer of model-based support. The Commission requires each non-contiguous carrier to notify the Bureau no later than 15 days after the release of this Order whether it is interested in Phase II frozen support in lieu of model-based support. The Bureau then will be able to determine the appropriate maximum amount of money that should be reserved out of the $1.8 billion budget for those carriers. The Commission concludes that waiting to extend the offer of model-based support until it adopts tailored service obligations for each non-contiguous carrier would unnecessarily delay the offer of model-based support to all other price cap carriers.
39. As the Commission stated in the
40. Though the Commission does not determine at this time specific service obligations for non-contiguous carriers receiving Phase II frozen support, the Commission concludes that carriers serving non-contiguous areas will not be permitted to use Phase II frozen support in any areas where there is a terrestrial provider of fixed residential voice and broadband service that meets Phase II requirements, as modified in this Order. Therefore, the Commission prohibits non-contiguous carriers receiving frozen support from using that support in any census block where there is a competitor providing service of 10/1 Mbps or greater. If a carrier is unable to meet this requirement in certain areas, the Commission requires it to relinquish the relevant Phase II frozen support for those areas.
41.
42. Effectively, as a result of this limited forbearance, price cap carriers that accept the state-level commitment for Phase II support will continue to have a federal high-cost universal service obligation to offer voice telephony services in those census blocks that are deemed to be extremely high-cost, unless and until they are replaced by another ETC in those areas. The Commission does not address at this time and in particular do not forbear from enforcing the section 214(e) obligation of a price cap carrier to offer voice telephony services in extremely high-cost areas where it is not receiving support, except for the two circumstances expressly described herein: Those extremely high-cost census blocks served by an unsubsidized competitor or where the price cap carrier is replaced by another ETC selected through a competitive bidding process that is required to offer voice and broadband services to fixed locations that meet the Commission's public service obligations. Price cap carriers that decline the state-level commitment will have the federal high-cost universal service obligation to offer voice telephony services in those census blocks that are determined to be high-cost or extremely high-cost, and unserved by an unsubsidized competitor, until they are replaced by another ETC that is required to offer voice and broadband service to fixed locations that meet the Commission's public service obligations.
43. As the Commission explained in the
44. The Commission previously interpreted section 214(e) of the Act to require that an ETC offer voice telephony service throughout its designated service area. But with the Bureau's adoption of the CAM, the Commission is now able to determine on a more granular level which areas are low-cost and therefore do not need a subsidy because price cap carriers can recoup their costs through reasonable end-user rates. The Commission notes that these low-cost census blocks already have voice telephony service with rates well below the reasonable comparability benchmark for voice service. And in the other census blocks where the Commission now grants limited forbearance, an unsubsidized competitor exists that is offering voice telephony service at reasonably comparable rates, or there is another ETC with an obligation to offer reasonably comparable voice telephony service. Thus, the Commission no longer finds that it is necessary as a matter of federal universal service policy to require price cap carriers to offer voice telephony service in these areas to achieve the section 254(b)(3) principle of ensuring that “[c]onsumers in all regions of the Nation . . . should have access to telecommunications . . . services, . . . that are reasonably comparable to those services provided in urban areas and that are available at rates that are reasonably comparable to rates charged for similar services in urban areas.”
45. Accordingly, as discussed below, the Commission concludes that forbearance from the federal high-cost requirement that price cap carriers offer voice telephony services throughout their service area is warranted in these limited circumstances. The Act requires the Commission to forbear from applying any requirement of the Act or our regulations to a telecommunications carrier if the Commission determines that: (1) Enforcement of the requirement is not necessary to ensure that the charges, practices, classifications, or regulations by, for, or in connection with that telecommunications carrier or telecommunications service are just and reasonable and are not unjustly or unreasonably discriminatory; (2) enforcement of that requirement is not necessary for the protection of consumers; and (3) forbearance from applying that requirement is consistent with the public interest. The Commission concludes each of these statutory criteria is met for the specific types of areas described above.
46.
47. ETCs receiving Connect America support will be required to offer reasonably comparable voice and broadband services in their funded high-cost census blocks at rates that are reasonably comparable to urban areas. Therefore, there is no need to require a price cap carrier that declines the offer of model-based support to offer voice telephony in those census blocks where another ETC is subject to that reasonable comparability requirement.
48. Moreover, in all the census blocks where the Commission grants forbearance, the price cap carrier will remain subject to other Title II requirements that ensure that voice telephony rates remain just and reasonable and not unjustly or unreasonably discriminatory. Price cap carriers will continue to be subject to sections 201 and 202 of the Act, which place nondiscrimination obligations on common carriers. Additionally, the Commission defers to the states' judgment in assuring that the local rates that price cap carriers offer in the areas from which the Commission forbears remain just and reasonable. It also is reasonable to expect that the rates that price cap carriers charge in these areas for voice telephony will constrain the rates of other providers. And finally, in the event that the price cap carrier seeks to cease offering voice telephony in these areas, it will be subject to the section 214(a) discontinuance process that the Commission addresses more fully below, during which any concerns that may be raised by the price cap carrier's decision to cease offering voice service can be addressed if necessary. The Commission concludes that these circumstances ensure just, reasonable, and nondiscriminatory offerings in the areas where the Commission grants forbearance. For these reasons, the Commission finds that the first prong of section 10(a) is met.
49.
50. First, there are several safeguards that will prevent the consumers living in these areas from losing access to voice telephony services. Not enforcing the high-cost ETC obligation of price cap carriers to offer voice telephony services in these areas does not mean that price cap carriers can immediately cease providing voice telephony service. Pursuant to section 214(a) of the Act and section 63.71 of the Commission's rules, all carriers must provide notice to their customers and the relevant states in writing that they plan to discontinue service and then file an application with the Commission before discontinuing voice telephony service in an area. Outside parties have the opportunity to provide comment on the application, and the Commission may then decide that the application should not be automatically granted. The discontinuance rules are designed to ensure that customers are fully informed of any proposed change that will reduce or end service, ensure appropriate oversight by the Commission of such changes, and provide an orderly transition of service, as appropriate. This process allows the Commission to minimize harm to customers and to satisfy its obligation under the Act to protect the public interest.
51. The Commission has discretion to grant a discontinuance request in whole or in part, and may attach conditions as necessary to protect consumers and the public interest. Given the fact-intensive nature of this inquiry for each affected market, the Commission is not persuaded by suggestions in the record that it should grant blanket discontinuance to price cap carriers in the areas where it grants forbearance. Where there is a question as to appropriate alternatives available to consumers or whether the present or future public convenience and necessity will be adversely affected, the Commission will scrutinize the discontinuance application, consistent with its statutory obligations. In evaluating a section 214 discontinuance application, the Commission generally considers a number of factors, including the existence, availability, and adequacy of alternatives. Through consideration of these factors, the Commission ensures that the removal of a choice from the marketplace occurs in a manner that respects consumer expectations and needs. The Commission will not authorize a proposed discontinuance of service if customers or other end users would be unable to receive service or a reasonable alternative, or the public convenience and necessity would be otherwise adversely affected. In such circumstances, the Commission will require price cap carriers to continue offering voice telephony services in those areas in those instances where there is no reasonable alternative. Moreover, if an area is unserved and no common carrier will serve that area, the relevant state commission (or the Commission if applicable) is directed by the Act to designate an ETC to serve the area with voice telephony service.
52. Second, it is reasonable to expect that price cap carriers will continue to offer voice service in these areas even after they have been relieved of the federal ETC requirement to do so. They already have existing networks and customers in these areas. They have an economic incentive to continue to serve these customers and to offer them innovative new services.
53. Third, even if price cap carriers were to exit these areas, in areas where there is an unsubsidized competitor or another ETC receiving federal high-cost support to deploy modern networks capable of providing voice and broadband to fixed locations, there will be at least one provider in that area offering a voice telephony service that is reasonably comparable to service available in urban areas. Because consumers in these areas will have at least one other option for fixed voice telephony service at reasonable rates, there is no need to require price cap carriers to continue to offer such services as a federal ETC obligation. And as explained above, whether appropriate substitutes exist in all of the geographic areas in which the Commission grants limited forbearance will be addressed through the section 214(a) discontinuance process; thus, the Commission is comfortable that there is no need to continue to apply ETC obligations in these areas.
54. The Commission disagrees with the claim that the Commission should not forbear from section 214(e) because the Commission should ensure that there is at least one carrier that has a federal obligation to provide voice telephony service to all consumers in a particular area. As explained above, there are existing regulatory protections that provide reasonable assurance that
55.
56. The Commission also finds that limited forbearance from section 214(e)(1)(A) will promote competitive market conditions by giving price cap carriers the flexibility to compete on a more equal regulatory footing in the voice telephony market with competitors that already have the opportunity to make business decisions about how best to offer voice telephony service. Accordingly, the Commission's decision is consistent with the principle that universal service policies be equitable and nondiscriminatory and the principle of competitive neutrality.
57. The Commission does not take the further steps suggested by some commenters of reinterpreting section 214(e)(1) to sunset all existing ETC designations and require states to re-designate ETCs so that their service areas include only high-cost funded areas, imposing rules on state ETC designations, adopting a federal process to redefine service areas, or preempting states. State commenters argue that these approaches would give insufficient consideration to the important role that Congress has given the states in defining service areas and designating ETCs. The Commission's decision to grant limited forbearance does not redefine price cap carriers' service areas or revoke price cap carriers' ETC designations in these areas, and the Commission emphasizes that it does not preempt price cap carriers' obligation to continue to comply with any state requirements, including carrier of last resort obligations to the extent applicable. The Commission also notes that it does not relieve ETCs of their other “incumbent-specific obligations” like interconnection and negotiating unbundled network elements pursuant to sections 251 and 252 of the Act. The continued existence of these obligations supports the Commission's finding that the forbearance it grants in this Order is consistent with the public interest.
58. The Commission's public-interest finding is also supported by the fact that any incumbent price cap carrier must still comply with the requirements of section 214(e)(4) of the Act regarding relinquishment of ETC designation. The Commission is not persuaded that its decision to not preempt state obligations constitutes a taking. The Commission notes that no party has articulated which specific state obligations constitute a taking, submitted specific evidence to show how those state obligations are burdensome, or provided detailed analysis as to how the preemption standard has been met for these obligations.
59.
60. Price cap carriers subject to this limited forbearance in these three specific types of census blocks must continue to satisfy all Lifeline ETC obligations. Therefore, they will effectively become Lifeline-only ETCs in the specific census blocks that are the subject of this forbearance. As such, they must continue to offer voice telephony service to qualifying low-income households in those areas unless or until they relinquish their ETC designations in those areas pursuant to section 214(e)(4), and, in any event, must continue to offer voice more generally until they receive discontinuance authority under section 214.
61.
62. The Commission excludes areas served by subsidized competitors providing 3 Mbps/768 kbps or greater
63. By excluding these areas from the offer of Phase II model-based support and instead including them in the Phase II competitive bidding process, the Commission gives competitive ETCs serving these areas the opportunity to compete for ongoing support in their high-cost areas, regardless of whether a price cap incumbent accepts or declines the state-level commitment. This modification recognizes that these areas are high-cost and, absent such ongoing support, it may not be economically feasible for providers in these areas to continue providing service. Removing these census blocks from the offer of model-based support and instead immediately opening these areas to competitive bidding allows competition to drive support to efficient levels, to be awarded to the provider that will most effectively use funds.
64. Changing the minimum speed threshold for network deployment to 10/1 Mbps does not mean, however, that the Commission should use the 10/1 Mbps coverage map in determining what areas are served by either unsubsidized or subsidized competitors for purposes of the offer of Phase II model-based support. The version of the CAM adopted by the Bureau for purposes of identifying the initial list of eligible census blocks provides support for census blocks with an average cost per location per month of between $52.50 and $207.81 and that are unserved by an unsubsidized competitor offering 3 Mbps/768 kbps broadband service. While adjusting the CAM to provide support for census blocks not served with 10/1 Mbps service would increase the number of locations eligible for the offer of model-based support, this increase would be predominately the result of the extremely high-cost threshold shifting downwards. The end result would be that locations in those blocks that are more expensive to serve, relatively speaking, that currently do not receive even 3 Mbps/768 kbps service would no longer be eligible for the offer of model-based support. In contrast, using the same 3 Mbps/768 kbps coverage map to target the offer of Phase II model-based support to locations in these higher cost census blocks will result in Connect America model-based funding being targeted to the very same areas that the Commission intended to be subject to the offer of model-based support when it adopted the
65. The Commission is not persuaded by the suggestion that it would be more efficient to use the 10/1 Mbps coverage map because that will result in more locations being served. The fact that areas that currently have 3 Mbps/768 kbps service but not 10/1 Mbps are excluded from the offer of model-based support does not mean there is no mechanism to ensure that consumers in those areas have access to service meeting the newly established standard. Instead, the Commission concludes that any area lacking service from a facilities-based terrestrial competitor that meets our new 10/1 Mbps standard and existing latency/usage/pricing requirements will be eligible for support in the Phase II competitive bidding process. The Commission concludes it is preferable to address these areas in the competitive bidding process, as competitive forces will drive support to efficient levels in those geographic areas that now lack broadband by virtue of our adjustment of the minimum speed threshold.
66. The Commission also is not persuaded by arguments that using the 10/1 Mbps coverage map to determine eligibility for the offer of model-based support is necessary to enable price cap carriers to build more efficient networks. The Commission notes that price cap carriers—like all other providers—will be able to bid on these census blocks in the Phase II competitive bidding process, providing them with an opportunity to gain additional territory for network efficiency.
67. Utilizing the 3 Mbps/768 kbps coverage map to exclude areas eligible for model-based support also is administratively efficient. Excluding areas served by qualifying competitors providing at least 10/1 Mbps service would require the Bureau to conduct a new challenge process to determine which areas that have 3 Mbps/768 kbps lack 10/1 Mbps service. The Phase II challenge process has been underway since June 2014, and with the record now closed, the Bureau is poised to complete these adjudications. The Commission believes that undertaking such an effort to conduct a supplemental challenge process would unnecessarily delay the offer of model-based support that otherwise would occur in early 2015. The Commission therefore directs the Bureau to complete the challenge process for the offer of model-based support and to remove from eligibility any blocks it determines are served by a qualifying competitor providing service of at least 3 Mbps/768 kbps.
68. Finally, the Commission concludes that any area served by an unsubsidized facilities-based terrestrial competitor that offers 10/1 Mbps will be ineligible for support in the Phase II competitive bidding process. Because these areas already have service that meets or exceeds the new speed requirement without receiving high-cost funding, the Commission does not have the same concern as it does for areas served by subsidized competitors—that it may not be economically feasible for providers in these areas to continue providing service absent support. The Commission believes that it would be an inefficient use of Connect America support to provide funding in these areas. The Commission expects to update the list of census blocks that will be excluded from eligibility from the Phase II competitive bidding process based on the most current data available at the time shortly before that auction to take into account any new deployment that is completed in the coming year.
69. The Commission also notes that any areas left unserved after the Phase II competitive bidding process will be addressed through the Remote Areas Fund. The Commission does not establish a separate Remote Areas Fund at this time, as the Commission has concluded that parties should be free in the Phase II competitive bidding process to submit bids to bring service to the highest cost, most remote areas of the nation. Once that Phase II competitive bidding process occurs, and the Commission has determined which winning bidders are authorized to receive support, the Commission will be in a much better position to determine what areas, if any, remain unserved and can be addressed through a separate Remote Areas Fund.
70.
71. The Commission concludes that excluding from the offer of model-based support any census block included in a non-winning rural broadband experiment application submitted in funding category one will ensure the more efficient use of Connect America support. The Commission will only exclude those census blocks where a losing bidder has indicated that it wishes to remain in consideration for rural broadband experiment support as described above. The Commission will not exclude from the offer of model-based support any area where the rural broadband experiment applicant is seeking a waiver of one or more requirements established for rural broadband experiments, including the submission of the requisite financial and technical information. The Commission concludes that the time necessary to resolve such waiver requests to determine which blocks to remove from the offer of model-based support would unnecessarily delay the implementation of Phase II. The Commission emphasizes that it has no intention of delaying the offer of model-based support to the price cap carriers, and expect to proceed with that offer in early 2015.
72. The Commission determines that rural broadband experiment proposals submitted in funding category one that facially meet the requirements for submission of financial and technical information could help us achieve our universal service goals in a cost-effective manner. Though all rural broadband experiment proposals seek an amount of support at or below model-calculated levels, proposals in funding category one are required to commit to constructing networks that are capable of providing 100/25 Mbps. The Commission is not convinced that providing model-based support to a price cap carrier in an area where another entity has demonstrated an interest to provide service that so significantly exceeds the Commission's new speed requirements, for an amount at or below the model-determined support, would be an efficient use of funding. Further, because the proposals the Commission received in funding category one requested support below the level of support that the model would otherwise provide, excluding these areas from the offer of model-based support and instead making them available in the Phase II competitive bidding process should enable us to stretch our finite Connect America budget even further.
73. The Commission is not persuaded by concerns that this approach could result in an opportunity for gaming by allowing a party to submit a rural broadband experiments application that the party never intended to honor simply to reserve its opportunity to participate in the Phase II competitive bidding process. The Commission believes that the parameters it establishes above—that only rural broadband experiment proposals in category one for which the applicant submits the required technical and financial information will be excluded from the offer of model-based support—alleviate any concerns that the Commission's decision would enable applicants to game the system. The submission of a network engineering diagram certified by a professional engineer and audited financial statements as described above provides some assurance that these are serious bidders prepared to participate in the Phase II competitive bidding process. Through such action, these parties will demonstrate a baseline understanding of Commission regulations and procedures. Moreover, entities with three years of audited financial statements by definition are ongoing businesses.
74. This decision also reflects our balancing of section 254(b) principles under the circumstances here. In the
75. The Commission is persuaded to revisit that balancing in certain targeted ways here. Today, the rural broadband experiments give the Commission more of an ability to identify areas that are likely to be candidates to transition more quickly to competitive bidding, and it is the Commission's predictive judgment that those areas will be better served, and the Connect America budget better used, by excluding those areas from price cap carrier's right of first refusal, enabling both incumbents and competitors to seek support through a competitive process. In light of these new circumstances, and against the backdrop of other changes adopted in this Order, the Commission finds that moving more quickly to competitive bidding in certain respects as a result of the changes adopted here is warranted under the Commission's reevaluation of the balancing of the competitive
76. The Commission does recognize the possibility that if it removes these areas from the offer of model-based support, both the price cap carrier and the rural broadband experiment applicant ultimately may opt not to bid on such areas in the Phase II competitive bidding process. That risk exists as well for areas where the price cap carrier declines the offer of model-based support. On balance, however, the Commission concludes that this risk is outweighed by the public policy benefits potentially, and the Commission believes likely, to be gained of having consumers in these areas receive higher-quality service from a competitor at or below the amount of model-based support and being able to ensure that additional consumers are served with that unused funding. The Commission also notes that any areas left unserved after the Phase II competitive bidding process will be addressed through the Remote Areas Fund.
77. In this section, the Commission addresses several issues relating to the implementation of Phase II in areas currently served by price cap carriers. First, the Commission adopts our proposal to align the funding years for price cap carriers accepting model-based Phase II support with the calendar year, but clarify that the deployment obligation will commence on the date of public notice of authorization for Phase II funding. Second, the Commission eliminates the transition year formerly adopted by the Commission in the
78.
79. The Commission anticipates extending the offer of model-based support in early 2015, with carriers responding 120 days later. Then, the Bureau will issue a Public Notice authorizing USAC to disburse the new funding amounts for those providers electing model-based support. The Commission directs USAC to disburse the lump sum payment in the month after the issuance of this Public Notice, drawing the funds from the broadband reserve account. The Commission will, however, provide an option for a carrier to elect to defer this lump sum payment until calendar year 2016, in recognition that may be the first year in which significant capital investments are made to meet the deployment obligations established for Phase II.
80. The Commission clarifies that while carriers will receive a full year of Phase II support in calendar year 2015, the deployment obligation commences on the date of the Public Notice authorizing Phase II-model based support. The Commission acknowledges recipients that accept model-based support thus will be subject to different obligations for the time periods before and after they are authorized to receive Phase II support in calendar year 2015, and direct USAC to take that into account when conducting beneficiary compliance reviews of price cap carrier ETCs for calendar year 2015.
81.
82.
83. In the
84. The Commission does not, at this time, take action with regard to any of the proposals for long term reform for rate-of-return carriers. Although a number of parties have submitted proposals that may have promise, the Commission find that further analysis and development of these proposals is necessary. The Commission expects to
85. In the
86. The indexed cap on HCLS has seen steady reductions in recent years as a result of decreasing numbers of working loops and low inflation rates. As a result, carriers with costs close to the ever rising NACPL risk losing all HCLS for prior investments, while carriers with a higher cost per loop are sheltered from the impact of the HCLS cap. The carriers with the highest loop costs relative to the national average have minimal incentive to reduce their expenses and eliminate waste: between HCLS and interstate common line support, it is possible for 100 percent of their incremental loop costs to be recovered through universal service. The Commission observes that these carriers with the highest HCLS reimbursement rates have steadily increased their reported loop costs (by 36 percent since 2004), while carriers with lower reimbursement rates have had stable or reduced loop costs. In combination, the decreasing HCLS cap and the increasing demand from the carriers reporting the highest cost per loop create yearly increases in the NACPL used to calculate HCLS, precluding many carriers from receiving any HCLS and significantly reducing support for others with costs per loop close to the NACPL. A comparison of the 646 study areas that submitted cost studies for each year from 2004 to 2013 shows what has occurred over the last decade: in 2006, 579 of the 646 study areas were receiving HCLS support, but by 2015, only 461 of them are projected to receive support, meaning that 118 or 20 percent of these study areas fell “off the cliff” over this ten-year period. These features of the HCLS rule were not altered in the
87. In the
88. This proposal initially received widespread support from commenters responding to the FNPRM. Subsequent to the closing of the comment cycle, however, the Rural Associations argued the Commission's proposed methodology should be modified to lessen the impact on the companies with the highest reported cost per loop by continuing to raise the NACPL as is done under the current methodology. In particular, the Rural Associations propose that if HCLS as initially calculated based on the frozen NACPL exceeds the indexed cap, then the NACPL would be adjusted so the HCLS amounts equal the indexed cap plus half of the difference between the initially calculated amount and the indexed cap. The HCLS amounts calculated using this adjusted NACPL would then be reduced proportionally so that total HCLS matched the indexed cap. The Rural Associations argue that their proposal would mitigate what they consider disproportionate effects on the carriers with the highest cost per loop.
89.
90. The Commission declines to adopt the Rural Associations' proposed modification. Under their proposal current recipients of HCLS would continue to lose HCLS as the HCLS cap is lowered, albeit not to the same extent as occurs today. Yet addressing the cliff effect was one of the core objectives of the Commission's proposal. Although the Rural Associations' proposal may, to some degree, mitigate both the cliff effect and the race to the top as compared to our current methodology, based on the record before the Commission, it finds it would be less effective at addressing both objectives than the Commission's proposal. In a set of examples provided by the Rural Associations, the two lowest cost companies in the set each would receive approximately 40 percent less in the first year after implementation of the proposed rule than they would under the Commission's proposals and would have their HCLS entirely eliminated by the fifth year of operation. Indeed, under NTCA's proposal, the cliff effect would immediately eliminate support from 11 study areas that would continue to receive support under the Commission's proposal. In other words, the cliff effect would remain significant if the Rural Associations' proposal were implemented. Similarly, the Rural Associations' proposal significantly preserves the advantages under HCLS of being a company reporting a relatively higher cost per loop, even if it does eliminate the possibility that a carrier could recover 100 percent of any marginal loops costs it incurs.
91. Although the Rural Associations express concern that the Commission's proposal may have a disproportionate effect on the carriers with the highest cost per loop, in their own examples, the Commission does not believe that this will result in insufficient support for any carrier. Using NTCA's analysis, the highest cost carrier would lose only seven percent of HCLS as compared to the current rules (and receives only three percent less than it would receive under the Commission's proposal). Because that carrier would likely also be receiving a significant amount of ICLS, the reduction as a fraction of total support would be even less than seven percent. Moreover, the fact that reported costs have increased for some high-cost recipients at rates substantially above that for other high-cost recipients suggests that the current construct of the rule does not create structural incentives for these carriers to take measures to reduce their expenses to the extent possible. There are several potential reasons why reported costs per loop for certain carriers are increasing at rates in excess of that for other high-cost recipients: They are investing more, they are subject to greater competition and therefore experiencing line loss, or they are spending imprudently. One of the Commission's goals as it considers proposals for longer-term reform is to provide a more equitable opportunity for all carriers in high-cost areas to invest in broadband-capable infrastructure. In the meanwhile, the
92. The Commission also is not persuaded by commenters arguing that these changes are unnecessary. TCA argues that the $250 per-line per month cap effectively addresses the race to the top. In fact, the $250 per-line cap affects only a small number of the very highest cost carriers and, for the reasons explained above, does not, it concludes, comprehensively address the race to the top or the cliff effect. Those higher cost carriers not subject to the $250 per-line cap still have limited incentive to curb waste, and numerous others are hurt by the cliff effect.
93. The Commission does not agree with the Concerned Rural ILECs that the race to the top is a budgetary problem and could be solved by increasing the size of the HCLS budget. Although significantly increasing the HCLS budget might address the cliff effect, it would, if anything, exacerbate the race to the top by eliminating the limited constraints the HCLS mechanism currently has on carrier spending and undermining the carriers' incentives to curb wasteful expenses related to common line costs.
94. The Commission disagrees with TCA's contention that it should not adopt its proposal due to retroactivity. As a matter of law, the proposed rule is not impermissibly retroactive. The Commission notes that the Tenth Circuit recently rejected arguments that the changes the Commission made to the HCLS and Safety Net Additive (SNA) rules in the
95. Moreover, as a matter of policy, the Commission is not persuaded that even the highest cost rate-of-return carriers will be unduly harmed by this rule. As noted above, in the Rural Associations' examples, the highest cost company sees a reduction of only six percent of its HCLS (and a smaller fraction of its total high-cost support) as a result of this rule. TCA nonetheless argues that this rule change “unfairly penalizes” rate-of-return carriers “that have made investments to bring broadband to their customers in accordance with the FCC's goals.” TCA provides no basis, however, for distinguishing between carriers that have, in fact, prudently invested in broadband facilities and those that have failed to curb wasteful expenses. The Commission notes that if any rate-of-return carrier suffers significant harm as a result of this rule change and the carrier's earlier prudent investment, it may seek waiver of our rules.
96. The Commission declines to adopt the Eastern Rural Telecom Association's (ERTA) proposal that the frozen NACPL be indexed to inflation or some other low-growth factor as a method of removing the cliff effect. The Commission finds that the other steps taken here will effectively address this issue. Moreover, because the Commission anticipates that it will adopt more comprehensive reforms for rate-of-return carriers in the coming year, indexing the NACPL is unlikely to have a material effect.
97. The Commission recognizes that NTCA's analysis is sensitive to a number of forecasting assumptions, including line growth or loss and changes in cost per loop. For that reason, the Commission will closely monitor the effects of this rule change on rate-of-return carriers and will revisit this issue in the event that it has unanticipated results. In sum, however, the Commission is not convinced based on the record before us that the Rural Associations' proposal is superior to what the Commission proposed in the
98.
99. The Commission declines to modify the 100 percent overlap rule to eliminate support in any study area with a qualifying competitor, as opposed to an unsubsidized competitor. As explained above, the reason the Commission is removing high-cost census blocks with a qualifying competitor from eligibility for Connect America Phase II model support is to provide an opportunity for all parties to compete for support for those areas through a competitive bidding process. There is no comparable process in place in rate-of-return study areas for several subsidized competitors to compete with each other for support to serve the study area. In the case of rate-of-return carriers, removing study areas from eligibility where there are qualifying competitors would mean that there is no mechanism to provide support for high-cost areas that presumably need support in order for consumers to have access to voice and broadband services, once the
100. In this section, the Commission takes several steps to strengthen the uniform national framework for accountability that the Commission adopted in the
101.
102. The Commission requires high-cost support recipients that elect to certify that their pricing of services in rural areas is no greater than their pricing in urban areas to rely upon the non-promotional prices charged for comparable
103. This certification will be included in the FCC Form 481 to be filed in 2016, addressing performance during 2015, after the requirement has received Paperwork Reduction Act (PRA) approval from the Office of Management and Budget. All parties subject to a broadband public interest requirement to serve fixed locations that file this report in 2016 will be required to make the certification, and annually thereafter.
104. Recipients of funding through the Phase II competitive bidding process must submit their first certification with the first section 54.313 annual report they are required to submit after support is authorized, and each year thereafter with their annual report.
105.
106. The Commission concludes that it is in the public interest to require price cap carriers accepting model-based support to provide this data on an annual basis. The Commission and USAC will analyze the data to determine how Connect America support is being used to “improve broadband availability, service quality, and capacity,” consistent with a recent recommendation of the Government Accountability Office. The Commission also intends to make such data available to the public on its Web site in a user-friendly manner so that the public will be able to see at a granular level how
107. The Commission will also collect from price cap carriers in their annual section 54.313 reports the total amount of Connect America Phase II support, if any, they used for capital expenditures in the previous calendar year. The Commission concludes that the benefit to the Commission of being able to determine how price cap carriers are using Phase II funding outweighs any potential burden on price cap carriers in submitting this information given that it expects that price cap carriers will track their capital expenditures for Phase II in the regular course of business.
108. The Commission directs USAC to review Phase II recipients' compliance with deployment obligations and the Commission's public interest obligations at the state level—that is, whether the carrier is meeting interim and final deployment obligations for the total number of locations required for the state. As discussed above, the Commission concludes that conducting compliance reviews at the state level would be less administratively burdensome for the Commission, USAC, and the recipients of Phase II support than at the census block level. The Commission expects USAC to review compliance with the deployment obligations for all price cap recipients over the course of the Phase II support term. This will ensure the Commission is able to fulfill our responsibility to monitor each Phase II recipient's use of high-cost support in areas subject to the state-level commitment.
109.
110. The Commission will impose a minimum reduction of support of seven days given the importance of ETCs meeting filing deadlines. After the initial seven days, support will be reduced further on a day-by-day basis until the high-cost recipient files the required report or certification, plus the minimum seven-day reduction. Reducing support on a day-by-day basis plus an additional seven-day reduction is an appropriate measure to create incentives for high-cost recipients to make their filings as soon as they have determined that they have missed the applicable deadlines.
111. The Commission recognizes that despite its best efforts, an ETC may miss a deadline due to an administrative oversight but still file within a few days of the deadline. For a late filer, the Commission finds that it is appropriate to provide a one-time grace period of three days so that an ETC that quickly rectifies its error within three days of the deadline will not be subject to the seven-day minimum loss of support. The Commission directs USAC to send a letter to such an ETC notifying the ETC that its filing was late but cured within the grace period. If the ETC again files any high-cost filing late, the grace period will not be available. Repeated mistakes, even inadvertent, are indicative of a lack of adequate policies and procedures to ensure timely filing. If an ETC misses a filing deadline more than once due to its inadvertence, the Commission finds that the support reductions that it adopts should provide an incentive to ETCs to revise their procedures to ensure that such inadvertence does not become a pattern.
112. The Commission disagrees with arguments that it should lengthen the one-time grace period because new ETCs receiving support may be unfamiliar with high-cost filing requirements or that ETCs may inadvertently forget to file. The Commission imposes support reductions on late filers to impress upon high-cost recipients the importance of understanding obligations that come with high-cost funding and the need for the Commission and USAC to receive the data in a timely manner so that it can properly administer the Universal Service Fund. A one-time grace period of three days achieves an appropriate balance between requiring strict compliance with our rules and providing an opportunity for ETCs that may be first time filers or that make an uncharacteristic mistake to rectify quickly an error.
113. Although ETCs are required to submit separate filings for each operating company, the Commission notes that many holding companies administer the filings for all of their operating companies that may hold an ETC designation. The Commission expects that holding companies will take measures to ensure that all of their operating companies meet the required deadlines. Thus, the Commission will apply the grace period at the holding company level. If an ETC misses the deadline and exercises the grace period in a prior year, that grace period will not be available for all subsequent years to another one of the holding company's operating companies that holds an ETC designation to serve a different study area.
114. The Commission is not persuaded by the Rural Associations' argument, relying on precedent related to the Eighth Amendment to the Constitution “Excessive Fines” clause, that the support reductions are “unreasonable” and “excessive penalties.” Because ETCs have no property interest in or right to continued universal service support, nor any right to support other than as provided for by the Commission's rules, the reduction of an ETC's universal support payment does not constitute a payment by the ETC to the government that is subject to the Excessive Fines clause of the Eighth Amendment.
115. In any case, even if that framework were viewed as applicable, given the important role these data and certifications play in the administration of the Universal Service Fund, the Commission finds that the support reductions that it adopts are sufficiently proportional to the harm caused by late filings. The reductions increase as the length in delay of the filings increase, and thus are proportional to the amount of harm that is caused when the Commission, state commissions, and USAC are delayed in being able to monitor the use of universal service funds. Moreover, by basing the support reductions on each ETC's daily support amount, the Commission has calibrated the amount of support that a late filer will have reduced with the benefit they receive from the Universal Service Fund. Contrary to the arguments of some commenters, the Commission finds that the benefits for consumers nationwide of an effective oversight scheme outweigh the potential impact of support reductions on the customers of late filing ETCs. Congress gave the Commission broad discretion under
116. The Commission is not persuaded by suggestions that the Commission should refrain from imposing support reductions for untimely filings and instead rely on Commission enforcement authority in the event of non-compliance. If the Commission were to conduct an enforcement proceeding every time an ETC misses a deadline, that would divert Commission resources from other Commission priorities. Instead, by adopting a clear and predictable support reduction scheme, the Commission, USAC, and ETCs will know exactly what consequences will result under the rules if filings are missed, rather than having to handle each issue on a case-by-case basis. Similarly, the Commission is not persuaded that support reductions are unnecessary because ETCs are already motivated to file on time to avoid a delay in receiving their support. Support reductions provide more of an incentive to file on time because ETCs actually lose support under the mechanism established in our rules rather than simply have it delayed if they do not meet a deadline.
117. Given the Commission's decision to modify the support reductions for late filings, the Commission adopts its proposal to require strict adherence to filing deadlines. The Commission will cease the practice of finding there is good cause for a waiver of high-cost filing deadlines in circumstances where an ETC has missed the deadline due to an administrative or clerical oversight and where that ETC has promised to revise its procedures to ensure future compliance, as proposed in the
118.
119. In addition, the Commission reminds all ETCs that they may also be subject to other sanctions for non-compliance with the terms and conditions of high-cost funding, including, but not limited to, potential revocation of ETC designation and suspension or debarment. The Commission emphasizes that it will enforce the terms and conditions of high-cost support vigorously. The Enforcement Bureau may initiate an enforcement proceeding in situations where waiver is not appropriate. In proposing any forfeiture, consistent with the Commission's rules, the Enforcement Bureau shall take into account the nature, circumstances, extent, and gravity of the violations.
120. For ETCs that must meet specific build-out milestones, the Commission adopts a framework for support reductions that are calibrated to the extent of an ETC's non-compliance with these deployment milestones. The Commission concludes that adopting support reductions that scale with the extent of an ETC's non-compliance will create incentives for ETCs to come into compliance as soon as possible, and that a support reduction scheme that is tied to specific milestones is a clear, straightforward approach.
121. The Commission has given rate-of-return carriers greater flexibility to build out their networks by requiring that they deploy service meeting the Commission's requirements upon reasonable request. Because rate-of-return carriers are not at this time required to build out to a certain number of locations, the Commission concludes it is appropriate to handle matters regarding their potential non-compliance on a case-by-case basis.
122.
123. To the extent that an ETC determines that it will not meet a build-out milestone, that ETC must notify the Commission, USAC, and the relevant state or U.S. Territory, and Tribal government as appropriate, no later than ten business days after the relevant deadline, rather than waiting until the filing of the next annual report. The Commission also expects that the states, U.S. Territories, and Tribal governments will continue to aid us in our joint oversight role and notify the Commission when an ETC is not meeting its obligations.
124.
125. Specifically, for interim milestones that occur during the support term:
• Tier 1: If an ETC has a compliance gap of at least five percent but less than 15 percent of the number of locations that the ETC is required to have built out to by the interim milestone, the Bureau will issue a letter to that effect. The ETC will then be required to file quarterly reports identifying the geocoded locations to which the ETC has newly deployed facilities capable of delivering broadband meeting the requisite requirements with Connect America support in the previous quarter. The ETC must continue to file these quarterly reports until the ETC reports that it has reduced the compliance gap to less than five percent of the required number of locations for that interim milestone and the Bureau issues a letter to that effect.
• Tier 2: If an ETC has a compliance gap of at least 15 percent but less than 25 percent of the number of locations that the ETC is required to have built out to by the interim milestone, USAC will withhold 15 percent of the ETC's monthly support for the state and the ETC will be required to file quarterly reports. Once the ETC has reported that it has reduced the compliance gap to less than 15 percent of the required number of locations for that interim milestone for that state, the Bureau will issue a letter to that effect, USAC will stop withholding support, and the ETC will receive all of the support that had been withheld. The ETC will then move to Tier 1 status.
• Tier 3: If an ETC has a compliance gap of at least 25 percent but less than 50 percent of the number of locations that the ETC is required to have built out to by the interim milestone, USAC will withhold 25 percent of the ETC's monthly support for the state and the ETC will be required to file quarterly reports. Once the ETC has reported that it has reduced the compliance gap to
• Tier 4: If an ETC has a compliance gap of 50 percent or more of the number of locations that the ETC is required to have built out to by the interim milestone, USAC will withhold 50 percent of the ETC's monthly support for the state, and the ETC will be required to file quarterly reports. As with the other tiers, as the ETC reports that it has lessened the extent of its non-compliance, and the Bureau issues a letter to that effect, it will move down the tiers until it reaches Tier 1 (or no longer is out of compliance with the relevant interim milestone). At that point, the ETC will be eligible to have all of its support restored, the ETC will receive all of the support that had been withheld, and, if it now is meeting the interim milestone, it will no longer be required to file quarterly reports.
On the other hand, if after having 50 percent of its support withheld for six months the ETC has not reported that it is eligible for Tier 3 status (or one of the other lower tiers), USAC will withhold 100 percent of the ETC's support for that state and will commence recovery action for a percentage of support that is equal to the ETC's compliance gap plus ten percent of the ETC's support that has been paid to that point. For example, if an ETC has not built out to 75 percent of the required number of locations in a state, USAC would recover 85 percent of the ETC's support that had been paid to that point. The Commission concludes that recovering the additional ten percent of the ETC's support that has been disbursed up to that point will deter ETCs from deciding that they would rather return the support than meet their commitments for the supported area. Because these are high-cost areas that lack unsubsidized providers at the outset of the support term, an ETC's refusal to serve these locations could potentially leave the locations with no options for reasonably comparable service.
• If at any point during the support term the ETC reports that it is eligible for Tier 1 status, it will have its support fully restored including any support that had been withheld, USAC will repay any funds that were recovered, and the ETC will move to Tier 1 status.
126. As noted above, the Commission requires ETCs to report to the Commission, USAC, and the relevant state or U.S. Territory, and Tribal government as appropriate, within ten business days of the final build-out milestone if they have missed this milestone. If an ETC misses the final build-out milestone, it must identify by what percentage it has missed the final build-out milestone. Absent an extension of time for circumstances beyond the ETC's control, the ETC will then have twelve months from the date of the final build-out milestone deadline to come into full compliance with this milestone. If an ETC does not report that it has come into full compliance within twelve months, the Bureau will issue a letter to this effect. USAC will then recover an amount of support that is equal to 1.89 times the average amount of support per location received in the state over the six-year term for the relevant number of locations that the ETC has failed to deploy to, plus ten percent of the ETC's total Phase II support received in the state over the six-year term. As explained above, the Commission concludes that recovering an additional ten percent of the ETC's total Phase II support will deter ETCs from deciding to return their support rather than build out to more than a de minimis number of locations.
127. If after the ETC's support term has ended, USAC determines in the course of a compliance review that the ETC has not retained sufficient evidence to demonstrate that it has built out to all of the locations required by the final build-out milestone, USAC must recover support from that ETC. Specifically, if the ETC does not have sufficient evidence to demonstrate that it has built out to the total number of required locations, USAC will recover an amount of support that is equal to 1.89 times the average amount of support per location received in the state over the six-year term for the relevant number of locations for which the ETC has failed to retain sufficient evidence, plus ten percent of the ETC's total support received in that state over the six-year term. The Commission expects that ETCs will have strong incentives to adopt policies and procedures to retain sufficient evidence to aid the Commission and USAC in our oversight responsibility.
128. Table 2 below summarizes the regime the Commission adopts in this Order.
129. The Commission provides the following example in Table 3 of how these compliance measures will be implemented for a price cap carrier that accepts the state-level commitment. For simplicity, the Commission assumes the price cap carrier must serve 100 total locations and does not elect the flexibility option.
130. The Commission concludes that the approach it adopts in the Order is preferable to the other alternative the Commission sought comment on—permitting ETCs to submit a plan to USAC for coming into compliance before support reductions would begin. Such an approach would likely to be resource-intensive for Commission staff and USAC because each default would need to be handled on a case-by-case basis. When there are clear milestones that must be met, such an approach is unnecessary. Moreover, it likely would take a significant amount of time for an ETC to develop a compliance plan and for the plan to be approved, and then it will take even more time for the ETC to come into full compliance. During this extended period consumers will be without service meeting the Commission's requirements. The Commission finds that the more automatic support reduction scheme it adopts above will more quickly motivate ETCs to come into compliance and is a clearer, less resource-intensive process for the Commission, USAC, and ETCs.
131.
132.
133. The Commission concludes that this issue is best dealt with on a case-by-case basis for the time being for all ETCs that must certify that the rates they offer are reasonably comparable. The Commission finds that it would not be appropriate to apply a uniform support reduction to all ETCs that fail to offer reasonably comparable prices. It would be inequitable to reduce support by the same percentage amount regardless of whether the ETC was charging prices a few dollars above what is considered to be reasonably comparable or charging much higher prices. Similarly, because the pricing benchmarks for voice and broadband are
134. The Commission directs USAC to gather additional information when ETCs fail to make the reasonably comparable certification about their voice or broadband rates in their section 54.313 annual report and transmit that information to the Commission. The ETC may present factual evidence explaining the unique circumstances that preclude it from offering service at a rate meeting the requisite benchmark. Based on this information, the Commission will be in a better position at a future date to determine the appropriate steps to take when there is non-compliance with this requirement.
135. This document contains new information collection requirements subject to the PRA. It will be submitted to the Office of Management and Budget (OMB) for review under section 3507(d) of the PRA. OMB, the general public, and other Federal agencies are invited to comment on the new information collection requirements contained in this proceeding. In addition, the Commission notes that pursuant to the Small Business Paperwork Relief Act of 2002, the Commission previously sought specific comment on how the Commission might further reduce the information collection burden for small business concerns with fewer than 25 employees. The Commission describes impacts that might affect small businesses, which includes most businesses with fewer than 25 employees, in the Final Regulatory Flexibility Analysis (FRFA).
136. As required by the Regulatory Flexibility Act of 1980 (RFA), as amended, an Initial Regulatory Flexibility Analyses (IRFA) was incorporated in the
137. With this Order, the Commission takes another momentous stride towards fully implementing a modernized universal service regime capable of meeting consumer demands for 21st century networks. The Commission finalizes the decisions necessary to proceed with the offer of support to price cap carriers in early 2015, thereby paving the way for the deployment of new broadband infrastructure to millions of unserved Americans. In the coming months, the Commission will turn its attention to finalizing the rules for the Phase II competitive bidding process that will occur in those states where the price cap carrier declines the offer of model-based support.
138. Throughout the universal service reform process, the Commission has sought to ensure that all consumers “have access to . . . advanced telecommunications and information services” and benefit from the historic technology transitions that are transforming our nation's communications services. The Order continues down that path. The Commission adopts several revisions to Connect America Phase II to account for changes in the marketplace since the
139. The Commission adopts targeted changes to the framework established for the offer of model-based support to price cap carriers. Specifically, the Commission makes an adjustment to the term of support, adopts more evenly spaced interim deployment milestones, and concludes that adjustments of up to five percent in the number of locations that must be served with corresponding support reductions are appropriate to ensure that deployment obligations recognize conditions in the real world. The Commission also forbears from the federal high-cost universal service obligation of price cap carriers to offer voice service in low-cost areas where they do not receive high-cost support, in areas served by an unsubsidized competitor, and in areas where the price cap carrier is replaced by another ETC.
140. In addition, the Commission addresses where Phase II support will be available, both for the offer of model-based support to price cap carriers and the subsequent Phase II competitive bidding process. First, the Commission will exclude from the offer of Phase II model-based support any census block served by a subsidized facilities-based terrestrial competitor that offers fixed residential voice and broadband services meeting or exceeding the 3 Mbps downstream/768 kbps upstream (3 Mbps/768 kbps) performance metrics, as determined by the Bureau upon completion of the Phase II challenge process. The Commission also reaffirms its decision to exclude from the offer of model-based support any census block served by an unsubsidized competitor that meets or exceeds the 3 Mbps/768 kbps performance metrics. Second, the Commission concludes that those high-cost blocks served by a subsidized carrier that are excluded from the offer of model-based support—including blocks with service meeting or exceeding the new 10 Mbps downstream/1 Mbps upstream (10/1 Mbps) speed requirement—will be eligible for support in the Phase II competitive bidding process. Third, the Commission concludes that any area served by an unsubsidized facilities-based terrestrial competitor that offers 10/1 Mbps will be ineligible for support in the Phase II competitive bidding process. Fourth, the Commission excludes from the offer of model-based support those areas that are the subject of category one bids that were not selected for the rural broadband experiments and where a losing bidder has filed specific information indicating that it wishes to remain in consideration for rural broadband experiment support.
141. In the
142. In this Order, the Commission focuses on near-term reforms for rate-of-return carriers. Specifically, the Commission adopts a revised methodology for applying the cap on high-cost loop support to distribute that support on a more equitable basis. The Commission also addresses the proposals from the
143. In the
144. The actions the Commission takes in this Order, combined with the implementation of the rural broadband experiments and the reforms the Commission implemented earlier in the year, will allow the Commission to continue to advance further down the path outlined in the
145. There were no relevant comments filed that specifically addressed the rules and policies proposed in the
146. The RFA directs agencies to provide a description of, and where feasible, an estimate of the number of small entities that may be affected by the rules adopted herein. The RFA generally defines the term “small entity” as having the same meaning as the terms “small business,” “small organization,” and “small governmental jurisdiction.” In addition, the term “small business” has the same meaning as the term “small-business concern” under the Small Business Act. A “small-business concern” is one which: (1) Is independently owned and operated; (2) is not dominant in its field of operation; and (3) satisfies any additional criteria established by the SBA.
147. Small Businesses. Nationwide, there are a total of approximately 28.2 million small businesses, according to the SBA.
148. Wired Telecommunications Carriers. The SBA has developed a small business size standard for Wired Telecommunications Carriers, which consists of all such companies having 1,500 or fewer employees. According to Census Bureau data for 2007, there were 3,188 firms in this category, total, that operated for the entire year. Of this total, 3144 firms had employment of 999 or fewer employees, and 44 firms had employment of 1000 employees or more. Thus, under this size standard, the majority of firms can be considered small.
149. Local Exchange Carriers (LECs). Neither the Commission nor the SBA has developed a size standard for small businesses specifically applicable to local exchange services. The closest applicable size standard under SBA rules is for Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 1,307 carriers reported that they were incumbent local exchange service providers. Of these 1,307 carriers, an estimated 1,006 have 1,500 or fewer employees and 301 have more than 1,500 employees. Consequently, the Commission estimates that most providers of local exchange service are small entities that may be affected by the rules and policies proposed in the Order.
150. Incumbent Local Exchange Carriers (incumbent LECs). Neither the Commission nor the SBA has developed a size standard for small businesses specifically applicable to incumbent local exchange services. The closest applicable size standard under SBA rules is for Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 1,307 carriers reported that they were incumbent local exchange service providers. Of these 1,307 carriers, an estimated 1,006 have 1,500 or fewer employees and 301 have more than 1,500 employees. Consequently, the Commission estimates that most providers of incumbent local exchange service are small businesses that may be affected by rules adopted pursuant to the Order
151. The Commission has included small incumbent LECs in this present RFA analysis. As noted above, a “small business” under the RFA is one that,
152. Competitive Local Exchange Carriers (competitive LECs), Competitive Access Providers (CAPs), Shared-Tenant Service Providers, and Other Local Service Providers. Neither the Commission nor the SBA has developed a small business size standard specifically for these service providers. The appropriate size standard under SBA rules is for the category Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 1,442 carriers reported that they were engaged in the provision of either competitive local exchange services or competitive access provider services. Of these 1,442 carriers, an estimated 1,256 have 1,500 or fewer employees and 186 have more than 1,500 employees. In addition, 17 carriers have reported that they are Shared-Tenant Service Providers, and all 17 are estimated to have 1,500 or fewer employees. In addition, 72 carriers have reported that
153. Interexchange Carriers (IXCs). Neither the Commission nor the SBA has developed a size standard for small businesses specifically applicable to interexchange services. The closest applicable size standard under SBA rules is for Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 359 companies reported that their primary telecommunications service activity was the provision of interexchange services. Of these 359 companies, an estimated 317 have 1,500 or fewer employees and 42 have more than 1,500 employees. Consequently, the Commission estimates that the majority of interexchange service providers are small entities that may be affected by rules adopted pursuant to the Order.
154. Prepaid Calling Card Providers. Neither the Commission nor the SBA has developed a small business size standard specifically for prepaid calling card providers. The appropriate size standard under SBA rules is for the category Telecommunications Resellers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 193 carriers have reported that they are engaged in the provision of prepaid calling cards. Of these, an estimated all 193 have 1,500 or fewer employees and none have more than 1,500 employees. Consequently, the Commission estimates that the majority of prepaid calling card providers are small entities that may be affected by rules adopted pursuant to the Order.
155. Local Resellers. The SBA has developed a small business size standard for the category of Telecommunications Resellers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 213 carriers have reported that they are engaged in the provision of local resale services. Of these, an estimated 211 have 1,500 or fewer employees and two have more than 1,500 employees. Consequently, the Commission estimates that the majority of local resellers are small entities that may be affected by rules adopted pursuant to the Order.
156. Toll Resellers. The SBA has developed a small business size standard for the category of Telecommunications Resellers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 881 carriers have reported that they are engaged in the provision of toll resale services. Of these, an estimated 857 have 1,500 or fewer employees and 24 have more than 1,500 employees. Consequently, the Commission estimates that the majority of toll resellers are small entities that may be affected by rules adopted pursuant to the Order.
157. Other Toll Carriers. Neither the Commission nor the SBA has developed a size standard for small businesses specifically applicable to Other Toll Carriers. This category includes toll carriers that do not fall within the categories of interexchange carriers, operator service providers, prepaid calling card providers, satellite service carriers, or toll resellers. The closest applicable size standard under SBA rules is for Wired Telecommunications Carriers. Under that size standard, such a business is small if it has 1,500 or fewer employees. According to Commission data, 284 companies reported that their primary telecommunications service activity was the provision of other toll carriage. Of these, an estimated 279 have 1,500 or fewer employees and five have more than 1,500 employees. Consequently, the Commission estimates that most Other Toll Carriers are small entities that may be affected by the rules and policies adopted pursuant to the Order.
158. 800 and 800-Like Service Subscribers. Neither the Commission nor the SBA has developed a small business size standard specifically for 800 and 800-like service (toll free) subscribers. The appropriate size standard under SBA rules is for the category Telecommunications Resellers. Under that size standard, such a business is small if it has 1,500 or fewer employees. The most reliable source of information regarding the number of these service subscribers appears to be data the Commission collects on the 800, 888, 877, and 866 numbers in use. According to our data, as of September 2009, the number of 800 numbers assigned was 7,860,000; the number of 888 numbers assigned was 5,588,687; the number of 877 numbers assigned was 4,721,866; and the number of 866 numbers assigned was 7,867,736. The Commission does not have data specifying the number of these subscribers that are not independently owned and operated or have more than 1,500 employees, and thus are unable at this time to estimate with greater precision the number of toll free subscribers that would qualify as small businesses under the SBA size standard. Consequently, the Commission estimates that there are 7,860,000 or fewer small entity 800 subscribers; 5,588,687 or fewer small entity 888 subscribers; 4,721,866 or fewer small entity 877 subscribers; and 7,867,736 or fewer small entity 866 subscribers.
159. Wireless Telecommunications Carriers (except Satellite). Since 2007, the SBA has recognized wireless firms within this new, broad, economic census category. Prior to that time, such firms were within the now-superseded categories of Paging and Cellular and Other Wireless Telecommunications. Under the present and prior categories, the SBA has deemed a wireless business to be small if it has 1,500 or fewer employees. For this category, census data for 2007 show that there were 1,383 firms that operated for the entire year. Of this total, 1,368 firms had employment of 999 or fewer employees and 15 had employment of 1000 employees or more. Similarly, according to Commission data, 413 carriers reported that they were engaged in the provision of wireless telephony, including cellular service, Personal Communications Service (PCS), and Specialized Mobile Radio (SMR) Telephony services. Of these, an estimated 261 have 1,500 or fewer employees and 152 have more than 1,500 employees. Consequently, the Commission estimates that approximately half or more of these firms can be considered small. Thus, using available data, the Commission estimates that the majority of wireless firms can be considered small.
160. Broadband Personal Communications Service. The broadband personal communications service (PCS) spectrum is divided into six frequency blocks designated A through F, and the Commission has held auctions for each block. The Commission defined “small entity” for Blocks C and F as an entity that has average gross revenues of $40 million or less in the three previous calendar years. For Block F, an additional classification for “very small business” was added and is defined as an entity that, together with its affiliates, has average gross revenues of not more than $15 million for the preceding three calendar years. These standards defining “small entity” in the context of broadband PCS auctions have been approved by the SBA. No small
161. Advanced Wireless Services. In 2008, the Commission conducted the auction of Advanced Wireless Services (“AWS”) licenses. This auction, which as designated as Auction 78, offered 35 licenses in the AWS 1710-1755 MHz and 2110-2155 MHz bands (AWS-1). The AWS-1 licenses were licenses for which there were no winning bids in Auction 66. That same year, the Commission completed Auction 78. A bidder with attributed average annual gross revenues that exceeded $15 million and did not exceed $40 million for the preceding three years (“small business”) received a 15 percent discount on its winning bid. A bidder with attributed average annual gross revenues that did not exceed $15 million for the preceding three years (“very small business”) received a 25 percent discount on its winning bid. A bidder that had combined total assets of less than $500 million and combined gross revenues of less than $125 million in each of the last two years qualified for entrepreneur status. Four winning bidders that identified themselves as very small businesses won 17 licenses. Three of the winning bidders that identified themselves as a small business won five licenses. Additionally, one other winning bidder that qualified for entrepreneur status won 2 licenses.
162. Narrowband Personal Communications Services. In 1994, the Commission conducted an auction for Narrowband PCS licenses. A second auction was also conducted later in 1994. For purposes of the first two Narrowband PCS auctions, “small businesses” were entities with average gross revenues for the prior three calendar years of $40 million or less. Through these auctions, the Commission awarded a total of 41 licenses, 11 of which were obtained by four small businesses. To ensure meaningful participation by small business entities in future auctions, the Commission adopted a two-tiered small business size standard in the
163. Paging (Private and Common Carrier). In the
164. 220 MHz Radio Service—Phase I Licensees. The 220 MHz service has both Phase I and Phase II licenses. Phase I licensing was conducted by lotteries in 1992 and 1993. There are approximately 1,515 such non-nationwide licensees and four nationwide licensees currently authorized to operate in the 220 MHz band. The Commission has not developed a small business size standard for small entities specifically applicable to such incumbent 220 MHz Phase I licensees. To estimate the number of such licensees that are small businesses, the Commission applies the small business size standard under the SBA rules applicable to Wireless Telecommunications Carriers (except Satellite). Under this category, the SBA deems a wireless business to be small if it has 1,500 or fewer employees. The Commission estimates that nearly all such licensees are small businesses under the SBA's small business size standard that may be affected by rules adopted pursuant to the Order.
165. 220 MHz Radio Service—Phase II Licensees. The 220 MHz service has both Phase I and Phase II licenses. The Phase II 220 MHz service is subject to spectrum auctions. In the
166. Specialized Mobile Radio. The Commission awards small business bidding credits in auctions for Specialized Mobile Radio (“SMR”) geographic area licenses in the 800 MHz and 900 MHz bands to entities that had revenues of no more than $15 million in each of the three previous calendar years. The Commission awards very small business bidding credits to entities that had revenues of no more than $3 million in each of the three previous calendar years. The SBA has approved these small business size standards for the 800 MHz and 900 MHz SMR Services. The Commission has held auctions for geographic area licenses in the 800 MHz and 900 MHz bands. The 900 MHz SMR auction was completed in 1996. Sixty bidders claiming that they qualified as small businesses under the $15 million size standard won 263 geographic area licenses in the 900 MHz SMR band. The 800 MHz SMR auction for the upper 200 channels was conducted in 1997. Ten bidders claiming that they qualified as small businesses under the $15 million size standard won 38 geographic area licenses for the upper 200 channels in the 800 MHz SMR band. A second auction for the 800 MHz band was conducted in 2002 and included 23 BEA licenses. One bidder claiming small business status won five licenses.
167. The auction of the 1,053 800 MHz SMR geographic area licenses for the General Category channels was conducted in 2000. Eleven bidders won 108 geographic area licenses for the General Category channels in the 800 MHz SMR band qualified as small businesses under the $15 million size standard. In an auction completed in 2000, a total of 2,800 Economic Area licenses in the lower 80 channels of the 800 MHz SMR service were awarded. Of the 22 winning bidders, 19 claimed small business status and won 129 licenses. Thus, combining all three auctions, 40 winning bidders for geographic licenses in the 800 MHz SMR band claimed status as small business.
168. In addition, there are numerous incumbent site-by-site SMR licensees and licensees with extended implementation authorizations in the 800 and 900 MHz bands. The Commission does not know how many firms provide 800 MHz or 900 MHz geographic area SMR pursuant to extended implementation authorizations, nor how many of these providers have annual revenues of no more than $15 million. One firm has over $15 million in revenues. In addition, the Commission does not know how many of these firms have 1,500 or fewer employees. The Commission assumes, for purposes of this analysis, that all of the remaining existing extended implementation authorizations are held by small entities, as that small business size standard is approved by the SBA.
169. Broadband Radio Service and Educational Broadband Service. Broadband Radio Service systems, previously referred to as Multipoint Distribution Service (“MDS”) and Multichannel Multipoint Distribution Service (“MMDS”) systems, and “wireless cable,” transmit video programming to subscribers and provide two-way high speed data operations using the microwave frequencies of the Broadband Radio Service (“BRS”) and Educational Broadband Service (“EBS”) (previously referred to as the Instructional Television Fixed Service (“ITFS”)). In connection with the 1996 BRS auction, the Commission established a small business size standard as an entity that had annual average gross revenues of no more than $40 million in the previous three calendar years. The BRS auctions resulted in 67 successful bidders obtaining licensing opportunities for 493 Basic Trading Areas (“BTAs”). Of the 67 auction winners, 61 met the definition of a small business. BRS also includes licensees of stations authorized prior to the auction. At this time, the Commission estimates that of the 61 small business BRS auction winners, 48 remain small business licensees. In addition to the 48 small businesses that hold BTA authorizations, there are approximately 392 incumbent BRS licensees that are considered small entities. After adding the number of small business auction licensees to the number of incumbent licensees not already counted, the Commission finds that there are currently approximately 440 BRS licensees that are defined as small businesses under either the SBA or the Commission's rules. The Commission has adopted three levels of bidding credits for BRS: (i) A bidder with attributed average annual gross revenues that exceed $15 million and do not exceed $40 million for the preceding three years (small business) is eligible to receive a 15 percent discount on its winning bid; (ii) a bidder with attributed average annual gross revenues that exceed $3 million and do not exceed $15 million for the preceding three years (very small business) is eligible to receive a 25 percent discount on its winning bid; and (iii) a bidder with attributed average annual gross revenues that do not exceed $3 million for the preceding three years (entrepreneur) is eligible to receive a 35 percent discount on its winning bid. In 2009, the Commission conducted Auction 86, which offered 78 BRS licenses. Auction 86 concluded with ten bidders winning 61 licenses. Of the ten, two bidders claimed small business status and won 4 licenses; one bidder claimed very small business status and won three licenses; and two bidders claimed entrepreneur status and won six licenses.
170. In addition, the SBA's Cable Television Distribution Services small business size standard is applicable to EBS. There are presently 2,032 EBS licensees. All but 100 of these licenses are held by educational institutions. Educational institutions are included in this analysis as small entities. Thus, the Commission estimates that at least 1,932 licensees are small businesses. Since 2007, Cable Television Distribution Services have been defined within the broad economic census category of Wired Telecommunications Carriers; that category is defined as follows: “This industry comprises establishments primarily engaged in operating and/or providing access to transmission facilities and infrastructure that they own and/or lease for the transmission of voice, data, text, sound, and video using wired telecommunications networks. Transmission facilities may be based on a single technology or a combination of technologies.” The SBA defines a small business size standard for this category as any such firms having 1,500 or fewer employees. The SBA has developed a small business size standard for this category, which is: All such firms having 1,500 or fewer employees. According to Census Bureau data for 2007, there were a total of 955 firms in this previous category that operated for the entire year. Of this total, 939 firms had employment of 999 or fewer
171. Lower 700 MHz Band Licenses. The Commission previously adopted criteria for defining three groups of small businesses for purposes of determining their eligibility for special provisions such as bidding credits. The Commission defined a “small business” as an entity that, together with its affiliates and controlling principals, has average gross revenues not exceeding $40 million for the preceding three years. A “very small business” is defined as an entity that, together with its affiliates and controlling principals, has average gross revenues that are not more than $15 million for the preceding three years. Additionally, the Lower 700 MHz Band had a third category of small business status for Metropolitan/Rural Service Area (“MSA/RSA”) licenses, identified as “entrepreneur” and defined as an entity that, together with its affiliates and controlling principals, has average gross revenues that are not more than $3 million for the preceding three years. The SBA approved these small size standards. The Commission conducted an auction in 2002 of 740 Lower 700 MHz Band licenses (one license in each of the 734 MSAs/RSAs and one license in each of the six Economic Area Groupings (EAGs)). Of the 740 licenses available for auction, 484 licenses were sold to 102 winning bidders. Seventy-two of the winning bidders claimed small business, very small business or entrepreneur status and won a total of 329 licenses. The Commission conducted a second Lower 700 MHz Band auction in 2003 that included 256 licenses: 5 EAG licenses and 476 Cellular Market Area licenses. Seventeen winning bidders claimed small or very small business status and won 60 licenses, and nine winning bidders claimed entrepreneur status and won 154 licenses. In 2005, the Commission completed an auction of 5 licenses in the Lower 700 MHz Band, designated Auction 60. There were three winning bidders for five licenses. All three winning bidders claimed small business status.
172. In 2007, the Commission reexamined its rules governing the 700 MHz band in the
173. Upper 700 MHz Band Licenses. In the
174. 700 MHz Guard Band Licensees. In the
175. Cellular Radiotelephone Service. Auction 77 was held to resolve one group of mutually exclusive applications for Cellular Radiotelephone Service licenses for unserved areas in New Mexico. Bidding credits for designated entities were not available in Auction 77. In 2008, the Commission completed the closed auction of one unserved service area in the Cellular Radiotelephone Service, designated as Auction 77. Auction 77 concluded with one provisionally winning bid for the unserved area totaling $25,002.
176. Private Land Mobile Radio (“PLMR”). PLMR systems serve an essential role in a range of industrial, business, land transportation, and public safety activities. These radios are used by companies of all sizes operating in all U.S. business categories, and are often used in support of the licensee's primary (non-telecommunications) business operations. For the purpose of determining whether a licensee of a PLMR system is a small business as defined by the SBA, the Commission uses the broad census category, Wireless Telecommunications Carriers (except Satellite). This definition provides that a small entity is any such entity employing no more than 1,500 persons. The Commission does not require PLMR licensees to disclose information about number of employees, so the Commission does not have information that could be used to determine how many PLMR licensees constitute small entities under this definition. The Commission notes that PLMR licensees generally use the licensed facilities in support of other business activities, and therefore, it would also be helpful to assess PLMR licensees under the standards applied to the particular industry subsector to which the licensee belongs.
177. As of March 2010, there were 424,162 PLMR licensees operating 921,909 transmitters in the PLMR bands below 512 MHz. The Commission notes that any entity engaged in a commercial activity is eligible to hold a PLMR license, and that any revised rules in this context could therefore potentially impact small entities covering a great variety of industries.
178. Rural Radiotelephone Service. The Commission has not adopted a size standard for small businesses specific to the Rural Radiotelephone Service. A significant subset of the Rural Radiotelephone Service is the Basic Exchange Telephone Radio System (BETRS). In the present context, the Commission will use the SBA's small
179. Air-Ground Radiotelephone Service. The Commission has not adopted a small business size standard specific to the Air-Ground Radiotelephone Service. The Commission will use SBA's small business size standard applicable to Wireless Telecommunications Carriers (except Satellite),
180. Aviation and Marine Radio Services. Small businesses in the aviation and marine radio services use a very high frequency (VHF) marine or aircraft radio and, as appropriate, an emergency position-indicating radio beacon (and/or radar) or an emergency locator transmitter. The Commission has not developed a small business size standard specifically applicable to these small businesses. For purposes of this analysis, the Commission uses the SBA small business size standard for the category Wireless Telecommunications Carriers (except Satellite), which is 1,500 or fewer employees. Census data for 2007, which supersede data contained in the 2002 Census, show that there were 1,383 firms that operated that year. Of those 1,383, 1,368 had fewer than 100 employees, and 15 firms had more than 100 employees. Most applicants for recreational licenses are individuals. Approximately 581,000 ship station licensees and 131,000 aircraft station licensees operate domestically and are not subject to the radio carriage requirements of any statute or treaty. For purposes of the Commission's evaluations in this analysis, it estimates that there are up to approximately 712,000 licensees that are small businesses (or individuals) under the SBA standard. In addition, between December 3, 1998 and December 14, 1998, the Commission held an auction of 42 VHF Public Coast licenses in the 157.1875-157.4500 MHz (ship transmit) and 161.775-162.0125 MHz (coast transmit) bands. For purposes of the auction, the Commission defined a “small” business as an entity that, together with controlling interests and affiliates, has average gross revenues for the preceding three years not to exceed $15 million dollars. In addition, a “very small” business is one that, together with controlling interests and affiliates, has average gross revenues for the preceding three years not to exceed $3 million dollars. There are approximately 10,672 licensees in the Marine Coast Service, and the Commission estimates that almost all of them qualify as “small” businesses under the above special small business size standards and may be affected by rules adopted pursuant to the Order.
181. Fixed Microwave Services. Fixed microwave services include common carrier, private operational-fixed, and broadcast auxiliary radio services. At present, there are approximately 22,015 common carrier fixed licensees and 61,670 private operational-fixed licensees and broadcast auxiliary radio licensees in the microwave services. The Commission has not created a size standard for a small business specifically with respect to fixed microwave services. For purposes of this analysis, the Commission uses the SBA small business size standard for Wireless Telecommunications Carriers (except Satellite), which is 1,500 or fewer employees. The Commission does not have data specifying the number of these licensees that have more than 1,500 employees, and thus is unable at this time to estimate with greater precision the number of fixed microwave service licensees that would qualify as small business concerns under the SBA's small business size standard. Consequently, the Commission estimates that there are up to 22,015 common carrier fixed licensees and up to 61,670 private operational-fixed licensees and broadcast auxiliary radio licensees in the microwave services that may be small and may be affected by the rules and policies adopted herein. The Commission notes, however, that the common carrier microwave fixed licensee category includes some large entities.
182. Offshore Radiotelephone Service. This service operates on several UHF television broadcast channels that are not used for television broadcasting in the coastal areas of states bordering the Gulf of Mexico. There are presently approximately 55 licensees in this service. The Commission is unable to estimate at this time the number of licensees that would qualify as small under the SBA's small business size standard for the category of Wireless Telecommunications Carriers (except Satellite). Under that SBA small business size standard, a business is small if it has 1,500 or fewer employees. Census data for 2007, which supersede data contained in the 2002 Census, show that there were 1,383 firms that operated that year. Of those 1,383, 1,368 had fewer than 100 employees, and 15 firms had more than 100 employees. Thus, under this category and the associated small business size standard, the majority of firms can be considered small.
183. 39 GHz Service. The Commission created a special small business size standard for 39 GHz licenses—an entity that has average gross revenues of $40 million or less in the three previous calendar years. An additional size standard for “very small business” is: An entity that, together with affiliates, has average gross revenues of not more than $15 million for the preceding three calendar years. The SBA has approved these small business size standards. The auction of the 2,173 39 GHz licenses began on April 12, 2000 and closed on May 8, 2000. The 18 bidders who claimed small business status won 849 licenses. Consequently, the Commission estimates that 18 or fewer 39 GHz licensees are small entities that may be affected by rules adopted pursuant to the Order.
184. Local Multipoint Distribution Service. Local Multipoint Distribution Service (LMDS) is a fixed broadband point-to-multipoint microwave service that provides for two-way video telecommunications. The auction of the 986 LMDS licenses began and closed in 1998. The Commission established a small business size standard for LMDS licenses as an entity that has average gross revenues of less than $40 million in the three previous calendar years. An additional small business size standard for “very small business” was added as an entity that, together with its affiliates, has average gross revenues of not more than $15 million for the preceding three calendar years. The SBA has approved these small business size standards in the context of LMDS auctions. There were 93 winning bidders that qualified as small entities in the LMDS auctions. A total of 93 small and very small business bidders won approximately 277 A Block licenses and 387 B Block licenses. In 1999, the Commission re-auctioned 161 licenses; there were 32 small and very small businesses winning that won 119 licenses.
185. 218-219 MHz Service. The first auction of 218-219 MHz spectrum resulted in 170 entities winning licenses for 594 Metropolitan Statistical Area (MSA) licenses. Of the 594 licenses, 557
186. 2.3 GHz Wireless Communications Services. This service can be used for fixed, mobile, radiolocation, and digital audio broadcasting satellite uses. The Commission defined “small business” for the wireless communications services (“WCS”) auction as an entity with average gross revenues of $40 million for each of the three preceding years, and a “very small business” as an entity with average gross revenues of $15 million for each of the three preceding years. The SBA has approved these definitions. The Commission auctioned geographic area licenses in the WCS service. In the auction, which was conducted in 1997, there were seven bidders that won 31 licenses that qualified as very small business entities, and one bidder that won one license that qualified as a small business entity.
187. 1670-1675 MHz Band. An auction for one license in the 1670-1675 MHz band was conducted in 2003. The Commission defined a “small business” as an entity with attributable average annual gross revenues of not more than $40 million for the preceding three years and thus would be eligible for a 15 percent discount on its winning bid for the 1670-1675 MHz band license. Further, the Commission defined a “very small business” as an entity with attributable average annual gross revenues of not more than $15 million for the preceding three years and thus would be eligible to receive a 25 percent discount on its winning bid for the 1670-1675 MHz band license. One license was awarded. The winning bidder was not a small entity.
188. 3650-3700 MHz band. In March 2005, the Commission released a
189. 24 GHz—Incumbent Licensees. This analysis may affect incumbent licensees who were relocated to the 24 GHz band from the 18 GHz band, and applicants who wish to provide services in the 24 GHz band. For this service, the Commission uses the SBA small business size standard for the category “Wireless Telecommunications Carriers (except satellite),” which is 1,500 or fewer employees. To gauge small business prevalence for these cable services the Commission must, however, use the most current census data. Census data for 2007, which supersede data contained in the 2002 Census, show that there were 1,383 firms that operated that year. Of those 1,383, 1,368 had fewer than 100 employees, and 15 firms had more than 100 employees. Thus under this category and the associated small business size standard, the majority of firms can be considered small. The Commission notes that the Census' use of the classifications “firms” does not track the number of “licenses”. The Commission believes that there are only two licensees in the 24 GHz band that were relocated from the 18 GHz band, Teligent and TRW, Inc. It is our understanding that Teligent and its related companies have less than 1,500 employees, though this may change in the future. TRW is not a small entity. Thus, only one incumbent licensee in the 24 GHz band is a small business entity.
190. 24 GHz—Future Licensees. With respect to new applicants in the 24 GHz band, the size standard for “small business” is an entity that, together with controlling interests and affiliates, has average annual gross revenues for the three preceding years not in excess of $15 million. “Very small business” in the 24 GHz band is an entity that, together with controlling interests and affiliates, has average gross revenues not exceeding $3 million for the preceding three years. The SBA has approved these small business size standards. These size standards will apply to a future 24 GHz license auction, if held.
191. Satellite Telecommunications. Since 2007, the SBA has recognized satellite firms within this revised category, with a small business size standard of $15 million. The most current Census Bureau data are from the economic census of 2007, and the Commission will use those figures to gauge the prevalence of small businesses in this category. Those size standards are for the two census categories of “Satellite Telecommunications” and “Other Telecommunications.” Under the “Satellite Telecommunications” category, a business is considered small if it had $15 million or less in average annual receipts. Under the “Other Telecommunications” category, a business is considered small if it had $25 million or less in average annual receipts.
192. The first category of Satellite Telecommunications “comprises establishments primarily engaged in providing point-to-point telecommunications services to other establishments in the telecommunications and broadcasting industries by forwarding and receiving communications signals via a system of satellites or reselling satellite telecommunications.” For this category, Census Bureau data for 2007 show that there were a total of 512 firms that operated for the entire year. Of this total, 464 firms had annual receipts of under $10 million, and 18 firms had receipts of $10 million to $24,999,999. Consequently, the Commission estimates that the majority of Satellite Telecommunications firms are small entities that might be affected by rules adopted pursuant to the Order.
193. The second category of Other Telecommunications “primarily engaged in providing specialized telecommunications services, such as satellite tracking, communications telemetry, and radar station operation. This industry also includes establishments primarily engaged in providing satellite terminal stations and associated facilities connected with one or more terrestrial systems and capable of transmitting telecommunications to, and receiving telecommunications from, satellite systems. Establishments providing Internet services or voice over Internet protocol (VoIP) services via client-supplied telecommunications connections are also included in this industry.” For this category, Census
194. Cable and Other Program Distribution. Since 2007, these services have been defined within the broad economic census category of Wired Telecommunications Carriers; that category is defined as follows: “This industry comprises establishments primarily engaged in operating and/or providing access to transmission facilities and infrastructure that they own and/or lease for the transmission of voice, data, text, sound, and video using wired telecommunications networks. Transmission facilities may be based on a single technology or a combination of technologies.” The SBA has developed a small business size standard for this category, which is: All such firms having 1,500 or fewer employees. According to Census Bureau data for 2007, there were a total of 955 firms in this previous category that operated for the entire year. Of this total, 939 firms had employment of 999 or fewer employees, and 16 firms had employment of 1000 employees or more. Thus, under this size standard, the majority of firms can be considered small and may be affected by rules adopted pursuant to the Order.
195. Cable Companies and Systems. The Commission has developed its own small business size standards, for the purpose of cable rate regulation. Under the Commission's rules, a “small cable company” is one serving 400,000 or fewer subscribers, nationwide. Industry data indicate that, of 1,076 cable operators nationwide, all but eleven are small under this size standard. In addition, under the Commission's rules, a “small system” is a cable system serving 15,000 or fewer subscribers. Industry data indicate that, of 7,208 systems nationwide, 6,139 systems have under 10,000 subscribers, and an additional 379 systems have 10,000-19,999 subscribers. Thus, under this second size standard, most cable systems are small and may be affected by rules adopted pursuant to the Order.
196. Cable System Operators. The Act also contains a size standard for small cable system operators, which is “a cable operator that, directly or through an affiliate, serves in the aggregate fewer than 1 percent of all subscribers in the United States and is not affiliated with any entity or entities whose gross annual revenues in the aggregate exceed $250,000,000.” The Commission has determined that an operator serving fewer than 677,000 subscribers shall be deemed a small operator, if its annual revenues, when combined with the total annual revenues of all its affiliates, do not exceed $250 million in the aggregate. Industry data indicate that, of 1,076 cable operators nationwide, all but ten are small under this size standard. The Commission notes that it neither requests nor collects information on whether cable system operators are affiliated with entities whose gross annual revenues exceed $250 million, and therefore the Commission is unable to estimate more accurately the number of cable system operators that would qualify as small under this size standard.
197. Open Video Services. The open video system (“OVS”) framework was established in 1996, and is one of four statutorily recognized options for the provision of video programming services by local exchange carriers. The OVS framework provides opportunities for the distribution of video programming other than through cable systems. Because OVS operators provide subscription services, OVS falls within the SBA small business size standard covering cable services, which is “Wired Telecommunications Carriers.” The SBA has developed a small business size standard for this category, which is: all such firms having 1,500 or fewer employees. According to Census Bureau data for 2007, there were a total of 955 firms in this previous category that operated for the entire year. Of this total, 939 firms had employment of 999 or fewer employees, and 16 firms had employment of 1000 employees or more. Thus, under this second size standard, most cable systems are small and may be affected by rules adopted pursuant to the Order. In addition, the Commission notes that it has certified some OVS operators, with some now providing service. Broadband service providers (“BSPs”) are currently the only significant holders of OVS certifications or local OVS franchises. The Commission does not have financial or employment information regarding the entities authorized to provide OVS, some of which may not yet be operational. Thus, again, at least some of the OVS operators may qualify as small entities.
198. Internet Service Providers. Since 2007, these services have been defined within the broad economic census category of Wired Telecommunications Carriers; that category is defined as follows: “This industry comprises establishments primarily engaged in operating and/or providing access to transmission facilities and infrastructure that they own and/or lease for the transmission of voice, data, text, sound, and video using wired telecommunications networks. Transmission facilities may be based on a single technology or a combination of technologies.” The SBA has developed a small business size standard for this category, which is: All such firms having 1,500 or fewer employees. According to Census Bureau data for 2007, there were 3,188 firms in this category, total, that operated for the entire year. Of this total, 3144 firms had employment of 999 or fewer employees, and 44 firms had employment of 1000 employees or more. Thus, under this size standard, the majority of firms can be considered small. In addition, according to Census Bureau data for 2007, there were a total of 396 firms in the category Internet Service Providers (broadband) that operated for the entire year. Of this total, 394 firms had employment of 999 or fewer employees, and two firms had employment of 1000 employees or more. Consequently, the Commission estimates that the majority of these firms are small entities that may be affected by rules adopted pursuant to the Order.
199. Internet Publishing and Broadcasting and Web Search Portals. Our action may pertain to interconnected VoIP services, which could be provided by entities that provide other services such as email, online gaming, web browsing, video conferencing, instant messaging, and other, similar IP-enabled services. The Commission has not adopted a size standard for entities that create or provide these types of services or applications. However, the Census Bureau has identified firms that “primarily engaged in (1) publishing and/or broadcasting content on the Internet exclusively or (2) operating Web sites that use a search engine to generate and maintain extensive databases of Internet addresses and content in an easily searchable format (and known as Web search portals).” The SBA has developed a small business size standard for this category, which is: all such firms having 500 or fewer employees. According to Census Bureau data for 2007, there were 2,705 firms in this category that operated for the entire year. Of this total, 2,682 firms had employment of 499 or fewer employees, and 23 firms had employment of 500 employees or more. Consequently, the Commission estimates that the majority of these firms are small entities that may be affected by rules adopted pursuant to the Order.
200. Data Processing, Hosting, and Related Services. Entities in this category “primarily . . . provid[e] infrastructure for hosting or data processing services.” The SBA has developed a small business size standard for this category; that size standard is $25 million or less in average annual receipts. According to Census Bureau data for 2007, there were 8,060 firms in this category that operated for the entire year. Of these, 7,744 had annual receipts of under $ $24,999,999. Consequently, the Commission estimates that the majority of these firms are small entities that may be affected by rules adopted pursuant to the Order.
201. All Other Information Services. The Census Bureau defines this industry as including “establishments primarily engaged in providing other information services (except news syndicates, libraries, archives, Internet publishing and broadcasting, and Web search portals).” Our action pertains to interconnected VoIP services, which could be provided by entities that provide other services such as email, online gaming, web browsing, video conferencing, instant messaging, and other, similar IP-enabled services. The SBA has developed a small business size standard for this category; that size standard is $7.0 million or less in average annual receipts. According to Census Bureau data for 2007, there were 367 firms in this category that operated for the entire year. Of these, 334 had annual receipts of under $5.0 million, and an additional 11 firms had receipts of between $5 million and $9,999,999. Consequently, the Commission estimates that the majority of these firms are small entities that may be affected by our action.
202. In the Order, the Commission amends section 54.313(a) to include a new subsection 12 that requires recipients of high-cost and/or Connect America Fund support that are subject to broadband performance obligations to submit a broadband reasonable comparability certification with their annual section 54.313 report (FCC Form 481). In that certification, support recipients must certify that the pricing of the broadband offering they are relying upon to meet their broadband performance obligation is no more than the applicable benchmark as specified in a public notice issued by the Bureau, or is no more than the non-promotional prices charged for a comparable fixed wireline service in urban areas in the states or U.S. Territories where the high-cost support recipient receives support. For purposes of the latter certification, the Commission does not require that the high-cost support recipient offer a particular rate nationwide; rather it is sufficient if for each state or U.S. Territory where the high-cost support recipient receives funding, the high-cost support recipient or another provider offers the same rate for a comparable fixed wireline service in an urban area in that state or U.S. Territory. Recognizing that high-cost support recipients are permitted to offer a variety of broadband service offerings as long as they offer at least one standalone voice service plan and one service plan that provides broadband that meets the Commission's requirements, it only requires that they make the above certification for one of their broadband service offerings that satisfies all of the Commission's requirements, including that the service be offered throughout the high-cost support recipient's supported area, or for rate-of-return carriers, be made available upon reasonable request.
203. The Commission concludes that requiring high-cost support recipients to make this certification will ensure that the Commission can monitor their compliance with the section 254(b) principle that “[c]onsumers in all regions of the Nation . . . should have access to telecommunications and information services that are reasonably comparable to rates charged for similar services in urban areas.”
204. The Commission requires that high-cost support recipients that elect to certify that their pricing of services in rural areas is no greater than their pricing in urban areas to rely upon the non-promotional prices charged for comparable
205. In the Order, the Commission requires all price cap carriers accepting model-based support to include in the annual progress report that they submit with their section 54.313 annual reports a list of the geocoded locations to which they have newly deployed facilities capable of delivering broadband meeting the requisite requirements with Connect America support in the prior year. The list must identify which locations are located in a Phase II-funded block and which locations are located in extremely high-cost census blocks. The first list must be submitted with their July 2016 annual report, reflecting deployment status through the end of 2015. This first list should also include the geocoded locations that a price cap carrier had already built out to with service meeting the Commission's requirements before receiving Phase II support. The Commission will also collect from price cap carriers accepting model-based support in their annual section 54.313 reports the total amount of Connect America Phase II support, if any, they used for capital expenditures in the previous calendar year. In the Order, the Commission finds that it is in the public interest to require price cap carriers accepting model-based support to provide this data on an annual basis.
206. In the Order, the Commission also takes a necessary step to ensure the most efficient use of high-cost support by reducing on a pro-rata daily basis the support of any ETC that misses certification or data submission deadlines. The Commission recognizes that despite its best efforts, an ETC may miss a deadline due to an administrative oversight but still file within a few days of the deadline, and therefore implement a one-time grace period of three days. A one-time grace period of three days achieves an appropriate balance between requiring strict compliance with our rules and providing an opportunity for ETCs that may be first time filers or that make an uncharacteristic mistake to rectify quickly an error.
207. Given our decision to modify the support reductions for late filings, the Order announces that the Commission otherwise requires strict adherence to filing deadlines. The Commission will cease the practice of finding there is good cause for a waiver of high-cost filing deadlines in circumstances where an ETC has missed the deadline due to an administrative or clerical oversight and where that ETC has promised to revise it procedures to ensure future compliance.
208. Lastly, the Commission adopts specific measures in the event that certain ETCs do not meet their high-cost obligations for fixed services. Specifically, in the Order, the Commission adopts a support reduction regime for ETCs that fail to meet their
209. The RFA requires an agency to describe any significant alternatives that it has considered in reaching its approach, which may include the following four alternatives, among others: (1) The establishment of differing compliance or reporting requirements or timetables that take into account the resources available to small entities; (2) the clarification, consolidation, or simplification of compliance or reporting requirements under the rule for small entities; (3) the use of performance, rather than design, standards; and (4) an exemption from coverage of the rule, or any part thereof, for small entities.
210. The rules that the Commission adopts in the Order provide flexibility in meeting the public interest obligations that are a condition of the receipt of high-cost support for those price cap carriers accepting the offer of model-based support, the Commission adopts targeted adjustments to the framework established by the Commission in the
211. Additionally, as the Commission did in 2011, it continues to offer a more flexible approach to deploying broadband for rate-of-return carriers. Rate-of-return carriers are only required to meet the higher speed if the request for service is reasonable—meaning that the carrier could cost effectively extend voice and broadband-capable network to that location, given its anticipated end-user revenues and other sources of support. Rate-of-return carriers will be required to offer at least 10/1 Mbps broadband service upon reasonable request, consistent with past guidance regarding our expectations regarding the reasonable request standard. If a request for 10/1 Mbps is not reasonable in a given circumstance, but offering 4/1 Mbps is reasonable, the Commission would expect a rate-of-return carrier to offer 4/1 Mbps.
212. The Commission also concludes, based on our consideration of the relevant statutory framework and the record before us, that it is in the public interest to forbear from enforcing a federal high-cost requirement that price cap carriers offer voice telephony service throughout their service areas pursuant to section 214(e)(1)(A) of the Act in three types of geographic areas: (1) Census blocks that are determined to be low-cost, (2) census blocks served by an unsubsidized competitor, and (3) census blocks where a subsidized competitor—
213. For those price cap carriers serving non-contiguous areas that elect to continue receiving frozen support amounts in lieu of the offer of model-based support, the Commission recognizes that such carriers face unique circumstances in the areas they serve and experience different challenges in deploying broadband service in those areas. Consequently, a “one-size-fits-all” approach would leave some of these carriers potentially unable to fulfill their service obligations. The Commission is confident that tailoring specific service obligations to the individual circumstances of each non-contiguous carrier that elects to continue receiving frozen support will best ensure that Connect America funding is put to the best possible use.
214. The Commission institutes a broadband reasonably comparable rate certification on all ETCs that receive ongoing high-cost support in areas served by price cap carriers and rate-of-return carriers. Although the Commission notes that filing deadlines will be strictly enforced, it adjusts the reduction of support for all ETCs, including small entities, and provides a grace period to ensure it is not unduly punitive given the nature of non-compliance.
215. The Commission also adopts specific measures that the Bureau will take in the event that certain ETCs do not meet their high-cost support deployment obligations for fixed services or does not offer rates that are reasonably comparable to rates offered in urban areas. The reductions represent a detailed calculus to ensure that no carrier is penalized inappropriately for its non-compliance. As such, price cap ETC support reductions scale with the extent of an ETC's non-compliance, and create incentives for ETCs to come into compliance as soon as possible. For rate-of-return ETCs, given that their obligation is to provide voice and broadband service upon reasonable request and the Commission does not have sufficient experience to create specific deployment milestones, the Commission finds it appropriate to handle matters regarding their potential non-compliance on a case-by-case basis. Additionally, determined that non-compliance with the reasonable comparability requirement is best dealt with on a case-by-case basis for all ETCs because of the variety of factors that go into determining whether prices are reasonably comparable. Accordingly, the Commission determined that it would not be appropriate to apply a uniform support reduction to all ETCs that fail to offer reasonably comparable prices.
216. The Commission will send a copy of the Order, including this FRFA, in a report to be sent to Congress and the Government Accountability Office pursuant to the Small Business Regulatory Enforcement Fairness Act of 1996. In addition, the Commission will send a copy of the Report and Order, including this FRFA, to the Chief Counsel for Advocacy of the Small Business Administration. A copy of the Report and Order and FRA (or summaries thereof) will also be published in the
217.
218.
219. Accordingly, IT IS ORDERED, pursuant to the authority contained in sections 1, 2, 4(i), 5, 10, 201-206, 214, 218-220, 251, 252, 254, 256, 303(r), 332, 403, and 405 of the Communications Act of 1934, as amended, and section 706 of the Telecommunications Act of 1996, 47 U.S.C. 151, 152, 154(i), 155, 160, 201-206, 214, 218-220, 251, 252, 254, 256, 303(r), 332, 403, 405, 1302, and sections 1.1, 1.427, and 1.429 of the Commission's rules, 47 CFR 1.1, 1.427, and 1.429, that this Report and Order, IS ADOPTED, effective thirty (30) days after publication of the text or summary thereof in the
220. IT IS FURTHER ORDERED that the requirement for non-contiguous carriers that wish to elect Phase II frozen support in lieu of model-based support discussed in paragraph 39 and the requirement that bidders in the rural broadband experiments that wish to remain in consideration for rural broadband experiment support discussed in paragraph 71 are effective upon release.
221. IT IS FURTHER ORDERED that for the reasons stated in paragraph 71 the Commission finds good cause exists to make excluding from the offer of model-based support any census block included in a non-winning rural broadband experiment application submitted in funding category one discussed in paragraph 72 effective upon
222. IT IS FURTHER ORDERED that Part 54 of the Commission's rules, 47 CFR part 54, IS AMENDED as set forth below, and such rule amendments SHALL BE EFFECTIVE February 26, 2015, except for §§ 54.313(a)(e) and 54.320 which contain new or modified information collection requirements that will not be effective until approved by the Office of Management and Budget. The Federal Communications Commission will publish a document in the
223. IT IS FURTHER ORDERED that, pursuant to the authority contained in sections 4(i), 4(j), 10, 214, and 254 of the Communications Act of 1934, as amended, 47 U.S.C. 154(i), 154(j), 160, 214 and 254, the petition for forbearance filed by the United States Telecom Association on October 6, 2014, IS GRANTED IN PART to the extent described herein.
224. IT IS FURTHER ORDERED that, pursuant to the authority contained in section 405 of the Communications Act of 1934, as amended, 47 U.S.C. 405, and section 1.429 of the Commission's rules, 47 CFR 1.429, the Petition for Reconsideration filed by the United States Telecom Association on August 8, 2014, IS DISMISSED to the extent described herein.
225. IT IS FURTHER ORDERED that, pursuant to the authority contained in section 405 of the Communications Act of 1934, as amended, 47 U.S.C. 405, and section 1.429 of the Commission's rules, 47 CFR 1.429, the Petition for Reconsideration filed by the National Exchange Carrier Association, Inc., et al. on August 8, 2014, IS DISMISSED to the extent described herein.
226. IT IS FURTHER ORDERED that the Commission SHALL SEND a copy of this Report and Order to Congress and the Government Accountability Office pursuant to the Congressional Review Act,
227. IT IS FURTHER ORDERED, that the Commission's Consumer and Governmental Affairs Bureau, Reference Information Center, SHALL SEND a copy of this Report and Order, including the Final Regulatory Flexibility Analysis, to the Chief Counsel for Advocacy of the Small Business Administration.
Communications common carriers, Reporting and recordkeeping requirements, Telecommunications, Telephone.
For the reasons discussed in the preamble, the Federal Communications Commission amends 47 CFR part 54 as follows:
47 U.S.C. 151, 154(i), 155, 201, 205, 214, 219, 220, 254, 303(r), 403, and 1302 unless otherwise noted.
(d) A common carrier designated as an eligible telecommunications carrier under this section shall be eligible to receive universal service support in accordance with section 254 of the Act and, except as described in paragraph (d)(3) of this section, shall throughout
(3)
(a) Rate-of-return carrier recipients of high-cost support are required to offer broadband service at actual speeds of at least 10 Mbps downstream/1 Mbps upstream, with latency suitable for real-time applications, including Voice over Internet Protocol, and usage capacity that is reasonably comparable to comparable offerings in urban areas, at rates that are reasonably comparable to rates for comparable offerings in urban areas, upon reasonable request. If a request for broadband service at actual speeds of at least 10 Mbps downstream/1 Mbps upstream is unreasonable, and offering broadband service at actual speeds of at least 4 Mbps downstream/1 Mbps upstream is reasonable, rate-of-return recipients of high-cost support are required to offer broadband service at actual speeds of at least 4 Mbps downstream/1 Mbps upstream. For purposes of determining reasonable comparability of rates, recipients are presumed to meet this requirement if they offer rates at or below the applicable benchmark to be announced annually by public notice issued by the Wireline Competition Bureau, or no more than the non-promotional prices charged for a comparable fixed wireline service in urban areas in the state or U.S. Territory where the eligible telecommunications carrier receives support.
(b) [Reserved]
(a) Recipients of Connect America Phase II model-based support are required to offer broadband service at actual speeds of at least 10 Mbps downstream/1 Mbps upstream, with latency suitable for real-time applications, including Voice over Internet Protocol, and usage capacity that is reasonably comparable to comparable offerings in urban areas, at rates that are reasonably comparable to rates for comparable offerings in urban areas. For purposes of determining reasonable comparability of rates, recipients are presumed to meet this requirement if they offer rates at or below the applicable benchmark to be announced annually by public notice issued by the Wireline Competition Bureau, or no more than the non-promotional prices charged for a comparable fixed wireline service in urban areas in the state or U.S. Territory where the eligible telecommunications carrier receives support.
(b) [Reserved]
(b)
(c)
(1) For purposes of meeting the obligation to deploy to the requisite number of supported locations in a state, recipients may serve unserved locations in census blocks with costs above the extremely high-cost threshold instead of locations in eligible census blocks, provided that they meet the public interest obligations set forth in § 54.309 for those locations and provided that the total number of locations covered is greater than or equal to the number of supported locations in the state.
(2) Recipients of Connect America Phase II model-based support may elect to deploy to 95 percent of the number of supported locations in a given state with a corresponding reduction in support computed based on the average support per location in the state times 1.89.
(a) * * *
(12) A certification that the pricing of a service that meets the Commission's broadband public interest obligations is no more than the applicable benchmark to be announced annually in a public notice issued by the Wireline Competition Bureau, or is no more than the non-promotional price charged for a comparable fixed wireline service in urban areas in the states or U.S. Territories where the eligible telecommunications carrier receives support.
(e) In addition to the information and certifications in paragraph (a) of this section, any price cap carrier that elects to receive Connect America Phase II model-based support shall provide:
(1) On July 1, 2016 an initial service quality improvement plan that includes a list of the geocoded locations already meeting the § 54.309 public interest obligations at the end of calendar year 2015, and the total amount of Phase II support, if any, the price cap carrier used for capital expenditures in 2015.
(2) On July 1, 2017 and every year thereafter ending July 1, 2021, a progress report on the company's service quality improvement plan, including the following information:
(i) A certification that it is meeting the interim deployment milestones as set forth;
(ii) The number, names, and addresses of community anchor institutions to which the eligible telecommunications carrier newly began providing access to broadband service in the preceding calendar year;
(iii) A list of the geocoded locations to which the eligible telecommunications carrier newly deployed facilities capable of delivering broadband meeting the § 54.309 public interest obligations with Connect America support in the prior year. The final progress report filed on July 1, 2021 must include the total number and geocodes of all the supported locations that a price cap carrier has built out to
(iv) The total amount of Phase II support, if any, the price cap carrier used for capital expenditures in the previous calendar year.
(3) On July 1, 2018, a certification that the recipient offered broadband meeting the requisite public interest obligations specified in § 54.309 to 40% of its supported locations in the state on December 31, 2017.
(4) On July 1, 2019, a certification that the recipient offered broadband meeting the requisite public interest obligations specified in § 54.309 to 60% of its supported locations in the state on December 31, 2018.
(5) On July 1, 2020, a certification that the recipient offered broadband meeting the requisite public interest obligations specified in § 54.309 to 80% of its supported locations in the state on December 31, 2019.
(6) On July 1, 2021, a certification that the recipient offered broadband meeting the requisite public interest obligations specified in § 54.309 to 100% of its supported locations in the state on December 31, 2020.
(j)
(i) An eligible telecommunications carrier that files after the July 1 deadline, but by July 8, will have its support reduced in an amount equivalent to seven days in support;
(ii) An eligible telecommunications carrier that files on or after July 9 will have its support reduced on a pro-rata daily basis equivalent to the period of non-compliance, plus the minimum seven-day reduction.
(2)
(d)
(i) An eligible telecommunications carrier subject to certifications filed after the October 1 deadline, but by October 8, will have its support reduced in an amount equivalent to seven days in support;
(ii) An eligible telecommunications carrier subject to certifications filed on or after October 9 will have its support reduced on a pro-rata daily basis equivalent to the period of non-compliance, plus the minimum seven-day reduction.
(2)
(a) Universal service support shall be eliminated in an incumbent rate-of-return local exchange carrier study area where an unsubsidized competitor, or combination of unsubsidized competitors, as defined in § 54.5, offers to 100 percent of residential and business locations in the study area voice and broadband service at speeds of at least 10 Mbps downstream/1 Mbps upstream, with latency suitable for real-time applications, including Voice over Internet Protocol, and usage capacity that is reasonably comparable to comparable offerings in urban areas, at rates that are reasonably comparable to rates for comparable offerings in urban areas.
(b) After a determination there is a 100 percent overlap, the incumbent local exchange carrier shall receive the following amount of high-cost support:
(1) In the first year, two-thirds of the lesser of the incumbent's total high-cost support in the immediately preceding calendar year or $3000 times the number of reported lines as of year-end for the immediately preceding calendar year;
(2) In the second year, one-third of the lesser of the incumbent's total high-cost support in the immediately preceding calendar year or $3000 times the number of reported lines as of year-end for the immediately preceding calendar year;
(3) In the third year and thereafter, no support shall be paid.
(c) The Wireline Competition Bureau shall update its analysis of where there is a 100 percent overlap on a biennial basis.
(d) Eligible telecommunications carriers subject to defined build-out milestones must notify the Commission and USAC, and the relevant state, U.S. Territory, or Tribal government, if applicable, within 10 business days after the applicable deadline if they have failed to meet a build-out milestone.
(1)
(i)
(ii)
(iii)
(iv)
(A) USAC will withhold 50 percent of the eligible telecommunications carrier's monthly support for that state, and the eligible telecommunications carrier will be required to file quarterly reports. As with the other tiers, as the eligible telecommunications carrier reports that it has lessened the extent of its non-compliance, and the Wireline Competition Bureau issues a letter to that effect, it will move down the tiers until it reaches Tier 1 (or no longer is out of compliance with the relevant interim milestone).
(B) If after having 50 percent of its support withheld for six months the eligible telecommunications carrier has not reported that it is eligible for Tier 3 status (or one of the other lower tiers), USAC will withhold 100 percent of the eligible telecommunications carrier's monthly support and will commence a recovery action for a percentage of support that is equal to the eligible telecommunications carrier's compliance gap plus 10 percent of the ETC's support that has been disbursed to that date.
(v) If at any point during the support term, the eligible telecommunications carrier reports that it is eligible for Tier 1 status, it will have its support fully restored, USAC will repay any funds that were recovered or withheld, and it will move to Tier 1 status.
(2)
(3)
(a)
(c) Until June 30, 2015, the national average unseparated loop Cost per working loop shall be the greater of:
(2) An amount calculated to produce the maximum rural incumbent local exchange carrier portion of the nationwide loop cost expense adjustment allowable pursuant to § 54.1302(a).
(d) Beginning July 1, 2015, the national average unseparated loop cost per working loop shall be frozen at the national average unseparated loop cost per working loop as recalculated by the National Exchange Carrier Association to reflect the March 2015 update filing.
(a) Until June 30, 2015, for study areas reporting 200,000 or fewer working loops pursuant to § 54.1305(h), the expense adjustment (additional interstate expense allocation) is equal to the sum of paragraphs (a)(1) and (2) of this section.
(1) Sixty-five percent of the study area average unseparated loop cost per working loop as calculated pursuant to § 54.1309(b) in excess of 115 percent of the national average for this cost but not
(2) Seventy-five percent of the study area average unseparated loop cost per working loop as calculated pursuant to § 54.1309(b) in excess of 150 percent of the national average for this cost as calculated pursuant to § 54.1309(a) multiplied by the number of working loops reported in § 54.1305(h) for the study area.
(b) Beginning July 1, 2015, the expense adjustment for each study area calculated pursuant to paragraph (a) of this section will be adjusted as follows:
(1) If the aggregate expense adjustments for all study areas exceed the maximum rural incumbent local exchange carrier portion of nationwide loop cost expense adjustment allowable pursuant to § 54.1302(a) (the HCLS cap), then each study area's expense adjustment will be reduced by multiplying it by the ratio of the HCLS cap to the aggregate expense adjustments for all study areas.
(2) If the aggregate expense adjustments for all study areas are less than the HCLS cap set pursuant to § 54.1302(a), then the expense adjustments for all study areas pursuant to paragraph (a) of this section shall be recalculated using a cost per loop calculated to produce an aggregate amount equal to the HCLS cap in place of the national average cost per loop.
(c) The expense adjustment calculated pursuant to paragraphs (a) and (b) of this section shall be adjusted each year to reflect changes in the amount of high-cost loop support resulting from adjustments calculated pursuant to § 54.1306(a) made during the previous year. If the resulting amount exceeds the previous year's fund size, the difference will be added to the amount calculated pursuant to paragraphs (a) and (b) of this section for the following year. If the adjustments made during the previous year result in a decrease in the size of the funding requirement, the difference will be subtracted from the amount calculated pursuant to paragraphs (a) and (b) of this section for the following year.
Environmental Protection Agency (EPA).
Direct final rule.
EPA is amending the list of chemical substances that are partially exempt from reporting additional information under the Chemical Data Reporting (CDR) rule. EPA has determined that, based on the totality of information available on the chemical substances listed in this direct final rule, the Agency has low current interest in their CDR processing and use information. EPA reached this conclusion after considering a number of factors, including: The risk of adverse human health or environmental effects, information needs for CDR processing and use information, and the availability of other sources of comparable processing and use information.
This direct final rule is effective March 30, 2015 without further notice, unless EPA receives adverse comment on or before February 26, 2015. If EPA receives written adverse comments, EPA will withdraw the applicable partial exemption in this direct final rule before its effective date. See also Unit II. of the
Submit your comments, identified by docket identification (ID) number EPA-HQ-OPPT-2014-0809 by one of the following methods:
•
•
•
Additional instructions on commenting or visiting the docket, along with more information about dockets generally, is available at
This partial exemption eliminates an existing reporting requirement under 40 CFR 711.6(b)(2). With this direct final rule, the following chemical substances are being exempted from reporting of the information described in 40 CFR 711.15(b)(4): Fatty acids, C14-18 and C16-18-unsatd., Me esters (Chemical Abstract Services Registry Number (CASRN) 67762-26-9); Fatty acids, C16-18 and C-18-unsatd., Me esters (CASRN 67762-38-3); Fatty acids, canola oil, Me esters (CASRN 129828-16-6); Fatty acids, corn oil, Me esters (CASRN 515152-40-6); Fatty acids, tallow, Me esters (CASRN 61788-61-2); and Soybean oil, Me ester (CASRN 67784-80-9). However, by existing terms at 40 CFR 711.6, this partial exemption will become inapplicable to a subject chemical substance in the event that the chemical substance later becomes the subject of a rule proposed or promulgated under section 4, 5(a)(2), 5(b)(4), or 6 of the Toxic Substances Control Act (TSCA); an enforceable consent agreement developed under the procedures of 40 CFR part 790; an order issued under TSCA section 5(e) or 5(f); or relief that has been granted under a civil action under TSCA section 5 or 7.
This direct final rule is in response to petitions on these chemical substances (Refs. 1 and 2) submitted under 40 CFR 711.6(b)(2)(iii)(A). EPA reviewed the information put forward in the petitions and additional information against the considerations listed at 40 CFR 711.6(b)(2)(ii). EPA's chemical substance-specific analysis is detailed in supplementary documents available in the docket under docket ID number EPA-HQ-OPPT-2014-0809 (Refs. 3, 4, 5, 6, 7, and 8). The Agency is adding these chemical substances to the partially exempt chemical substances list because it has concluded that, based on the totality of information available, the CDR processing and use information for these chemical substances is of low current interest.
This direct final rule is issued under the authority of TSCA, 15 U.S.C. 2600
There are no costs associated with this action and the benefits provided are related to avoiding potential costs. This partial exemption eliminates an existing reporting requirement without imposing any new requirements. See also the discussion in Unit V.
You may be potentially affected by this action if you manufacture (defined by statute at 15 U.S.C. 2602(7) to include import) the chemical substances contained in this direct final rule. The North American Industrial Classification System (NAICS) codes provided here are not intended to be exhaustive, but rather provide a guide to help readers determine whether this document applies to them. Potentially affected entities may include chemical manufacturers subject to CDR reporting of one or more subject chemical substances (NAICS codes 325 and 324110),
1.
2.
EPA is issuing this partial exemption as a direct final rule because it views this as a non-controversial action and anticipates no adverse comment. This direct final rule allows for comments to be submitted on or before February 26, 2015. In any comment submitted, please specify whether the comment is adverse and whether it applies to a certain chemical substance or chemical substances or all of the chemical substances in the direct final rule.
If EPA receives timely adverse comment, we will publish a withdrawal in the
If EPA does not receive any timely adverse comment, this direct final rule will become effective as indicated under
In 2003 (Ref. 9), EPA established a partial exemption for certain chemical substances for which EPA determined the processing and use information required in 40 CFR part 711 to be of “low current interest.” That provision enables the public to petition EPA to add or remove a chemical substance to or from the list of partially exempt chemical substances. In determining whether the partial exemption should apply to a particular chemical substance, EPA considers the totality of information available for the chemical substance in question, including but not limited to information associated with one or more of the considerations listed at 40 CFR 711.6(b)(2)(ii).
The addition of a chemical substance under this partial exemption will not necessarily be based on its potential risks. The addition is based on the Agency's current assessment of the need for collecting CDR processing and use information for that chemical substance, based upon the totality of information available during the petition review process. Additionally, interest in a chemical substance or a chemical substance's processing and use information may increase in the future, at which time EPA will reconsider the applicability of a partial exemption for a chemical substance.
EPA is granting a partial exemption for: Fatty acids, C14-18 and C16-18-unsatd., Me esters (CASRN) 67762-26-9); Fatty acids, C16-18 and C-18-unsatd., Me esters (CASRN 67762-38-3); Fatty acids, canola oil, Me esters (CASRN 129828-16-6); Fatty acids, corn oil, Me esters (CASRN 515152-40-6); Fatty acids, tallow, Me esters (CASRN 61788-61-2); and Soybean oil, Me ester (CASRN 67784-80-9) because the Agency has concluded it has low current interest in the processing and use information for these chemical substances. EPA made these determinations based on its analysis of the totality of information available on the six chemical substances, including information about the chemical substances relevant to the considerations defined at 40 CFR 711.6(b)(2)(ii). EPA's chemical substance-specific analysis is detailed in supplementary documents available in the docket under docket ID number EPA-HQ-OPPT-2014-0809 (Refs. 3, 4, 5, 6, 7, 8, and 9).
EPA has evaluated the economic consequences associated with amending the CDR partially exempt chemical substances list. Since this direct final rule creates a partial exemption from CDR reporting, without creating any new reporting or recordkeeping requirements, this action does not impose any new burden. Based on the currently approved Information Collection Request (ICR), the burden estimates for reporting processing and use information are 65.63 hours per submission. Based on 2012 CDR reporting, EPA estimates that 61 submissions with manufacture volumes of 25,000 pounds or greater will be received for these chemical substances in 2016 and subsequent reporting years. Eliminating the requirement to report processing and use information for these submissions results in a total burden savings of approximately 4,003 hours and $246,867 in future reporting cycles (Ref. 10).
The following is a listing of the documents that are specifically referenced in this document. The docket includes these documents and other information considered by EPA, including documents that are referenced within the documents that are included in the docket, even if the referenced document is not physically located in the docket. For assistance in locating these other documents, please consult the technical person listed under
This action is not a significant regulatory action as defined by Executive Order 12866 (58 FR 51735, October 4, 1993). Accordingly, this action was not submitted to the Office of Management and Budget (OMB) for review under Executive Orders 12866 and 13563 (76 FR 3821, January 21, 2011).
According to PRA, 44 U.S.C. 3501
The information collection requirements related to CDR have already been approved by OMB pursuant to PRA under OMB control number 2070-0162 (EPA ICR No. 1884.06). Since this action creates a partial exemption from that reporting, without creating any new reporting or recordkeeping requirements, this action does not impose any new burdens that require additional OMB approval.
I certify that this action will not have a significant economic impact on a substantial number of small entities under RFA, 5 U.S.C 601
As indicated previously, EPA is eliminating an existing reporting requirement for the chemical substances identified in this action. In granting a partial exemption from existing reporting, this action will not have a significant economic impact on any affected entities, regardless of their size.
This action does not contain any unfunded mandate as described in UMRA, 2 U.S.C. 1501
This action would not have a substantial direct effect on States, on the relationship between the national government and the States, or on the distribution of power and responsibilities among the various levels of government, as specified in Executive Order 13132 (64 FR 43255, August 10, 1999).
This action does not have Tribal implications because it is not expected to have substantial direct effects on Indian Tribes. This action does not significantly or uniquely affect the communities of Indian Tribal governments, nor involve or impose any requirements that affect Indian Tribes. Accordingly, the requirements of Executive Order 13175 (65 FR 67249, November 9, 2000) do not apply to this action.
This action is not subject to Executive Order 13045 (62 FR 19885, April 23, 1997), because this action does not address environmental health or safety risks disproportionately affecting children.
This action is not subject to Executive Order 13211 (66 FR 28355, May 22, 2001), because this action is not expected to affect energy supply, distribution, or use.
Since this action does not involve any technical standards, NTTAA section 12(d), 15 U.S.C. 272 note, does not apply to this action.
EPA has determined that this action will not have disproportionately high and adverse human health or environmental effects on minority or low-income populations because it does not affect the level of protection provided to human health or the environment. As such, this action does not entail special considerations of environmental justice related issues as delineated by Executive Order 12898 (59 FR 7629, February 16, 1994).
Pursuant to CRA, 5 U.S.C. 801
Environmental protection, Biodiesel, Canola oil, Chemicals, Corn oil, Fatty acids, Hazardous substances, Reporting and recordkeeping requirements, Soybean oil, Tallow.
Therefore, 40 CFR chapter I is amended as follows:
15 U.S.C. 2607(a).
(b) * * *
(2) * * *
(iv) * * *
Environmental Protection Agency (EPA).
Petition; reasons for Agency response.
This document announces the availability of EPA's response to a petition received under the Toxic Substances Control Act (TSCA). The TSCA section 21 petition was received from the Biobased and Renewable Products Advocacy Group on October 21, 2014. The petitioner requested EPA initiate a rulemaking to amend the TSCA section 8 Chemical Data Reporting (CDR) partially exempted chemical list as cited in Unit III.B. of this document. After careful consideration, EPA denied the TSCA section 21 petition for the reasons discussed in this document.
EPA's response to this TSCA section 21 petition was signed January 16, 2015.
This action is directed to the public in general. This action may, however, be of interest to those persons who manufacture (defined by statute at 15 U.S.C. 2602(7) to include import) the fatty acids of vegetable oil methyl esters. Since other entities may also be interested, the Agency has not attempted to describe all the specific entities that may be affected by this action.
The docket for this TSCA section 21 petition, identified by docket identification (ID) number EPA-HQ-OPPT-2014-0826, is available at
Under TSCA section 21 (15 U.S.C. 2620), any person can petition EPA to initiate a rulemaking proceeding for the issuance, amendment, or repeal of a rule under TSCA section 4, 6, or 8 or an order under TSCA section 5(e) or 6(b)(2). A TSCA section 21 petition must set forth the facts that are claimed to establish the necessity for the action requested. EPA is required to grant or deny the petition within 90 days of its filing. If EPA grants the petition, the Agency must promptly commence an appropriate proceeding. If EPA denies the petition, the Agency must publish its reasons for the denial in the
Section 21(b)(1) of TSCA requires that the petition “set forth the facts which it is claimed establish that it is necessary” to issue the rule or order requested. 15 U.S.C. 2620(b)(1). Thus, TSCA section 21 implicitly incorporates the statutory standards that apply to the requested actions. In addition, TSCA section 21 establishes standards a court must use to decide whether to order EPA to initiate rulemaking in the event of a lawsuit filed by the petitioner after denial of a TSCA section 21 petition. 15 U.S.C. 2620(b)(4)(B). Accordingly, EPA has relied on the standards in TSCA section 21 and in the provisions under which actions have been requested to evaluate this TSCA section 21 petition.
On October 21, 2014, the Biobased and Renewable Products Advocacy Group petitioned EPA to initiate a rulemaking to add six chemical substances to the list of “[p]etroleum process streams” at 40 CFR 711.6(b)(1) (Ref. 1). This list affords a partial exemption from reporting under CDR. The partial exemption provides that processing and use information (defined in 40 CFR 711.15(b)(4)) generally would not need to be reported for such chemical substances under CDR. 40 CFR 711.6. Specifically, the petition asks EPA to add “`biodiesel' as a chemical category for partial exemption with the following chemicals and associated Chemical Abstracts Service Registry Numbers (CASRN): Tallow, Methyl Ester: CASRN 61788-61-2; Soy Oil, Methyl Ester: CASRN 67784-80-9; Canola Oil, Methyl Ester: CASRN 129828-16-6; Fatty acids, corn oil, Me esters: CASRN 515152-40-6; Fatty acids, C16-18 and C-18-unsaturated, Me esters: CASRN 67762-38-3; and Fatty acids, C14-18 and C16-18 unsaturated, Me esters: CASRN 67762-26-9.” Where the CASRN supplied by the petitioner did not exactly match the chemical substance's name supplied by the petitioner, EPA construed the CASRN supplied by the petitioner as the most accurate reflection of the petitioner's intent to identify particular chemical substances.
Concurrently with the submission of this petition, the petitioner filed a separate petition, under 40 CFR 711.6(b)(2)(iii)(A), to have the same six chemical substances receive a partial exemption from CDR reporting by means of a different kind of listing under CDR. In that separate petition, the petitioner requested that these six chemical substances be placed on a list of chemical substances at 40 CFR 711.6(b)(2)(iv) for which EPA has determined that processing and use information is of “low current interest” (Refs. 2 and 3).
The consequence of placing a chemical substance on the low current interest list at 40 CFR 711.6(b)(2)(iv) is identical to the consequence of amending the regulations to add a chemical substance to the petroleum process stream list at 40 CFR 711.6(b)(1). In either instance, processing and use information (defined in 40 CFR 711.15(b)(4)) generally would not need to be reported for the
Similarly, the range of factors that EPA would take into account if it were to consider amending the regulations to add a chemical substance to the petroleum process stream list at 40 CFR 711.6(b)(1) would be equivalent to the range of factors that EPA takes into account when deciding whether to place a chemical substance on the low current interest list at 40 CFR 711.6(b)(2)(iv). In either case, EPA would consider the totality of the information available. Relatedly, EPA notes that the petitioners did not fully characterize EPA's July 11, 2014 communication to petitioners in this respect. Though the partial exemption at 40 CFR 711.6(b) does not specify the criteria EPA would consider in evaluating a request to amend the regulations to add to the chemical substances listed in 40 CFR 711.6(b)(1), EPA would consider the totality of available information as well as every important aspect of whether an exemption is warranted if it were to consider adding chemical substances to that list.
EPA has separately evaluated the petitioner's request to add these six chemical substances to the list of chemical substances at 40 CFR 711.6(b)(2)(iv). The Agency agrees that there is low current interest in the processing and use information for these chemical substances and has accordingly granted the petitioner's separate request that these six chemical substances be placed on the low current interest list at 40 CFR 711.6(b)(2)(iv). By a direct final rule published elsewhere in this
The petitioner states that the six chemical substances that it identified as a “biodiesel” category are similar in toxicity and use to the chemical substances already on the petroleum process stream list. The petitioner also states that these six chemical substances are transported, processed, and maintained in vessels similarly to the chemical substances already on the petroleum process stream list.
After careful consideration, EPA denied the petition. A copy of the Agency's response, which consists of a letter to the petitioner, is available in the docket for this TSCA section 21 petition and is briefly summarized in this document.
EPA has issued a direct final rule to place the six chemical substances identified in this petition on the low current interest list at 40 CFR 711.6(b)(2)(iv). If the direct final rule becomes effective, these six chemical substances will generally be partially exempt from reporting under CDR. The partial exemption afforded by the low current interest list is identical to that which would be afforded by the petroleum process stream list. Therefore, an additional decision to place these six chemical substances on the petroleum process stream list at 40 CFR 711.6(b)(1), either individually or as a “biodiesel” category, would afford no further relief to the petitioner. Because no further relief is available to the petitioner, EPA is denying this petition as moot.
Several of the issues the petitioner raised in their section 21 petition are duplicated in their petition filed by the petition under 40 CFR 711.6(b)(2)(iii)(A). EPA's analysis conducted in response to that petition is available in the docket identified by docket ID number EPA-HQ-OPPT-2014-0809. For assistance in locating this docket, see Unit I.B.
The following is a listing of the documents that are specifically referenced in this document. The docket includes these documents and other information considered by EPA, including documents that are referenced within the documents that are included in the docket, even if the referenced document is not physically located in the docket. For assistance in locating these other documents, please consult the technical person listed under
Environmental protection, Biodiesel, Canola oil, Chemicals, Corn oil, Fatty acids, Hazardous substances, Reporting and recordkeeping requirements, Soybean oil, Tallow.