This final rule is issued under the Order (7 CFR part 1218). The Order is authorized under the Commodity Promotion, Research, and Information Act of 1996 (1996 Act) (7 U.S.C. 7411-7425).

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, distributive impacts and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, reducing costs, harmonizing rules and promoting flexibility. This action falls within a category of regulatory actions that the Office of Management and Budget (OMB) exempted from Executive Order 12866 review.

This action has been reviewed in accordance with the requirements of Executive Order 13175, Consultation and Coordination with Indian Tribal Governments. The Agricultural Marketing Service (AMS) has assessed the impact of this proposed rule on Indian tribes and determined that this rule would not have tribal implications that require consultation under Executive Order 13175. AMS hosts a quarterly teleconference with tribal leaders where matters of mutual interest regarding the marketing of agricultural products are discussed. Information about the proposed changes to the regulations was shared during a quarterly call, and tribal leaders were informed about the proposed revisions to the regulation and the opportunity to submit comments. AMS will work with the USDA Office of Tribal Relations to ensure meaningful consultation is provided as needed with regards to this change to the Order.

In addition, this final rule has been reviewed under Executive Order 12988, Civil Justice Reform. It is not intended to have retroactive effect. Section 524 of the 1996 Act (7 U.S.C. 7423) provides that it shall not affect or preempt any other Federal or State law authorizing promotion or research relating to an agricultural commodity.

Under section 519 of the 1996 Act (7 U.S.C. 7418), a person subject to an order may file a written petition with USDA stating that an order, any provision of an order, or any obligation imposed in connection with an order, is not established in accordance with the law, and request a modification of an order or an exemption from an order. Any petition filed challenging an order, any provision of an order, or any obligation imposed in connection with an order, shall be filed within two years after the effective date of an order, provision, or obligation subject to challenge in the petition. The petitioner will have the opportunity for a hearing on the petition. Thereafter, USDA will issue a ruling on the petition. The 1996 Act provides that the district court of the United States for any district in which the petitioner resides or conducts business shall have the jurisdiction to review a final ruling on the petition, if the petitioner files a complaint for that purpose not later than 20 days after the date of the entry of USDA's final ruling.

This final rule changes the Council's membership under the Order. The Council administers the Order with oversight by USDA. Under the program, assessments are collected from domestic producers and importers and used for research and promotion projects designed to increase the demand for highbush blueberries. This final rule will remove the first handler member and alternate position and add two exporter members and alternate positions. This will help ensure that the Council reflects the distribution of domestic blueberry production and imports into the United States (U.S.) Conforming changes will be made to the nomination procedures. This rule will also allow members and alternates to remain in office until a successor is appointed. This change will permit the Council to continue administration of the Order should appointments be delayed beyond the specified term of office. The two actions were unanimously recommended by the Council at its meetings on November 18, 2020, and June 9, 2021.

Section 1218.40(a) of the Order currently specifies that the Council be comprised of no more than 20 members and alternates appointed by the Secretary of Agriculture (Secretary). Twelve of the 20 members and alternates are producers. One producer member and alternate are from each of the following regions within the U.S.: Region #1 Western Region; Region #2 Midwest Region; Region #3 Northeast Region; and Region #4 Southern Region. One producer member and alternate are from each of the top eight blueberry producing states, based upon the average of the total tons produced over the previous three years. Currently, these states include California, Florida, Georgia, Michigan, New Jersey, North Carolina, Oregon, and Washington.

Of the remaining eight Council members and alternates, four members and alternates are importers. Two members and alternates must be an exporter, defined in § 1218.40(a)(4) as a blueberry producer currently shipping blueberries into the U.S. from the two largest foreign blueberry production areas, based on a three-year average (currently Chile and Canada). One member and alternate must be a first handler, defined in § 1218.40(a)(5) as a U.S. based independent or cooperative organization which is a producer/shipper of domestic blueberries. Finally, the Order provides that one member and alternate must represent the public. The public member representation on research and promotion boards is optional as provided for in the 1996 Act.

Section 1218.40(b) of the Order specifies that, at least once every five years, the Council will review the geographical distribution of the production of blueberries in the United States and the quantity of imports. The review is conducted through an audit of state crop production figures and Council assessment records. If warranted, the Council will recommend to the Secretary that its membership be altered to reflect changes in the geographical distribution of domestic blueberry production and the quantity of imports.

The Council met on November 18, 2020, and then again on June 9, 2021, to review domestic production data, import data, and assessment data for the past three years (2017-2019). This data is summarized in Table 1 below:

As shown in Table 1, the quantity of imported blueberries, as well as import assessments collected, has increased in recent years.

In that time, there has been a substantial increase of imported product From both Peru and Mexico, with Peru exports into the U.S. surpassing Canada in 2019, as shown in Table 2.

In 2015, the Council, after reviewing import and domestic production and assessment data, recommended changes to the membership; one such change included adding an additional exporter seat. At that time, data indicated considerable increased imports from Chile. The addition of the second exporter member allowed exporters from both Chile and Canada, the two countries shipping the greatest volume of blueberries into the U.S., to be represented on the Council. The Council took a similar approach when reviewing and recommending this recent change in membership. It recognized the significant volume of imports from Peru and Mexico, discussing the need to add representatives from those production areas to the Council. Given the decision to try to maintain its current size and based on the data reviewed, it concluded it was important to have foreign producer representation similar to the structure of the state producer representation. Therefore, it recommended the addition of two exporter members. Four exporter member positions will provide the four largest foreign producing areas importing into the U.S., which represents ninety-five percent of the total volume of blueberries imported into the U.S., a voice on the Council. This will realign the Council's membership to better reflect the distribution of domestic production and the quantity of imports into the U.S.

The Council conducts nominations two out of every three years. The Council is currently conducting nominations for seven member and alternate positions (year-one cycle) whose three-year term of office begins January 1, 2022, ending December 31, 2024. These include the four regional producer members, one exporter member, one importer member, the public member, and respective alternates. The Council will conduct nominations in 2022 for 13 member and alternate positions (year-two cycle) whose three-year term of office begins January 1, 2023, ending December 31, 2025. This will include one member from each of the top eight producing states, three importer members, one exporter member, the first handler member, and respective alternates. To help ensure a smooth transition, while aligning with the Council's nomination schedule, the term of office for the recommended additional exporter member positions will begin January 1, 2023. Therefore, solicitation for the two additional exporter position nominees will be included in the nominations scheduled to be conducted in 2022. Since the first handler member position is being removed, nominations for this position will not be conducted during the 2022 solicitation period. The first handler member and alternate member positions will terminate December 31, 2022.

USDA has recommended that the initial term of office for the two additional exporter positions will be two years, instead of the prescribed three-year term of office for all Council member and alternate positions. The additional two exporter member and alternate term of office will begin January 1, 2023, ending December 31, 2024. As noted above, the Council conducts nominations two out of every three years, with seven positions to be filled in year-one, and thirteen in year-two. With including the nominations for the exporter positions in the year-two cycle, total positions to be filled will be 14 of the 21-member Council. Having an initial two-year term will align these two additional exporter positions with the year-one nomination cycle, reestablishing the distribution between the two nomination cycles. Year-one nomination cycle will include solicitation for nine positions: four regional producer member positions, one importer member position, three exporter member positions, one public member position, and respective alternates. The year-two nomination cycle will include solicitation for 12 positions: one member from each of the top eight producing states, three importer members, one exporter member, and respective alternates.

The 2022, 20-member Council would consist of one producer member from each of the four regions (Western, Midwest, Northeast, Southern), one producer member from each of the top eight producing states, four importer members, two exporter members, first handler member, public member, and respective alternates.

The 2023 and subsequent 21-member Council will consist of one producer member from each of the four regions (Western, Midwest, Northeast, Southern), one producer member from each of the top eight producing states, four importer members, four exporter members, one public member, and respective alternates. The provisions at 7 CFR 1218.40 will be revised accordingly.

Section 1218.41 establishes the procedures for nominations to obtain Council nominees for appointment by the Secretary. Section 1218.41(c) provides for the nomination process for importer, exporter, first handler, and public member and alternate positions. Section 1218.41(d) requires producer, handlers, and importer nominees to be compliant with the Order provisions regarding payment of assessments and filing of reports. With the proposed removal of the first handler position, references to first handler member will be removed from these sections.

Section 1218.42 provides that Council nominations and appointments will take place in two out of every three years, with each term of office ending on December 31, and new terms of office beginning January 1. The Council recommended allowing members and their alternates to remain in office until a successor is appointed. Currently, if successors are not appointed by the January 1 date, those positions remain vacant until the successors are named. The Order requires a minimum of 11 members to hold a Council meeting. For the nomination year with 12 positions expiring, if not appointed by the January 1 start date, the Council will be unable to meet until such appointments were made. This could cause a lapse in the Council's ability to properly administer the provisions of the Order. Allowing members to serve until their successor is appointed will allow the Council to continue administration should appointments be delayed beyond the specified term of office. This change is similar to authority provided for in other research and promotion orders.

In accordance with the Regulatory Flexibility Act (RFA) (5 U.S.C. 601-612), AMS is required to examine the impact of the final rule on small entities. Accordingly, AMS has considered the economic impact of this action on such entities.

The purpose of the RFA is to fit regulatory actions to the scale of businesses subject to such actions so that small businesses will not be disproportionately burdened. The Small Business Administration defines, in 13 CFR part 121, small agricultural producers as those having annual receipts of no more than $1,000,000 and small agricultural service firms (first handlers and importers) as those having annual receipts of no more than $30 million.

There are approximately 1,547 domestic producers, 71 first handlers and 271 importers of highbush blueberries covered under the program. Dividing the highbush blueberry crop value for 2019, $919 million, 1 by the number of producers (1,547) yields an average annual producer revenue estimate of $594,053. It is estimated that in 2019, about 99 percent of the first handlers shipped under $30 million worth of highbush blueberries. Based on 2019 U.S. Border and Customs (Customs) data, it is estimated that over 99 percent of the importers shipped under $30 million worth of highbush blueberries. Based on the foregoing, the majority of producers, first handlers and importers may be classified as small entities. We do not have information concerning the number of exporters and their size.

Regarding value of the commodity, as mentioned above, based on 2019 NASS data, the value of the domestic highbush blueberry crop was about $919 million. According to Customs data, the value of 2019 imports was about $1.04 billion.

It is not anticipated that this action will impose additional costs on industry members. Eligible producers, importers and exporters interested in serving on the Council will have to complete a background questionnaire. Those requirements are addressed later in this rule.

This rule is revising §§ 1218.40, 1218.41, and 1218.42 of the Order regarding Council membership, nominations, and term of office, respectively. The Council administers the Order with oversight by USDA. Under the program, assessments are collected from domestic producers and importers and used for research and promotion projects designed to increase the demand for highbush blueberries. This rule will remove the first handler and alternate position and add two exporter member and alternate positions. This will help ensure that the Council reflects the distribution of domestic blueberry production and imports into the U.S. Conforming changes will be made to the nomination procedures. This rule will also allow members and alternates to remain in office until a successor is appointed. This change will allow the Council to continue administration of the Order should appointments be delayed beyond the specified term of office. Authority for this action is provided in §§ 1218.40(b) and 1218.47(m) of the Order and section 7414 of the 1996 Act.

In accordance with the Paperwork Reduction Act of 1995 (44 U.S.C. Chapter 35), the information collection and recordkeeping requirements that are imposed by the Order have been approved previously under OMB control number 0581-0093 and 0505-0001. Eligible producers, importers, exporters, first handler and public member interested in serving on the Council are required to complete a background questionnaire (Form AD-755) to verify their eligibility. Adding an exporter member and alternate member to the Council will require four additional exporters to submit background questionnaire (AD-755) to USDA, once every three years, in order to be considered for appointment to the Council. The Secretary requires two names to be submitted for each open seat on the Council. The public reporting burden is estimated to increase the total burden hours by less than one hour. This additional burden will be included in the existing information collection approved for use under OMB control number 0581-0093. In addition, serving on the Council is optional, and the burden of submitting the background questionnaire will be offset by the benefits of additional representation on the Council.

The previously approved background questionnaire will be revised eliminating the first handler section. It will impose an increase of the total reporting and recordkeeping burden hours by less than one hour on blueberry producers, importers, or exporters.

As with all Federal promotion programs, reports and forms are periodically reviewed to reduce information requirements and duplication by industry and public sector agencies. USDA has not identified any relevant Federal rules that duplicate, overlap, or conflict with this proposed rule.

Regarding alternatives, the Council has been discussing its membership and potential changes to reflect the distribution of domestic production and imports for the past few years. The Council's Executive Committee met to formulate and consider various options. One option was to replace two of the four regional producer positions, with the exporter positions, reallocating the two regions as East and West, with one position for each region. Another option considered was to eliminate the first handler and public member positions; reallocate the regions to East and West, with one position for each region; and add two importer positions and two exporter positions. The Council also considered maintaining the status quo. It concluded, upon reviewing the domestic production and import statistics, that it was important to have foreign producer representation from the top four countries importing highbush blueberries into the U.S. represented on the Council. Thus, the Council recommended revising the Order to remove the first handler and alternate position and add two exporter member and alternate positions.

Regarding outreach efforts, this action was discussed by the Council at meetings in October 2018, as well as by the Council and committees in 2019 and 2020. The Council met in November 2020 and in June 2021 and unanimously made its recommendation. All of the Council's meetings are open to the public and interested persons are invited to participate and express their views.

AMS is committed to complying with the E-Government Act, to promote the use of the internet and other information technologies to provide increased opportunities or citizen access to Government information and services, and for other purposes.

USDA has determined that this rule is consistent with and would effectuate the purpose of the 1996 Act.

A proposed rule concerning this action was published in the Federal Register on July 22, 2021 (86 FR 38590). A 60-day comment period ending September 20, 2021, was provided to allow interested person to respond to the proposal. The proposal was made available through the internet by USDA and the Office of the Federal Register. One comment was received, but it did not pertain to this proposal. Accordingly, no changes were made to the rule as proposed, based on the comments received.

After consideration of all relevant material presented, including the information and recommendations submitted by the Board, the comments received, and other available information, it is hereby found that this rule, as hereinafter set forth, is consistent with and will effectuate the purposes of the 1996 Act.

Pursuant to 5 U.S.C. 553, it is also found and determined that good cause exists for not postponing the effective date of this rule until one day after publication in the Federal Register because the Council begins their 2022 nomination process in December of 2021. This will allow for the two new exporter seats created by this regulation to be filled in the 2022 nomination cycle and be seated in January 2023. In addition, soliciting nominees for these two new exporter seats will realign the Council's membership to better reflect the distribution of domestic production and the quantity of imports into the U.S.

For the reasons set forth in the preamble, the Agricultural Marketing Service amends 7 CFR part 1218 as follows:

The existing rules that are the subject of these corrections are part of the continuing series of regulations that the Commission has promulgated to implement the Federal Election Campaign Act, 52 U.S.C. 30101 through 45 (“FECA”). The Commission is promulgating these corrections without advance notice or an opportunity for comment because they fall under the “good cause” exemption of the Administrative Procedure Act (“APA”). 5 U.S.C. 553(b)(B) The Commission finds that notice and comment are unnecessary here because these corrections are merely typographical and technical; they effect no substantive changes to any rule. For the same reason, these corrections fall within the “good cause” exception to the delayed effective date provisions of the APA and the Congressional Review Act. 5 U.S.C. 553(d)(3) and 808(2).

Moreover, because these corrections are exempt from the notice and comment procedure of the APA under 5 U.S.C. 553(b), the Commission is not required to conduct a regulatory flexibility analysis under 5 U.S.C. 603 or 604. See 5 U.S.C. 601(2) and 604(a). Nor is the Commission required to submit these revisions for congressional review under FECA, the Presidential Election Campaign Fund Act, 26 U.S.C. 9001 through 13, or the Presidential Primary Matching Payment Account Act, 26 U.S.C. 9031 through 42. See 52 U.S.C. 30111(d)(1) and (4) (providing for congressional review when Commission “prescribe[s]” a “rule of law”); 26 U.S.C. 9009(c)(1) and (4), 9039(c)(1) and (4) (same). Accordingly, these corrections are effective upon publication in the Federal Register .

In 2018, the Commission relocated to a new building with a different street address. The Commission is updating this section by removing references to the relocation and the Commission's prior address.

Most filers now utilize electronic filing rather than paper forms to submit reports to the Commission. Accordingly, the Commission is revising this section to add that forms may be obtained electronically from the Commission's website as well as in paper format at the updated street address identified in the definition of “Commission” at § 1.2.

The Commission is revising paragraph (b)(3)(ii)(C) of this section because it erroneously refers to § 116.11(b) as the citation for the definition of “personal loans.” The correct definition is located at § 116.11(a).

For the reasons set out in the preamble, the Federal Election Commission amends 11 CFR chapter I as follows:

The NCUA ensures the safety and soundness of federally insured credit unions (FICUs) by examining and supervising federally chartered credit unions (FCUs); participating in the examination and supervision of federally insured, state-chartered credit unions in coordination with state regulators; and insuring members' accounts at all FICUs up to the statutorily prescribed limits.

Capital adequacy standards are an important prudential tool to ensure the safety and soundness of individual credit unions and the credit union system as a whole. Capital serves as a buffer for credit unions to prevent institutional failure and dramatic deleveraging during times of stress. During a financial crisis, a buffer can mean the difference between the survival or failure of a financial institution. Capital levels commensurate with risk insulate credit unions from the effects of unexpected adverse developments in their financial condition, reduce the probability of a systemic crisis, allow credit unions to continue to serve as credit providers during times of stress without government intervention, and provide benefits that outweigh the associated costs.

Following the 2007-2009 recession, the NCUA substantially reevaluated its capital adequacy standards, which are codified in 12 CFR part 702. On October 29, 2015, as amended on October 18, 2018, the NCUA Board (Board) published a final rule restructuring its capital adequacy regulations (2015 Final Rule). 1 The effective date of the 2015 Final Rule was originally January 1, 2019. The overarching intent of the 2015 Final Rule was to reduce the likelihood that a relatively small number of high-risk credit unions would exhaust their capital and cause large losses to the National Credit Union Share Insurance Fund (NCUSIF). Under the Federal Credit Union Act (FCUA), FICUs are collectively responsible for capitalizing and replenishing losses to the NCUSIF. 2 The 2015 Final Rule restructured the NCUA's current capital adequacy regulations and made various revisions, including amending the agency's risk-based net worth requirement by replacing a credit union's risk-based net worth ratio with a risk-based capital ratio. The risk-based capital requirements in the 2015 Final Rule are more consistent with the NCUA's risk-based capital ratio measure for corporate credit unions, consistent with the FCUA, and more comparable to the risk-based capital measures implemented by the Federal Deposit Insurance Corporation (FDIC), Board of Governors of the Federal Reserve System (Federal Reserve Board), and Office of the Comptroller of Currency (OCC) (collectively, the other banking agencies) in 2013. 3

On November 6, 2018, the Board published a supplemental final rule that raised the threshold level for a complex credit union to $500 million (2018 Supplemental Rule). 4 The 2018 Supplemental Rule also delayed the effective date of the 2015 Final Rule for one year (from January 1, 2019, to January 1, 2020).

The effective date was delayed a second time through a final rule published on December 17, 2019 (2019 Supplemental Rule). 5 The 2015 Final Rule is now scheduled to become effective on January 1, 2022. The delay has provided credit unions and the NCUA with additional time to implement the 2015 Final Rule. Further, as explained in the 2019 Supplemental Rule, the delay enabled the Board to holistically and comprehensively evaluate the NCUA's capital standards for credit unions. 6 Among the items highlighted by the Board for possible consideration during the delay were adoption of a community bank leverage ratio (CBLR) analogue, the treatment of asset securitizations issued by credit unions, finalization of the Subordinated Debt rule and implementation of the current expected credit loss (CECL) standard. 7

As discussed in the proposed rule, the other banking agencies adopted in 2013 a revised risk-based capital rule, which was designed to strengthen their capital requirements and improve risk sensitivity.

In 2018, section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act directed the other banking agencies to propose a simplified, alternative measure of capital adequacy for certain federally insured banks. 8 On November 13, 2019, the other banking agencies issued a final rule implementing this statutory directive (CBLR Final Rule). 9

Under the CBLR Final Rule, the CBLR framework is an option for depository institutions and depository institution holding companies that meet the following criteria:

(1) A CBLR greater than nine percent;  10

(2) Total consolidated assets of less than $10 billion;  11

(3) Total off-balance sheet exposures of 25 percent or less of its total consolidated assets;

(4) Trading assets plus trading liabilities of five percent or less of its total consolidated assets; and

(5) Not an advanced approaches banking organization (advanced approaches banking organizations are generally those with at least $250 billion in total consolidated assets or at least $10 billion in total on-balance sheet foreign exposure, and depository institution subsidiaries of those firms).

In March 2020, the CBLR was temporarily set to eight percent by statute. 12 Accordingly, effective the second quarter of 2020, the CBLR requirement was eight percent or greater. 13 In early 2021, the CBLR requirement was increased to 8.5 percent or greater. During the grace period, the minimum requirement is 7.5 percent. 14 Effective January 1, 2022, the CBLR requirement will return to nine percent and the minimum requirement during the grace period will return to eight percent.

At its January 14, 2021 meeting, the Board issued an advance notice of proposed rulemaking and solicited comments on two approaches to simplify the 2015 Final Rule. 15 Almost all commenters supported the stated goal of simplifying the 2015 Final Rule. In general, commenters favored the NCUA developing a CCULR complement to risk-based capital. Almost all commenters who favored the CCULR framework noted that its flexibility is attributable to the option complex credit unions have in calculating the more complex risk-based capital measure, which produces a more precise, and generally lower, overall capital requirement. A few commenters also stated that a benefit of the CCULR framework is its similarity to the capital framework of the other banking agencies.

This final rule provides a simple measure of capital adequacy for credit unions classified as complex based on the principles of the CBLR framework. The CCULR relieves complex credit unions that meet specified qualifying criteria from having to calculate the risk-based capital ratio. 16 In exchange, the credit union is required to maintain a higher net worth ratio than is otherwise required for the well-capitalized classification. This trade-off is akin to the decision qualifying community banks make under the CBLR. A qualifying complex credit union that has a net worth ratio of nine percent or greater is eligible to opt into the CCULR framework.

The Board received no comments on its legal authority to issue the final rule and thus affirms its conclusions and interpretations in the proposed rule. The Board is issuing this final rule pursuant to its authority under the FCUA. The FCUA grants the NCUA a broad mandate to issue regulations governing both FCUs and all FICUs. Section 120 of the FCUA is a general grant of regulatory authority and authorizes the Board to prescribe rules and regulations for the administration of the FCUA. 17 Section 207 of the FCUA is a specific grant of authority over share insurance coverage, conservatorships, and liquidations. 18 Section 209 of the FCUA is a plenary grant of regulatory authority to the Board to issue rules and regulations necessary or appropriate to carry out its role as share insurer for all FICUs. 19 Accordingly, the FCUA grants the Board broad rulemaking authority to ensure that the credit union industry and the NCUSIF remain safe and sound.

The FCUA also expressly grants authority for the Board to develop capital adequacy standards for credit unions. In 1998, Congress enacted the Credit Union Membership Access Act (CUMAA). 20 Section 301 of CUMAA added section 216 to the FCUA, 21 which required the Board to adopt by regulation a system of prompt corrective action (PCA) to resolve the problems of insured credit unions when the net worth of credit unions declines below certain levels. 22 Section 216(b)(1)(A) requires the Board to adopt by regulation a system of PCA for credit unions consistent with section 216 of the FCUA and comparable to section 38 of the Federal Deposit Insurance Act (FDI Act). 23 Section 216(b)(1)(B) requires that the Board, in designing the PCA system, also consider the “cooperative character of credit unions”. 24 The Board initially implemented the required system of PCA in 2000, 25 primarily in part 702. As discussed previously, the Board most recently made substantial updates to the regulation in the 2015 Final Rule.

Among other things, section 216(c) of the FCUA requires the NCUA to use a credit union's net worth ratio to determine its classification among five net worth categories set forth in the FCUA. 26 Section 216(o) generally defines a credit union's net worth as its retained earnings balance as determined under generally accepted accounting principles (GAAP);  27 and a credit union's net worth ratio as the ratio of its net worth to its total assets. 28 As a credit union's net worth ratio declines, so does its classification among the five net worth categories, thus subjecting it to an expanding range of mandatory and discretionary supervisory actions. 29

Section 216(d)(1) of the FCUA requires the NCUA's system of PCA include, besides the statutorily defined net worth ratio requirement, “a risk-based net worth  30 requirement for credit unions that are complex, as defined by the Board.”  31 The FCUA directs the NCUA to base its definition of complex credit unions “on the portfolios of assets and liabilities of credit unions.”  32 If a credit union is not classified as complex, as defined by the NCUA, it is not subject to a risk-based net worth requirement. Besides granting the NCUA broad authority to determine which credit unions are complex, and thus subject to a risk-based net worth requirement, the FCUA also grants the NCUA broad authority to design a risk-based net worth requirement to apply to such complex credit unions. 33 Specifically, unlike the terms “net worth” and “net worth ratio,” the term “risk-based net worth” is undefined in the FCUA. Accordingly, section 216 grants the Board the authority to design risk-based net worth requirements, so long as the regulations are comparable to those applicable to other federally insured depository institutions and consistent with FCUA requirements.

The CCULR framework is comparable to section 38 of the FDI Act, as implemented by CBLR Final Rule. 34 As discussed previously, section 201 of the Economic Growth, Regulatory Relief, and Consumer Protection Act amended part of the other banking agencies' capital adequacy framework to direct the other banking agencies to propose a simplified, alternative measure of capital adequacy for certain federally insured banks. 35 The other banking agencies implemented this requirement, including amendments to their PCA regulations under section 38 of the FDI Act, in the CBLR Final Rule.

Besides satisfying the comparability requirement in section 216, the CCULR framework also meets the requirements in section 216 of the FCUA for the NCUA's risk-based net worth framework. Section 216 has two express provisions that authorize an NCUA analogue to the CBLR—the definition of complex credit unions and the mandate for the Board to design a risk-based net worth requirement. In designing its CCULR framework, the Board considered both its legal authority to exclude credit unions from risk-based net worth requirements under the definition of complex, and its authority to design a system of risk-based net worth that includes a higher net worth ratio in place of calculating a ratio based on risk-adjusted assets. 36

The Board considered its express authority under section 216 to define which credit unions are complex, and thus exclude noncomplex credit unions from the risk-based net worth requirement. 37 The express delegation grants the Board significant discretion to determine which credit unions are considered complex. Under this legal basis, the Board would continue to limit the definition of complex to only those credit unions with quarter-end total assets that exceed $500 million dollars. In using asset size as a proxy for complexity, the Board complied with the statutory directive that the definition of complex be based on the portfolios of assets and liabilities of credit unions. Specifically, the Board relied on a complexity index that counted the number of complex products and services provided by credit unions. 38 The complexity index demonstrated that credit unions with greater than $500 million in total assets held more complex assets and liabilities as a larger share of their total assets than smaller credit unions. 39

The Board, however, could also have drafted a definition of complex that looks at the individual portfolios of credit unions with total assets greater than $500 million rather than examining the assets and liabilities of credit unions in the aggregate. This approach is also consistent with the statutory provision that the complex definition should be based on the portfolios of assets and liabilities of credit unions. The Board would have used the same qualifying criteria as in the final rule as measures of complexity. If a credit union would otherwise meet the definition of a qualifying credit union, it would be considered not complex. Thus, it would not be subject to risk-based capital, as implemented by the 2015 Final Rule. This alternative approach would have created a functionally equivalent requirement to the one set forth in this final rule, with the only difference being the technical details of the implementing regulatory text in part 702.

The Board also considered its express authority and mandate to design the CCULR on the basis that the CCULR constitutes a risk-based net worth requirement, as required for complex credit unions in section 216(d). As noted previously, the FCUA does not define the term “risk-based net worth requirement” and sets forth only general guidelines for the design of the risk-based net worth requirement mandated under section 216(d)(1). Specifically, section 216(d)(2) requires that the Board “design the risk-based net worth requirement to take account of any material risks against which the net worth ratio required for an insured credit union to be adequately capitalized may not provide adequate protection.” Under section 216(c)(1)(B) of the FCUA, the net worth ratio required for a credit union to be adequately capitalized is six percent.

The plain language of section 216(d)(2) supports the NCUA's interpretation that Congress intended for the NCUA to design the risk-based net worth requirement to factor any material risks beyond those already addressed through the statutory six percent net worth ratio required for a credit union to be adequately capitalized. In other words, the language in section 216(d)(2) simply identifies the types of risks that the NCUA's risk-based net worth requirement must address—that is, those risks not already addressed by the statutory six percent net worth requirement. Notably, the FCUA does not require the risk-based net worth requirement include risk-adjusted assets as part of its calculation. 40 Instead, the Board interprets “risk-based” to require an accounting for risks in some manner—that is, the measure must be based on a consideration of risks—but not any particular manner of doing so. 41 Thus, if the Board determines that the CCULR considers all material risks not addressed by the six percent net worth ratio, then the Board has satisfied the statutory requirements for a risk-based net worth ratio. 42

The Board believes that either the complex-based approach or the risk-based approach to designing the CCULR framework are supported by the FCUA. The Board, however, chose to draft the final rule under its authority to design a risk-based net worth requirement. The Board believes that considering the CCULR as an alternative way to calculate a risk-based net worth requirement is more straightforward, consistent with the structure of section 216, and simpler for complex credit unions to implement.

The Board issued the proposed rule to provide a simplified measure of capital adequacy for complex credit unions at its July 22, 2021, meeting. 43 The proposed rule provided for a 60-day comment period that ended on October 15, 2021. The Board received 21 comments from credit unions, both state and federal; credit union leagues and trade associations; a banking trade organization; individuals; and an association of state credit union supervisors. Many of the commenters supported the goal of providing a simplified, alternative measure of capital adequacy for certain highly capitalized complex credit unions. Most commenters, however, expressed some concerns about specific aspects of the proposal. The final rule and a discussion of the Board's responses to the comments are discussed in the following sections.

The final rule provides a simplified measure of capital adequacy for credit unions classified as complex (credit unions with total assets greater than $500 million). Under the final rule, a qualifying complex credit union that meets the minimum CCULR, which is equal to its net worth ratio, is eligible to opt into the CCULR framework and is considered well capitalized. The CCULR framework is based on the principles of the CBLR framework. As discussed previously in this preamble, it relieves complex credit unions that meet specified qualifying criteria and have opted into the CCULR framework from having to calculate a risk-based capital ratio, as implemented by the 2015 Final Rule. In exchange, the qualifying complex credit union is required to maintain a higher net worth ratio than is otherwise required for the well-capitalized classification. This is a similar trade-off to the one qualifying community banking organizations can make under the CBLR.

Most commenters generally supported the CCULR framework. Several commenters noted that credit unions could choose to comply with the current risk-based capital rule or the CCULR. One commenter stated that, with the CCULR framework, the Board can maximize synergy with the risk-based capital rule, maintain flexibility, and achieve greater consistency with sound public policy and the FCUA. In contrast, another commenter opposed the optionality in the CCULR framework and stated that allowing credit unions to opt-in to the CCULR framework creates two populations of credit unions based on nothing but the compliance of internal actors of the credit unions. The Board believes that implementing a CCULR framework furthers the goal of the FCUA's PCA requirements by ensuring complex credit unions continue to hold sufficient capital, while minimizing the burden associated with complying with the NCUA's risk-based capital requirement. In response to comments, however, the final rule makes several material changes to the CCULR framework. These changes include: (1) Calibrating the CCULR at nine percent instead of 10 and forgoing any transition period; (2) removing the written notification requirement for exiting the CCULR framework after opting in; (3) permitting a grace period for credit unions that no longer meet the qualifying criteria due to a supervisory merger; and (4) amending the treatment of goodwill in both the CCULR framework and risk-based capital framework. The Board has not amended the effective date in response to the comments; the final rule, along with the 2015 Final Rule, is effective on January 1, 2022. Several commenters stated that this date should be delayed because the effective date of risk-based capital is in less than three months after the comment period closed for the proposed rule. Other commenters discussed the need to comment on Call Report changes. Commenters also stated that the NCUA should factor in the effective date of CECL, which will have a significant impact on net worth and the current economic conditions related to COVID-19.

Commenters recommended different alternative effective dates for the CCULR framework. Several commenters recommended January 1, 2023. Other commenters recommended six months after publication of the final rule in the Federal Register .

In contrast, one banking trade organization recommended that the Board first subject credit unions to the risk-based capital standards before implementing an opt-in to the CCULR framework. This argument appeared to be based primarily or solely on the fact that banks complied with risk-based capital before Congress enacted and the other banking agencies implemented the CBLR. The Board found no new evidence or information that would warrant it refraining from adopting the CCULR framework now. As discussed in the proposed rule and this final rule preamble, a complex credit union which opts into the CCULR framework will generally increase the overall capital requirement. The Board continues to find that implementing the CCULR framework alongside the 2015 Final Rule will balance flexibility and choice for complex credit unions with safety and soundness and overall capital adequacy.

The Board is not delaying the implementation of either the CCULR framework or the 2015 Final Rule. The Board did not propose to delay the 2015 Final Rule and does not believe that credit unions need additional time to comply with either framework. 44 The Board acknowledges that January 1, 2022, is less than the standard effective date of 30 days following the publication of this final rule. There are, however, several factors that persuade the Board that credit unions will not be disadvantaged. First, credit unions are not required to comply with the CCULR framework as it is an optional framework to the 2015 Final Rule. Also, credit unions do not have to select their framework until the end of the first quarter in 2022, which is a few months after the publication of the final rule in the Federal Register . The final rule does not include any new calculations for complex credit unions and relies on the net worth ratio, an existing capital measure that credit unions report each quarter. Finally, the Board is not persuaded that credit unions are unprepared to choose between the CCULR framework and the risk-based capital framework due to Call Report amendments. The proposed rule included sample Call Report illustrations. While the Board did not seek specific comments in the proposed rule on the Call Report changes, credit unions knew of the potential changes and no comments were received expressing general confusion. The agency also published a Notice and Request for Comment on the proposed Call Report changes on September 27, 2021. 45 Thus, the Board believes a January 1, 2022 effective date for the CCULR framework is reasonable and not disadvantageous to credit unions.

Under the final rule, a qualifying complex credit union is defined as a complex credit union under 12 CFR 702.103 that meets the following criteria (qualifying criteria), each as described further as follows:

The Board believes complex credit unions that do not meet any one of the qualifying criteria should remain subject to risk-based capital to ensure that such credit unions hold capital commensurate with the risk profile of their activities. The Board will continue to evaluate the qualifying criteria over time to ensure it continues to be appropriate.

The final rule requires a complex credit union to have a CCULR of at least nine percent to be classified as a qualifying complex credit union. Given this change from 10 percent in the proposal, the Board is not adopting the proposed transition provision, which would have set the CCULR at 9 percent initially, then increased it to 10 percent by January 1, 2024. For a discussion of the relevant comments, see Section D. Calibration .

The Board did not receive substantial comment on the proposed off-balance sheet exposure criterion. One commenter requested further guidance on this criterion. Another credit union said this criterion is better addressed through the examination process. The proposed rule provided substantial detail on the eight off-balance sheet exposures. The Board also disagrees that this criterion is better addressed through the supervisory process; rather, the Board believes the off-balance sheet criterion is essential in determining the appropriateness of the CCULR framework for a specific credit union. If a complex credit union has substantial off-balance sheet exposures, the Board believes the more precise risk-based capital framework is necessary to determine its capital adequacy.

Under the final rule, a qualifying complex credit union is required to have total off-balance sheet exposures of 25 percent or less of its total assets, as of the end of the most recent calendar quarter. The Board is including these qualifying criteria in the CCULR framework because the CCULR includes only on-balance sheet assets in its denominator. Thus, it does not require a qualifying complex credit union to hold capital against its off-balance sheet exposures. This qualifying criterion is intended to reduce the likelihood that a qualifying complex credit union with significant off-balance sheet exposures would be required to hold less capital under the CCULR framework than under the risk-based capital ratio. 47

The other banking agencies' CBLR framework also excludes banking organizations with significant off-balance sheet exposures. The other banking agencies' definition of off-balance sheet exposures, however, has several differences from the current definition of off-balance sheet exposures in the 2015 Final Rule. Thus, to make the CCULR framework more comparable to the CBLR and to improve on the effectiveness of the 2015 Final Rule, the final rule amends the NCUA's definition of off-balance sheet exposures. The amendments to the definition of off-balance sheet exposure apply to both the CCULR framework and the risk-based capital framework. 48

Under the CCULR framework, off-balance sheet exposures mean:

Each element of the off-balance sheet definition is discussed in detail in the proposed rule.

Commenters raised no objections to the proposed criterion related to trading assets and labilities. Thus, the Board is finalizing this provision as proposed. Under the final rule, a qualifying complex credit union is required to have the sum of its total trading assets and total trading liabilities be five percent or less of its total assets, each measured as of the end of the most recent calendar quarter. This criterion, including related definitions, is discussed in detail in the proposed rule.

Under the proposal, a qualifying complex credit union was required to have the sum of total goodwill and other intangible assets of two percent or less of its total assets. As proposed, qualifying complex credit unions were required to include excluded goodwill and excluded other intangible assets in this calculation. 49 Five commenters objected to the inclusion of a criterion related to goodwill and intangible assets. One commenter stated that previous accounting changes resulted in increased amounts of goodwill related to supervisory mergers. This commenter stated that credit unions that support the NCUA and the NCUSIF by assisting in supervisory mergers should not be penalized by subsequent restrictions on the holding of supervisory goodwill. 50 Several commenters requested that supervisory goodwill and elective goodwill should be treated differently. Another commenter stated that only impaired goodwill should be deducted. Another commenter preferred that the goodwill criterion be removed but stated that, at the very least, the Board should not include excluded goodwill and excluded other intangible assets. Finally, one commenter stated that goodwill is not an eligibility criterion for the CBLR. The Board notes that goodwill is deducted from insured banks' numerator for purposes of the CBLR. Other commenters generally supported the inclusion of goodwill as a criterion.

In response to the comments received, the Board has revised the treatment of goodwill in the final rule. The final rule will not include excluded goodwill and excluded other intangible assets as part of the calculation for the two percent eligibility requirement. As a result of these changes, a complex credit union need not include excluded goodwill or excluded other intangible assets for purposes of calculating the two percent goodwill qualifying criterion under the CCULR framework. Related to this change, the 2015 Final Rule has been amended to permanently grandfather excluded goodwill and excluded other intangible assets. Thus, under the 2015 Final Rule, a complex credit union will not deduct excluded goodwill or excluded other intangible assets from its risk-based capital numerator after the sunset date of January 1, 2029. For additional information on this change, see Section L. Amendments to the 2015 Final Rule.

The Board made these changes in response to commenters' concerns about equity related to subsequent changes to the treatment of supervisory goodwill. Certain commenters expressed concern about unforeseen capital implications related to goodwill acquired as part of a supervisory merger or combination before December 28, 2015. In this case, the Board agrees that credit unions that assisted in previous supervisory mergers and combinations should not be unduly penalized by subsequent restrictions on excluded goodwill. Thus, the Board will not require credit unions to include such exposures when calculating the two percent threshold under the CCULR framework.

The Board, however, still believes a qualifying criterion related to goodwill and other intangible assets should be included in the final rule. The Board also recognizes that 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. Due to the uncertainty of recognizing value from goodwill and other intangible assets, the other banking agencies require insured banks to deduct goodwill and intangible assets from tier one capital. 51 The Board believes it is prudent to assess the credit union's balance of goodwill and other intangible assets to ensure comparability with the banking industry. Without this criterion, a qualifying credit union could violate the principles of the CBLR framework by using the CCULR despite substantial goodwill and intangible assets. The Board also notes that, under the 2015 Final Rule, goodwill and other intangible assets are deducted from both the risk-based capital ratio numerator and denominator.

The Board believes that complex credit unions with two percent or less of their assets in goodwill and other intangibles assets would not hold less capital under the CCULR framework than under the risk-based capital ratio. In addition, as of June 30, 2021, it is estimated that the two percent threshold would not exclude any complex credit unions from the CCULR framework. Thus, the Board believes a two percent threshold balances regulatory relief for most qualifying complex credit unions with recognizing the uncertainty and volatility of goodwill and other intangible assets. The Board believes that complex credit unions with substantial goodwill and other intangible assets should calculate their capital adequacy using the risk-based capital ratio, as their portfolios may require higher capital levels.

Under the other banking agencies' CBLR framework, only depository institutions or depository institution holding companies with total consolidated assets of less than $10 billion are eligible to use the CBLR.

The Board did not include this qualifying criterion in the proposed rule. Several commenters supported this position. Commenters reiterated the Board's justification in the proposed rule. For example, commenters noted that credit unions' stringent portfolio-shaping rules mitigate many of the risks associated with larger institutions in the banking sector. Also, credit unions with $10 billion or more in assets are generally required to conduct capital planning, and credit unions with $15 billion or more in assets are generally required to conduct stress testing. 52

One commenter objected to the inclusion of all qualifying credit unions by noting that Congress limited the asset size threshold for a qualifying community bank to less than $10 billion in assets. The commenter presented no new information or considerations beyond those the Board addressed in the proposed rule. The Board disagrees and, for the reasons discussed in the proposed rule preamble, continues to believe the CCULR is an appropriate capital framework for all complex credit unions as the FCUA limits the types of assets an FCU can hold compared to banking organizations. The Board also finds that the legislative cap on eligibility for the CBLR does not require the Board to impose the same cap on the CCULR framework, which is tailored to the requirements of the FCUA and the risks associated with complex credit unions. Thus, the Board is finalizing this provision as proposed.

In the proposed rule, the Board asked whether the final rule should include other qualifying criteria. Several commenters stated they did not support expanding the qualifying criteria to include certain categories discussed in the proposed rule, including “heightened risk” asset categories, investments in CUSOs, or concentrations of mortgage servicing assets (MSAs). Several commenters stated that the other banking agencies do not have similar qualifying criteria.

One banking trade organization stated that the CCULR framework should only be made available to those credit unions that do not originate or hold a significant amount of member business loans.

The Board is not adding any additional qualifying criteria with a CCULR of nine percent. The Board believes that a CCULR of nine percent is appropriate because most complex credit unions would be required to hold more capital under the CCULR framework than under the risk-based capital framework. This would be true even if a complex credit union's portfolio included greater than average amount of assets with higher risk weights under the 2015 Final Rule, such as concentrations in junior-lien mortgages and commercial loans, investments in CUSOs, or concentrations of MSAs. The Board considered adding qualifying criteria to account for adopting the CCULR at 9 percent instead of 10 percent but does not believe it is necessary now as credit unions do not hold less capital under the CCULR framework than the risk-based capital framework.

The Board may consider future qualifying criteria as it gains experience in supervising complex credit unions under the CCULR framework or if the risk-profile of credit union assets change. For example, if the credit union industry begins to hold larger concentrations of high-risk assets, including junior lien mortgages, commercial loans, MSAs, corporate credit unions investments, or CUSO investments, then the Board may reconsider whether additional qualifying criteria are necessary. If an individual credit union holds significant concentrations of these assets, then the Board may exercise its reservation of authority to require the credit union to calculate its capital adequacy under the risk-based capital framework. 53

Under the proposal, the CCULR would be the net worth ratio, which is defined under the 2015 Final Rule as the ratio of the credit union's net worth to its total assets rounded to two decimal places (for example 9.32 percent). 54

The Board proposed to use the net worth ratio for the CCULR for its simplicity. Complex credit unions are required to calculate their net worth ratio regardless of whether they opt into the CCULR framework. Thus, complex credit unions are not required to calculate a unique ratio for purposes of opting into the CCULR framework. Also, complex credit unions are already familiar with the net worth ratio, which reduces compliance costs compared to a unique ratio designed for the CCULR framework.

Several commenters supported using the net worth ratio for the CCULR for the reasons stated in the proposed rule. But three commenters recommended that the Board create a new measure of capital for the CCULR framework. Specifically, commenters recommended the inclusion of subordinated debt for credit unions that are not low-income designated credit unions. Alternatively, commenters also recommended the inclusion of other types of capital shares akin to the perpetual contributed capital shares issued by corporate credit unions. An association of credit union supervisors stated that subordinated debt should be included because during times of economic dislocation, even healthy institutions may not be able to accelerate their capital replenishment. This commenter further stated that allowing for additional sources of capital such as subordinated debt strengthens the credit union system and protects the NCUSIF. One commenter stated that goodwill should be deducted from net worth for purposes of CCULR.

The Board considered an alternative measure of capital in the proposed rule that included subordinated debt parallel to the risk-based capital ratio numerator from the 2015 Final Rule. 55 The Board has not adopted a new measure of capital in the final rule. First, the Board believes that the numerator to the 2015 Final Rule is a more conservative measure of capital compared to the numerator in the net worth ratio. Second, as the proposed rule preamble stated, a new measure of capital would likely include several deductions, including deductions for the NCUSIF capitalization deposit, goodwill, other intangible assets, and identified losses and would be more complicated to calculate than the net worth ratio.

Regarding commenters' characterization of subordinated debt as a useful tool to build capital when a credit union is experiencing a capital hardship, the Board acknowledges the benefits of issuing subordinated debt, but also notes that subordinated debt can be an expensive form of capital, both in the terms of the cost of issuing it and in terms of necessary rate of return to investors. Also, it may not be readily available during times of stress.

The proposed rule would have allowed a qualifying complex credit union to opt into the CCULR framework if it met the minimum CCULR at the time of opting into the CCULR framework. The proposed rule initially set the CCULR at 9 percent and transitioned to 10 percent over two years. Almost all commenters objected to calibrating the CCULR ratio at 10 percent, and instead recommended a 9 percent measure in conformance with the ratio used for the CBLR. Other commenters were concerned that fewer credit unions could take advantage of the CCULR framework if it is set at 10 percent. Some commenters stated that a nine percent CCULR would provide greater regulatory relief. Several commenters generally discussed that higher capital may restrict credit union growth and mean less resources to invest in products and services that benefit the member-owners. One commenter stated that a 10 percent calibration could restrict credit unions' ability to expand access to the underserved and underbanked. One commenter discussed that accelerated asset growth as a result of COVID-19 should favor a lower CCULR. Another commenter recommended that the Board set CCULR at less than nine percent and recommended a ratio closer to eight percent.

In contrast, one credit union commenter supported a CCULR of 10 percent. One banking trade organization generally supported sufficient capital requirements.

The Board understands the commenters' concerns about a 10 percent CCULR, due in part to the recent downward pressure on credit union net worth ratios from the rapid growth in assets during 2020 and 2021. The Board also understands that a higher capital requirement may restrict credit union ability to invest in member products and services. As the proposed rule explained, the Board initially considered setting the CCULR between 9 and 11 percent and presented analysis on the potential impact in terms of safety and soundness and burden reduction for potential CCULRs at 9 and 10 percent.

In recognition of this fact, and in response to the comments received, the Board has adopted a CCULR of nine percent and is forgoing the transition provision. The Board finds that this calibration of the CCULR will provide appropriate regulatory burden relief and serve as further incentive for complex credit unions to opt into the CCULR with the benefit of maintaining strong capital levels in the credit union system and ensuring safety and soundness.

Guided by the goals stated in the proposed rule's calibration discussion—maintaining strong capital levels in the credit union system, ensuring safety and soundness, and providing appropriate regulatory relief to as many credit unions as possible—the Board considered several factors in adopting a CCULR of nine percent.

First, the Board considered aggregate levels of capital among complex credit unions. The CCULR framework does not result in a reduction of the minimum required amount of capital held by complex credit unions and results in an overall increase in the minimum amount of required capital held by complex credit unions. Based on reported data as of June 30, 2021, approximately 70 percent of complex credit unions qualify to use the CCULR framework and would be well capitalized under a 9 percent calibration. This was a significant decrease in the number of eligible credit unions at 9 percent when compared to pre-pandemic net worth ratios, when approximately 90 percent would have been eligible. Of the total 680 complex credit unions as of June 30, 2021, 473 have a net worth ratio greater than nine percent and would be well capitalized under a nine percent CCULR standard. Of those 473 credit unions, the Board estimates that all of them meet the qualifying criteria, and are thus eligible to opt into the CCULR framework. Under the CCULR, if all 473 credit unions opted into the CCULR and held the minimum nine percent net worth ratio required to be well capitalized, the total minimum net worth required is estimated at $111.8 billion, an increased capital requirement of $24.3 billion over the minimum required under the 2015 Final Rule. The Board is not aware of any qualifying complex credit unions that would reduce their capital requirement with a CCULR of nine percent as compared to the 2015 Final Rule.

The Board also considered the extent of the burden relief provided by the CCULR framework. The Board believes a CCULR of 9 percent is preferable to a CCULR of 10 percent as it permits an additional 173 complex credit unions (473 eligible at 9 percent versus 300 at 10 percent) to opt-into the CCULR framework, which supports the Board's goal of reducing regulatory burden for as many complex credit unions as possible.

Next, the Board considered that the 8 to 10 percent range established by Congress for the CBLR is 300 to 500 basis points higher than the 5 percent leverage ratio required for well-capitalized status under the other banking agencies' PCA framework. 56 As detailed in the proposed rule preamble, the Board reviewed the basis for the 7 percent net worth ratio for insured credit unions and considered a range between 9 and 11 percent for the CCULR. The Board's analysis established that setting the CCULR 300 basis points higher than the seven percent net worth ratio while the other banking agencies have set the CBLR 400 basis points higher than the comparable leverage requirements for insured banks would be appropriate because of changes in credit union investments in corporate credit unions since Congress established the seven percent net worth ratio in 1998. But the proposed rule did not conclude that a 9 percent CCULR would be inappropriate and specifically analyzed the merits of 9 and 10 percent in the calibration discussion.

Upon reconsideration, the Board is adopting a nine percent CCULR based on its effect on capital levels and burden reduction, rather than calibrating CCULR based on the analysis of the seven percent net worth ratio and relative difference between the CBLR and the leverage ratio for insured banks. The Board acknowledges, however, that setting CCULR at nine percent is only 200 basis points above the statutory well-capitalized threshold for the net worth ratio absent consideration of the reduced corporate credit union investments. The Board also recognizes it is less than the 400 basis point differential established by the other banking agencies in setting the CBLR when compared to the leverage ratio. The Board, however, believes a CCULR of nine percent is prudent and does not present undue safety and soundness risk. A primary reason that other banking agencies chose a CBLR of nine percent was to ensure qualifying community banks generally maintain their current level of capital. As discussed previously, a CCULR of nine percent increases the total minimum net worth required to $111.8 billion, an increased capital requirement of $24.3 billion over the minimum required under the 2015 Final Rule. The Board also notes that the analysis in the proposed rule comparing bank and credit union net worth and leverage ratios was not a decisive factor but one of several factors forming the overall proposal, which included a nine percent CCULR in the range of consideration.

Also, as a separate point that confirms the Board's approach and conclusion, the other banking agencies also designed the CBLR framework to reduce the likelihood that a banking organization would not hold less capital under the CBLR framework than under the risk-based capital framework. The Board estimates that no qualifying complex credit union would reduce its capital requirement with a CCULR of nine percent as compared to the 2015 Final Rule. Thus, the Board does not believe a reduced CCULR of nine percent will result in the potential for regulatory arbitrage between the two frameworks.

Finally, as noted in the proposed rule preamble, the Board specifically considered comparability to the other banking agencies' CBLR framework when designing the CCULR framework. The other banking agencies established a CBLR of nine percent—that is, if an insured bank has a CBLR of nine percent and meets other requirements, it is considered well capitalized. Adopting the CCULR at nine percent will make the two frameworks generally consistent in the actual level of capital required.

In sum, the Board believes a CCULR of nine percent is prudent and does not present undue safety and soundness risk. This calibration is also within the range of consideration from the proposed rule and meets the goal of reducing regulatory burden when appropriate. Also, a CCULR of nine percent is comparable to the calibration of the CBLR. Thus, based on a reconsideration of the perspective on the calibration level relative to the CBLR and credit union net worth requirements, and a further analysis of net worth levels at 9 and 10 percent net worth ratios, the Board finds that adopting a 9 percent CCULR provides adequate protection for the NCUSIF. The Board intends to continue to monitor the impact of CCULR and RBC on credit unions and the NCUSIF going forward.

Most commenters supported a credit union's ability to opt into CCULR at the end of each calendar quarter. A few credit unions also requested that they be permitted to freely switch between the risk-based capital framework and CCULR framework and the NCUA not to limit how frequently a credit union opts into the CCULR framework. The Board has made no changes to the opt-in procedures. Under the final rule, a qualifying complex credit union with a CCULR of nine percent or greater may opt into the CCULR framework at the end of each calendar quarter. A qualifying complex credit union choosing to opt into the CCULR would indicate its decision by completing a CCULR reporting schedule in its Call Report.

Under the proposal, after a qualifying complex credit union opted into the CCULR framework, it may voluntarily opt out of the framework by providing written notice to the appropriate Regional Director or the Director of the Office of National Examinations and Supervision.

Most commenters on the opt-out procedures stated that prior notice to NCUA should not be required and qualifying credit unions should be able to perform the required analysis and switch between the two options with the same ease as banking organizations. One commenter stated it is reasonable to expect that any complex credit union would not choose to opt-out of the CCULR framework without first performing a preliminary risk-based ratio calculation. The commenter wrote that if there is any possibility a credit union would skip performing such calculation, that possibility is not a justification for subjecting all complex credit unions to a notification requirement. Another commenter stated if the Board is concerned that qualifying complex credit unions are not prepared to implement risk-based capital, an alternative may be for the agency to only require advance notice in the first year of CCULR's implementation.

The Board has removed the written notice requirement for opting out of the CCULR framework. Under the other banking agencies' CBLR framework, qualifying banks that have opted into the CBLR may opt out of the framework at any time. The Board agrees with commenters and has aligned the final rule with the CBLR. The Board has reconsidered its position for several reasons. First, the Board believes that switching between CCULR and risk-based capital would be an infrequent activity and, potentially, of little benefit to the credit union. For any credit union that raises potential concerns, the NCUA can review its capital adequacy, including its choice of capital framework, through the normal supervisory process. And, the notice requirement in the proposed rule only provided the NCUA 61 days prior notice as compared to the timeframe notice would be provided through the Call Report under the final rule. The Board does not believe this 61-day period justifies subjecting all credit unions to the proposed notification. There is also no general requirement for credit unions to submit a Call Report schedule with risk-based capital before the first reporting period of March 2022, or whenever a credit union becomes complex and must calculate risk-based capital. The Board believes if it can manage the transition of newly complex credit unions to the risk-based capital framework without notification, notification is unnecessary for credit unions switching from the CCULR framework.

The Board also notes that, although a credit union may choose to use the CCULR framework, a credit union that frequently switched between CCULR and risk-based capital may raise supervisory concerns.

Under the proposed CCULR framework, complex credit unions have a two-calendar quarter grace period if they no longer meet one of the qualifying criteria to either begin calculating a risk-based capital ratio or to meet all the CCULR eligibility criteria. Commenters who discussed the grace period generally supported it and did not support creating a separate prompt corrective action framework for CCULR. One commenter objected to the required notice if the credit union is not likely to remain eligible for the CCULR framework. One commenter suggested a three-year grace period for a credit union that fails to comply with an eligibility requirement due to a merger, rather than immediately subjecting the credit union to the risk-based capital requirements. As discussed in the following paragraphs, the Board has made two changes to the proposed grace period in response to commenters.

Under the final rule, after a qualifying complex credit union has adopted the CCULR framework and then no longer meets the qualifying criteria, it is required, within a limited grace period of two calendar quarters, either to once again meet the qualifying criteria or comply with the risk-based capital ratio requirements. The grace period begins at the end of the calendar quarter in which the credit union ceases to satisfy the criteria to be a qualifying complex credit union and ends after two consecutive calendar quarters. For example, if the complex credit union ceases to satisfy one of the qualifying criteria after December 31st (and still does not meet the criteria as of the end of that quarter), the grace period for this credit union would begin at the quarter ending March 31st and would end at the quarter ending September 30th. The complex credit union could continue to use the CCULR framework as of June 30th but would need to fully comply with the risk-based capital ratio and the associated reporting requirements as of September 30th, unless at that time the qualifying complex credit once again met the qualifying criteria of the CCULR framework. The Board believes this limited grace period is appropriate to mitigate potential volatility in capital and associated regulatory reporting requirements based on temporary changes in a credit union's risk profile from quarter to quarter, while capturing more permanent changes in the risk profile.

During the grace period, the credit union continues to be treated as a qualifying complex credit union and must continue calculating and reporting its CCULR, unless it has opted out of using the CCULR framework. Also, the qualifying complex credit union continues to be considered to have met the capital ratio requirements for the well-capitalized capital category during the grace period. If the qualifying complex credit union has a CCULR of less than seven percent, however, it is not considered to be well capitalized. Instead, its capital classification is determined by its net worth ratio. For additional discussion on the treatment of a qualifying complex credit union when its CCULR falls below nine percent, see Section H— Treatment of a Qualifying Complex Credit Union That Falls Below the CCULR Requirement.

The two-quarter grace period is akin to the other banking agencies' CBLR framework. The proposed rule differed from the CBLR framework because a qualifying complex credit union that may fail to meet the requirements to be a qualifying complex credit union by the end of the grace period was required to submit written notification to the appropriate Regional Director or the Director of Office of National Examinations and Supervision. Consistent with the reasons discussed for credit unions voluntarily opting out of the CCULR framework, the Board has decided to remove the notification requirements in the final rule. The Board no longer believes notification is necessary and will monitor compliance and a credit union's adoption of risk-based capital through the supervisory process.

Under the CBLR Final Rule, a qualifying community banking organization that ceases to meet the qualifying criteria as a result of a business combination is not provided a grace period. The proposed rule included a similar limitation. One commenter suggested a three-year grace period for a credit union that fails to comply with an eligibility requirement due to a merger, rather than immediately subjecting the credit union to the risk-based capital requirements. In general, the Board believes credit unions that no longer meet the CCULR eligibility requirements due to a merger do not need a grace period, as complex credit unions should consider the regulatory capital implications of a planned business combination and be prepared to comply with the applicable requirements.

The Board, however, believes that supervisory mergers should be an exception to this general policy. As defined in the 2015 Final Rule, a supervisory merger or combination is a transaction that involved the following:

The Board believes it is reasonable to provide a limited grace period for this select group of mergers because continuing credit unions in supervisory mergers may not have the benefit of time to plan for the capital implications of a merger. As a result, continuing credit unions may need additional time to meet the CCULR eligibility criteria following a supervisory merger. The Board believes a limited, two-quarter grace period is reasonable.

A qualifying complex credit union that has opted into the CCULR framework and has a CCULR of nine percent or greater is considered well capitalized. A qualifying complex credit union's CCULR may deteriorate due to a decline in its level of retained earnings, growth in its total assets, or a combination of both. In this case, a credit union may choose to stop using the CCULR framework and instead become subject to the risk-based capital requirement. The Board recognizes, however, that some qualifying complex credit unions may find it unduly burdensome to begin complying with the more complex risk-based capital requirements while the credit union is experiencing a decline in its CCULR.

Under the proposed rule, a minimum CCULR is one of the qualifying criteria. Thus, if a qualifying complex credit union has a CCULR that falls below the minimum requirement, it would receive the same grace period of two calendar quarters, as applicable when a credit union ceases to meet the other qualifying criteria. The Board received no comments on this provision and is finalizing it as proposed.

Thus, under the final rule a credit union is permitted a two-quarter grace period when its CCULR falls below the minimum requirement. After the two-quarter grace period, the qualifying complex credit union must either once again meet the minimum CCULR ratio or comply with the risk-based capital requirements. During the grace period, the credit union is deemed to have met the well-capitalized capital ratio requirements for PCA purposes, provided its net worth ratio remains at seven percent or greater.

If a credit union's net worth ratio falls below seven percent, it is not considered to have met the capital ratio requirements for the well-capitalized capital category and its capital classification is determined by its net worth ratio.

The Board proposed a two-year transition provision to delay the introduction of a 10 percent CCULR. All commenters who discussed the transition period favored a longer transition, and most recommended four years. Commenters generally discussed uncertainty due to COVID-19, upcoming CECL implementation, and the need for additional time to build capital. A few commenters who recommended a nine percent CCULR also recommended setting CCULR at eight percent during the transition period. One commenter recommended the agency commit to future retargeting of a fully phased in CCULR once additional data is collected during the transition period.

Because the Board is finalizing the CCULR at 9 percent instead of 10, it is not adopting the transition provision. As proposed, the transition provision would have applied if the permanent CCULR were 10 percent. Thus, the change in the CCULR in the final rule makes the transition provision unnecessary and of no effect.

The Board is not adopting a transition provision with an initial CCULR of eight percent, as several commenters suggested, for two reasons. First, the Board does not believe there is sufficient logical outgrowth from the proposal to adopt a CCULR of eight percent. Separately from the transition provision, the proposed rule posed a question on calibrating the CCULR at eight percent but did not otherwise discuss it or provide a basis to support this level of capital being sufficient to protect the NCUSIF. Second, the Board does not believe a CCULR of eight percent is necessary to ensure most complex credit unions are eligible to opt into the CCULR framework. As previously mentioned, an estimated 70 percent of complex credit unions will be eligible to opt into the CCULR framework on January 1, 2022.

The proposed rule included a reservation of authority for the Board to require a credit union to use the risk- based capital framework in specific cases. As detailed in this section, the final rule adopts this provision as proposed. Most commenters who discussed the reservation of authority did not object to it. A few noted it was analogous to the reservation of authority for the other banking agencies under the CBLR. Several commenters recommended the Board provide greater detail on how this process will work, who at NCUA makes the decision, and what information would be provided to the credit union. Three commenters also requested an appeal process. Two commenters objected to the reservation of authority. One commenter characterized the provision as providing NCUA with “subjective judgment” to establish minimum capital levels which should be left out of any minimum capital threshold. The final rule adopts the reservation of authority as proposed. Additional information is discussed in the following paragraphs in response to commenters.

In general, a complex credit union that meets the eligibility criteria may opt into the CCULR framework. There may be limited instances, however, whereby the CCULR framework would be inappropriate and not require sufficient capital to adequately protect the NCUSIF. To address such situations, the final rule includes a reservation of authority that can be exercised by the Board. Under the reservation of authority, the Board can require a complex credit union that has opted into the CCULR framework to use the risk-based capital framework to calculate its capital adequacy if the Board determines that the complex credit union's capital requirements are not commensurate with its credit or other risks. When deciding, the Board would consider all relevant factors affecting the complex credit union's safety and soundness. Also, the Board expects to provide a credit union potentially subject to use of the reservation of authority with an opportunity to present evidence on why the CCULR framework is appropriate for that institution.

The Board expects to apply the reservation of authority only in limited circumstances. Under the reservation of authority, credit unions are entitled to a two-quarter grace period before being required to comply with the risk-based capital framework. No appeal process is being provided, however, because under this final rule, the Board would exercise the reservation of authority.

The Board did not receive any comments on the proposed member business loans (MBL) analysis and thus, affirms its conclusions and interpretations in the proposed rule. Section 107A of the FCUA generally limits the aggregate amount of MBLs that an insured credit union may make, subject to exceptions for some categories of loans, such as loans granted by a corporate credit union to another credit union. 58 In addition, the FCUA exempts certain credit unions from complying with the aggregate MBL limit. Specifically, an insured credit union chartered to make MBLs, or has a history of making MBLs to its members, as determined by the Board, is not subject to the aggregate MBL limit. 59 Also, an insured credit union that serves predominantly low-income members, as defined by the Board, or is a community development financial institution, as defined in 12 U.S.C. 4702, is also not subject to the aggregate MBL limit. 60

An insured credit union that is subject to the aggregate MBL limit may not make an MBL that would result in the total amount of outstanding MBLs at the credit union being more than the lesser of 1.75 times the actual net worth of the credit union or 1.75 times the minimum net worth required for a credit union to be well capitalized under section 216(c)(1)(A) of the FCUA. 61 Section 107A defines net worth for purposes of that section, providing that it includes the retained earnings balance, as determined under GAAP. Under this section, for credit unions that serve predominantly low-income members, net worth also includes secondary capital accounts that are uninsured and subordinate to all other claims against the credit union, including the claims of creditors, shareholders, and the NCUSIF. 62

For credit unions that are not complex and thus are not subject to a risk-based net worth requirement under section 216(d) of the FCUA, MBLs are limited to 1.75 times the net worth required for the credit union to meet the seven percent net worth ratio under section 216(c)(1)(A)(i), assuming the credit union's actual net worth is greater than the minimum required to be well capitalized. To determine its maximum allowable outstanding balance of MBLs, a credit union multiplies 1.75 by seven percent of its total assets.

Until 2016, the Board calculated the MBL limitation in the same manner for complex credit unions that are subject to a risk-based net worth requirement under section 216(d) without considering any greater amount of net worth that a complex credit union might need to hold to be well capitalized under a risk-based net worth requirement. 63 In the 2015 proposed rule on MBLs, the Board proposed to amend the MBL regulation to incorporate section 107A more faithfully and noted that complex credit unions could have a different limitation caused by the need to hold more net worth under the risk-based requirement. 64 The preamble to the 2016 Final Rule on MBLs and commercial loans analyzed this issue in response to comments on the rule and explained that under the 2015 Final Rule on risk-based capital, the MBL limitation would be calculated in the following manner. When actual net worth is greater than the minimum to be well capitalized, the limit on MBLs is 1.75 times the greater of the following calculations: (i) The minimum amount of capital (in dollars) required by the net worth ratio, which is 7 percent times total assets; and (ii) the minimum amount of capital (in dollars) required by the risk-based capital ratio, which is 10 percent times total risk-weighted assets. Then, the credit union must solve for the minimum amount of net worth needed after accounting for other forms of qualifying capital allowed under the 2015 Final Rule. 65

Thus, a complex credit union subject to a risk-based capital requirement under the 2015 Final Rule would have to calculate the minimum amount of net worth required by both its net worth ratio and risk-based capital requirement. First, the net worth ratio requires a complex credit union to hold net worth (in dollars) equal to seven percent of its total assets. Second, for purposes of computing the MBL cap, 66 the risk-based capital ratio requires a complex credit union to hold net worth (in dollars) equal to 10 percent of the credit union's risk-weighted assets as calculated under 12 CFR 702.104. The complex credit union would then compare the two net worth amounts as calculated in the preceding discussion. The credit union would take the larger of the two net worth amounts, which is the minimum amount of net worth necessary to be well capitalized under either the net worth ratio or the risk-based capital ratio and compare that to actual net worth. The lesser of these two net worth amounts is used to compute the complex credit union's MBL cap, which would be 1.75 times the lesser of these two net worth amounts. While the 2015 Final Rule is not yet effective, the agency currently implements this approach for the small number of complex credit unions that are required to hold more net worth under the current risk-based net worth requirement than the net worth ratio.

The Board continues to find this approach reflects the correct reading of sections 107A and 216 and re-affirms this interpretation over any prior interpretation that disregarded the risk-based net worth requirement for this purpose. 67 For complex credit unions, the amount to be well capitalized under section 216(c)(1)(A) is seven percent of total assets (the net worth ratio) or the amount required by the risk-based net worth requirement, which could be either the risk-based capital ratio under the 2015 Final Rule or the CCULR framework. A complex credit union must satisfy both of these requirements to be well capitalized under section 216(c)(1)(A), which means that, in section 107A's terms, the minimum net worth required to be well capitalized is the higher of the amount required by the net worth ratio or the risk-based net worth requirement. The Board finds this is a clear, plain language reading of both provisions. Section 107A(a) points to section 216(c)(1)(A) to determine the minimum net worth required for complex credit unions, and in turn, section 216(c)(1)(A) includes both the seven percent net worth ratio and the net worth required by any applicable risk-based net worth requirement. Reading section 107A(a) to exclude the net worth required for complex credit unions under section 216(c)(1)(A)(ii) would ignore a key component of the plain language of section 216(c)(1)(A) contrary to principles of statutory interpretation.

The Board also finds that even if sections 107A and 216(c)(1)(A) were considered ambiguous or unclear, it would interpret them in the same way. For instance, the Board observes two key textual indicators that Congress did not intend to limit this calculation to the seven percent net worth ratio. First, section 107A was enacted in the same legislation as section 216. Thus, Congress was aware that section 216(c)(1)(A) set a seven percent net worth ratio to be well capitalized. Yet in section 107A(a), Congress chose not to specify that the MBL limitation is determined by the amount of net worth required to achieve a seven percent net worth ratio. Instead, Congress provided more broadly that the limitation is determined by reference to the minimum net worth required under section 216(c)(1)(A). Second, Congress could have limited this calculation to the seven percent net worth ratio by providing the MBL limitation is determined by reference only to the minimum net worth required under section 216(c)(1)(A)(i), which would have excluded the risk-based net worth requirement. Instead, section 107A points to section 216(c)(1)(A), which encompasses both applicable net worth requirements for complex credit unions.

The Board acknowledges that the Senate Report associated with the legislation that enacted sections 107A and 216 refers to the MBL limitation as being based on the seven percent net worth ratio in a parenthetical statement. A statement by an individual Senator also refers to the limitation as being determined by the seven percent net worth ratio. 68 But this discussion in the Senate Report is brief and does not touch upon the risk-based net worth requirement or explain how the Senate believed the MBL limitation should work for complex credit unions, which are subject to additional net worth requirements. In any event, this general discussion does not expressly contradict the language and structure of sections 107A and 216, which the Board finds to be better indicators of the meaning and purpose of these provisions.

Applying this approach to the CCULR framework, qualifying complex credit unions opting into the CCULR framework would calculate a different limitation on MBLs from their current calculation under the seven percent net worth ratio. This is because, as discussed previously in the Legal Authority section, the CCULR is considered a risk-based net worth requirement, and thus falls under section 216(c)(1)(A)(ii) as a measure of the minimum net worth required to be well capitalized. Accordingly, under the final rule, a qualifying complex credit union that opts into the CCULR determines its MBL limitation by reference to the amount of net worth required to be well capitalized under the CCULR. Complex credit unions that do not qualify or do not opt into the CCULR framework determine their MBL limitation by reference to the 10 percent risk-based capital ratio, as described in the 2016 MBL final rule. In either scenario, if a complex credit union has actual net worth below those measures, its actual net worth would determine its MBL limitation.

Under the 2015 Final Rule, a complex credit union 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. 69 While a qualifying complex credit union opting into the CCULR framework is required to have a comprehensive written strategy for maintaining an appropriate level of capital, this strategy may be straightforward and minimally state how the credit union intends to comply with the CCULR framework, including minimum capital requirements and qualifying criteria. In contrast, complex credit unions that do not opt into the CCULR framework will be required to have a more detailed written strategy. One commenter expressed concern about the subjective nature of this provision, and whether the agency has the statutory authority to adopt the provision if it would require individual credit unions to hold capital above those required by the rule or the FCUA. The Board disagrees. As discussed in the 2015 Final Rule, the NCUA has a long-established policy that FICUs 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 FCUA grants NCUA broad authority to take action to ensure the safety and soundness of credit unions and the NCUSIF and to carry out the powers granted to the Board. Requiring credit unions to maintain capital adequacy is part of ensuring safety and soundness and is not a new concept. This provision is focused on the credit union's own process and strategy for assessing and maintaining its overall capital adequacy in relation to its risk profile and does not affect credit unions' PCA capital category. The provision is only intended to support the assessment of capital adequacy in the supervisory process, for example when assigning CAMELS and risk ratings. 70

The Board stated its intent to holistically and comprehensively reevaluate the NCUA's capital standards for credit unions in the 2019 Final Rule. A principal component of this review is the CCULR framework. The Board also stated it would consider whether to make more substantive revisions to the 2015 Final Rule. 71 The Board has completed this analysis and is including several changes to the 2015 Final Rule. Each change is discussed in the following sections. The proposed changes are generally adopted as final without change.

The 2015 Final Rule states that the risk-weighted amounts for all off-balance sheet items  72 are determined by multiplying the off-balance sheet exposure amount  73 by the appropriate credit conversion factor and the assigned risk weight. But the definition of off-balance sheet items is not aligned with the definition of off-balance sheet exposure. Under the 2015 Final Rule, only commitments, loans transferred with limited recourse, and loans transferred under the FHLB mortgage partnership finance program are provided explicit exposure amounts. The rule is silent on the appropriate treatment for the remaining items included in the definition of off-balance sheet items, for example contingent items, guarantees, certain repo-style transactions, financial standby letters of credit, and forward agreements. In addition, the 2015 Final Rule does not include a credit conversion factor or risk weight for the off-balance sheet items that are not provided a specific exposure amount in the definition of off-balance sheet exposure.

The final rule makes several changes to clarify the treatment of off-balance sheet items. First, as discussed previously, the final rule amends the definition of off-balance sheet exposures. This definition is used as one of the CCULR eligibility criteria and is amended to more closely align with the other banking agencies' CBLR framework. As a consequence of amending the definition of off-balance sheet exposure for the CCULR framework, the off-balance sheet exposure definition also more closely aligns with the existing definition of off-balance sheet items. 74 Thus, several items currently defined as an off-balance sheet item, but not included in the current definition of off-balance sheet exposure, are now provided an exposure amount. This change reduces ambiguity in the 2015 Final Rule. Further, each item included in the definition of off-balance sheet exposure in the final rule is provided an explicit credit conversion factor and risk weight for purposes of the risk-based capital rule. The Board did not receive any comments on the proposed off-balance sheet risk weights and is adopting them as final without change. Each change to the risk-based capital rule is discussed in detail in the following paragraphs.

The final rule states that unconditionally cancellable commitments have a zero percent credit conversion factor. Thus, any unconditionally cancellable commitment is excluded from a credit union's risk-based capital calculation. Under the 2015 Final Rule, these exposures receive a minimum of a 10 percent credit conversion factor and could receive up to a 50 percent credit conversion factor. The Board believes that many of credit unions' commitments qualify as unconditionally cancellable and that credit unions are currently subject to a more conservative treatment for unfunded commitments than banking organizations. Thus, the Board believes providing a zero percent conversion factor will not only make the 2015 Final Rule more comparable to the other banking agencies' 2013 capital rule but will also provide a significant burden reduction for credit unions calculating their capital adequacy under the 2015 Final Rule.

The 2015 Final Rule does not provide a credit conversion factor for financial standby letters of credit. Including an explicit 100 percent conversion factor provides parity between the other banking agencies and the NCUA. The final rule provides that financial standby letters of credit are given a 100 percent credit conversion factor.

The 2015 Final Rule does not provide a credit conversion factor for forward agreements that are not derivative contracts. Including an explicit 100 percent conversion factor provides parity between the other banking agencies and the NCUA. For forward agreements that are not derivative contracts, the final rule provides for a 100 percent credit conversion factor.

The 2015 Final Rule does not provide a credit conversion factor for sold credit protection through guarantees or credit derivatives. The final rule provides different risk weights for guarantees and credit derivatives. Guarantees would receive a 100 percent risk weight. For credit derivatives, the risk weight is determined through the applicable provisions of the FDIC's capital rules. A credit union offering credit protection through a credit derivative risk weights the exposure according to 12 CFR 324.34 (for derivatives that are not cleared) or 12 CFR 324.35 (for derivatives that are cleared exposures). For sold credit protection through guarantees and credit derivatives, the final rule provides for a 100 percent credit conversion factor.

The Board understands the treatment of credit derivatives is complex and compliance with these requirements increases the regulatory burden for credit unions that offer credit protection through credit derivatives. But credit derivatives are complex instruments. And, credit derivatives are not a permissible activity for FCUs, and the Board believes that state-chartered credit unions should only offer credit derivatives if the credit union has the appropriate resources and capabilities to manage the associated complexity. The Board believes any credit union that has offered credit protection through credit derivatives should also be capable of complying with the complexity in the FDIC's capital rules. Thus, the Board believes it is appropriate to reference the other banking agencies' 2013 capital rules when determining the appropriate risk weights for credit derivatives. 75

For off-balance sheet securitization exposures, the credit conversion factor is 100 percent. The 2015 Final Rule does not currently provide a credit conversion factor for the off-balance sheet portion of securitization exposures. The risk weight is determined as if the exposure is an on-balance sheet securitization exposure. Under the 2015 Final Rule, the risk weight for securitization exposures is dependent upon whether the exposure is a subordinated or non-subordinated tranche. Non-subordinated tranches can receive a 100 percent risk weight (credit unions again have the option to use the gross up approach). 76 In contrast, a subordinated tranche receives a 1,250 percent risk weight. Credit unions also have the option to use the gross-up approach. 77

The 2015 Final Rule does not provide a credit conversion factor for securities borrowing or lending transactions. Including an explicit 100 percent credit conversion factor provides parity between the other banking agencies and the NCUA. Unlike the other banking agencies' rules, the final rule includes a risk weight of 100 percent for these transactions. The Board is aware this may be a more conservative risk weight than for securities borrowing and lending transactions under the other banking agencies' 2013 capital rule. For securities borrowing or lending transactions, the credit conversion factor is 100 percent.

The final rule includes a 100 percent risk weight for simplicity. A credit union, however, may recognize the credit risk mitigation benefits of financial collateral by risk weighting the collateralized portion of the exposure under the applicable provisions of 12 CFR 324.35 or 324.37. Any collateral recognized must meet the definition of financial collateral under the other banking agencies 2013 capital rules. 78

The final rule also includes a specific credit conversion factor and risk weight for the off-balance sheet exposure amount of repurchase transactions. 79 Under the final rule, the off-balance sheet exposure amount for a repurchase transaction equals all of the positions the credit union has sold or bought subject to repurchase or resale, which equals the sum of the current fair values of all such positions. The off-balance sheet exposure amounts of repurchase transactions are not provided a credit conversion factor under the 2015 Final Rule. The final rule provides a 100 percent risk weight for the off-balance sheet exposure amounts of repurchase transactions. A credit union may recognize the credit risk mitigation benefits of financial collateral, as defined by 12 CFR 324.2, by risk weighting the collateralized portion of the exposure under the applicable provisions of 12 CFR 324.35 or 324.37. 80

The Board notes that repurchase transactions are not included in the definition of off-balance sheet exposure. This exclusion of repurchase transactions from the definition of off-balance sheet exposure is because the other banking agencies did not include repurchase transactions in their related measure of CBLR and the definition of off-balance sheet exposure is used for purposes of the CCULR eligibility criteria. 81

Even though, for purposes of the CCULR framework, repurchase transactions are excluded from the off-balance sheet criterion, the Board believes that the off-balance sheet portion of repurchase transactions should be risk-weighted under the risk-based capital ratio. First, repurchase transactions are included in the current definition of off-balance sheet items. Second, the other banking agencies risk-weight the off-balance sheet portion of repurchase transactions in their risk-based capital framework. 82

The Board, however, does not believe that repurchase transactions are a material exposure for credit unions. As of June 30, 2021, there are 26 complex credit unions with repurchase transactions on their balance sheets. Thus, the final rule includes the off-balance sheet portion of repurchase transactions for purposes of risk-based capital, even though such transactions are not included as part of the off-balance sheet eligibility criteria under the CCULR framework. 83

Finally, the final rule includes a “catchall” category. Under the final rule, all other off-balance sheet exposures not explicitly provided a credit conversion factor or risk weight that meet the definition of a commitment are given a credit conversion factor of 100 percent and a risk weight of 100 percent. The Board believes a catchall category is necessary given that the definition of commitment is broad. Commitments include any legally binding arrangement that obligates the credit union to extend credit, purchase or sell assets, enter into a borrowing agreement, or enter into a financial transaction. 84 To ensure all off-balance sheet exposures that met the definition of commitment are provided a credit conversion factor and risk weight, the final rule includes a new catchall category for such exposures.

The 2019 Supplemental Rule included asset securitizations as one of the reasons the Board sought a holistic reevaluation of the 2015 Final Rule. The Board has further considered asset securitizations issued by credit unions and has decided to amend the 2015 Final Rule to explicitly address credit union issued securitizations.

The proposed rule required credit unions that issue securitizations to use the other banking agencies' 2013 capital rules when determining whether assets transferred in connection with a securitization are excluded from risk-based capital. The Board reviewed these standards and found they would be appropriate as applied to credit union securitizations, with the minor differences noted below. Specifically, under the final rule, a credit union must follow the requirements of the applicable provisions of 12 CFR 324.41 when it transfers exposures in connection with a securitization. A credit union may only exclude the transferred exposures from the calculation of its risk-weighted assets if each condition in 12 CFR 324.41 is satisfied. The conditions for traditional securitizations in 12 CFR 324.41 are as follows (adapted for credit unions):

A credit union that meets the conditions, but retains any credit risk for the transferred exposures, must hold risk-based capital against the credit risk it retains in connection with the securitization.

The other banking agencies' 2013 rule includes conditions for both traditional securitizations and synthetic securitizations. 86 The Board believes almost all securitizations issued by credit unions would be traditional securitizations and subject to the conditions in 12 CFR 324.41(a). The Board does not believe that credit unions are likely to engage in synthetic securitizations; however, if a credit union issues a synthetic securitization, it is subject to the conditions in 12 CFR 324.41(b).

The Board also notes that 12 CFR 324.41(c) includes explicit due diligence requirements for banking organizations' investments in securitizations. The Board is not currently adopting these requirements. The final rule only references 12 CFR 324.41 to incorporate the factors a credit union must consider when excluding assets transferred in connection with a securitization from risk-weighted assets. The Board intends to use its supervisory authority to monitor securitizations for safety and soundness purposes and is not currently adopting any new regulatory requirements for such transactions.

The other banking agencies' 2013 capital rule has an explicit treatment for any gain-on-sale in connection with a securitization exposure and any credit-enhancing interest only strips (CEIOs) retained by a banking organization that do not qualify as a gain-on-sale. Any gain-on-sale in connection with a securitization exposure is deducted from a banking organization's common equity tier 1 capital. 87 CEIOs that do not qualify as a gain-on-sale are given a 1,250 percent risk weight. 88 The other banking agencies provided punitive treatments for these exposures because of historical supervisory concerns with the subjectivity involved in valuations of gains-on-sale and CEIOs. And though the treatments for gains-on-sale and CEIOs can increase an originating banking organization's risk-based capital requirement following a securitization, the other banking agencies believe that such anomalies are rare where a securitization transfers significant credit risk to third parties.

The 2015 Final Rule does not include specific treatments for gain-on-sales or CEIOs because, as discussed previously, in 2015 credit unions had not issued any securitizations. Under the 2015 Final Rule, however, most CEIOs would still receive a 1,250 percent risk weight because they constitute a subordinated tranche, but the 2015 Final Rule permits a credit union to use the gross-up approach as an alternative. The Board believes that credit union-issued securitizations should be given a similar capital treatment under the 2015 Final Rule as under the other banking agencies' risk-based capital rule.

Thus, the final rule includes a specific risk weight for certain exposures associated with securitization activities. While the Board believes the capital treatment for credit union-issued securitizations should be akin to bank-issued securitizations, the final rule is slightly different than the other banking agencies' 2013 risk-based capital rule for simplicity. Under the final rule, the gain-on-sale amount from a securitization transaction, generally the CEIO, will be included in the numerator in calculating a credit union's net worth. This is a different approach than the other banking agencies' rule, which excludes gains-on-sale in calculating a bank's common equity tier 1 capital. Instead, the Board has chosen to address the risks associated with a gain-on-sale amount by requiring that a 1,250 percent risk weighting be applied to retained non-security beneficial interests.

One commenter specifically supported the securitization framework, which generally references the capital rule of the other banking agencies. Another commenter questioned why the Board did not adopt the entirety of the other banking agencies' framework and recommended granting complex credit unions the option to use the gross-up approach for risk weighting non-security beneficial interest of a securitization. The commenter stated that this would ensure that credit unions have at least the same flexibility as non-advanced approaches banks. The other banking agencies do not permit the use of the gross-up approach for a securitization gain-on-sale, and require the full deduction of the gain-on-sale from the tier 1 capital numerator. 89 Further, the Board believes its approach is simpler and provides a more conservative overall risk weight. The Board believes this approach is warranted given the limited securitizations issued by credit unions at this time.

Under the final rule, a non-security beneficial interest is defined as the residual equity interest in the special purpose entity that represents a right to receive possible future payments after specified payment amounts are made to third-party investors in the securitized receivables. Thus, under the final rule, if a credit union has a non-security beneficial interest, such as a CEIO or cash collateral account, it cannot be risk-weighted with the gross-up approach and instead would be given a 1,250-risk weight. The Board believes this treatment is akin to the treatment provided by the other banking agencies in their 2013 risk-based capital rule.

The Board notes that subordinate tranches, either retained by the securitization sponsor or offered to investors as securities, that are also senior in payment priority to the non-security beneficial interest, can be risk-weighted using the gross-up approach.

The Board also notes that although the final rule is currently adopting the FDIC's approach to securitization through a cross reference, as with other FDIC provisions referenced elsewhere in this final rule, the Board will review the FDIC's treatment of securitizations in the future if it makes changes and will consider any adjustments as necessary.

The Board proposed to amend 12 CFR 702.104(b), risk-based capital numerator, to deduct mortgage servicing assets that exceed 25 percent of the sum of the capital elements in 12 CFR 702.104(b)(1), less deductions required under 12 CFR 702.104(b)(2)(i) through (iv) of this section. A few commenters did not support the proposed deduction of MSAs. One commenter noted that CCULR lacks a comparable restriction and the risk-based capital rule is primarily designed for credit risk and not operational or market risk.

The Board is not making changes in response to the commenters.

The Board is including a deduction to the risk-based capital numerator for MSAs that exceed 25 percent of the risk-based capital numerator for two primary reasons. First, this change will make the NCUA's risk-based capital calculation more consistent with the other banking agencies' revised risk-based capital rules as the other banking agencies simplified their MSA calculation post-issuance of the 2015 Final Rule. 90 Under the other banking agencies' revised risk-based capital rule, banking organizations deduct MSAs that exceed 25 percent of the banking organization's common equity tier 1 capital. 91 The Board believes the simplification of the other banking agencies' approach allows the NCUA to be consistent with the other banking agencies' risk-based capital rule. Also, the Board believes it is important to implement prudential conditions around MSAs as the Board is considering a final rule to amend parts 703 and 721 to allow FCUs to purchase mortgage servicing rights  92 from other FICUs. 93 This rule may potentially increase MSA holdings for complex credit unions.

The Board believes that, by including a deduction to the risk-based capital numerator for MSAs in risk-based capital, complex credit unions will be encouraged to avoid excessive exposures in MSAs relative to the other risks on their balance sheets. As mentioned in the preamble of the 2015 Final Rule, the risks of MSAs contribute to a high level of uncertainty regarding the ability of credit unions to realize value from these assets. Thus, the Board believes it is appropriate to add the risk-based numerator deduction to address the potential of complex credit unions purchasing MSAs from other FICUs.

The treatment would not have an immediate effect on complex credit unions. As of June 30, 2021, the largest concentration in MSAs held by complex credit unions was just under 12 percent of the credit union's net worth. While net worth and the risk-based capital numerator are different calculations, the two calculations are similar enough to state, with a high degree of certainty, there are no complex credit unions as of June 30, 2021, that would be required to deduct MSAs from the risk-based capital numerator.

Finally, the Board is aware that some commenters believe deducting exposures of MSAs over 25 percent of their risk-based capital numerator is punitive. The Board notes both the Board and other banking agencies have stated that MSAs have a relatively high level of uncertainty regarding the ability to both value and realize value from these assets. 94 The Board also believes including the MSA deduction from the risk-based capital numerator is prudent for potential balance sheets complex credit union may have in the future.

To determine if a complex credit union would be subject to the MSA deduction from the risk-based capital numerator, the complex credit union first needs to calculate the risk-based capital numerator before the MSA deduction. This calculation is in the 2015 Final Rule and requires the complex credit union add all the capital elements of the risk-based capital numerator and subtract all risk-based capital numerator deductions, not including the MSA deduction. The complex credit union would then determine if its MSA exposure exceeds 25 percent of the previous calculation. If its MSAs do not exceed 25 percent, the previous calculation is the risk-based capital numerator. If its MSAs exceed 25 percent, the complex credit union will need to deduct the amount of MSAs that exceed 25 percent from the previous calculation. All MSA exposures that are not deducted from the risk-based capital numerator are risk-weighted in the risk-based capital denominator at 250 percent.

The Board proposed amending the risk-based capital rule to assign a risk weighting of zero percent to an obligation of the Bank for International Settlements, the European Central Bank, the European Commission, the International Monetary Fund, the European Stability Mechanism, the European Financial Stability Facility, and multilateral development banks (MDBs). The 2015 Final Rule did not specifically discuss MDBs, which would have a risk weight of 100 percent under the catchall category for all other assets not specifically assigned a risk weight. 95 Assigning a risk-weight of zero percent is consistent with the other banking agencies' risk-based capital rule and the Board believes the zero percent risk weight is appropriate due to the generally high-credit quality of the issuers. A few commenters specifically supported the zero percent risk weight for supranational entities, and none opposed it. The Board is finalizing this provision without change. The Board notes that MDBs are not permissible investments for FCUs under the general investment authorities but may be permissible for federally insured, state-chartered credit unions under state investment authorities. But FCUs may invest in MDBs under 12 CFR 701.19 and 721.3(b), subject to some conditions.

As discussed previously in connection with the other banking agencies' CBLR regulation, the CARES Act was enacted in 2020 to provide aid to the U.S. economy during COVID-19. 96 The CARES Act authorized the Small Business Administration (SBA) to create a loan guarantee program, the Paycheck Protection Program (PPP), to help certain affected businesses meet payroll needs and utilities as a result of COVID-19, including employee salaries, sick leave, other paid leave, and health insurance expenses. Provided credit union lenders comply with the applicable lender obligations set forth in the SBA's interim final rule, the SBA fully guaranteed loans issued under the PPP. Most FICUs were eligible to make PPP loans to members. Under the CARES Act, PPP loans must receive a zero percent risk weighting under the NCUA's risk-based capital requirements. 97

The NCUA issued a 2020 interim final rule to explicitly state that PPP loans under the risk-based net worth requirement receive a zero percent risk-weight. 98 The 2020 interim final rule stated the NCUA's risk-based capital regulations would be amended in the future. The Board proposed to update the 2015 Final Rule to reflect that PPP loans receive a zero percent risk weight. No comments were received on this proposed change and the Board is now finalizing it as proposed.

The Board recently amended its rule on derivatives to modernize the rule and make it more principles-based while retaining key safety and soundness components. 99 The rulemaking amended several defined terms that are also included in the 2015 Final Rule. For consistency, the proposed rule updated those definitions that are also included in the 2015 Final Rule. The Board received no comments on these changes and is now finalizing it without additional change. First, under the final rule, the term derivative is defined as “a financial contract that derives its value from the value and performance of some other underlying financial instrument or variable, such as an index or interest rate.”  100 Second, the rule makes minor changes to the definitions of a derivative clearing organization and swap dealer by including a more general reference to the Commodity Futures Trading Commission (CFTC)'s regulations. For both definitions, the 2015 Final Rule references the definitions used by the CFTC. 101 The Board is adopting references to the CFTC regulations for consistency and believes these definitions appropriately define the terms, but the Board will review these references in the future if the CFTC makes changes and will adjust as necessary.

The Board proposed to amend the definitions for Consumer Loan and Current in 12 CFR 702.2. The Board received no comments on this proposed change and is now finalizing it without change. The Board is amending these definitions to clarify the 2015 Final Rule. The 2015 Final Rule does not include leases in the definition of Consumer Loan, although the 2014 Risk-Based Capital notice of proposed rulemaking stated “[c]onsumer loans (unsecured credit card loans, lines of credit, automobile loans, and leases) are generally highly desired credit union assets and a key element of providing basic financial services.”  102 Without this change the treatment of consumer leases is unclear and, thus, may be risk-weighted in the catchall category of 100 percent. The change makes clear that consumer leases receive a 75 percent risk weight. Due to the amendment in the definition of a consumer loan, the definition of current is also amended for consistency and includes the term leases.

The 2015 Final Rule requires complex credit unions to deduct goodwill  103 from the risk-based capital numerator. The proposed rule did not include any changes to the deduction of goodwill under the 2015 Final Rule. The proposed rule, however, asked about the advantages and disadvantages of deducting goodwill from regulatory capital under the 2015 Final Rule. The proposed rule also asked commenters whether not deducting goodwill from regulatory capital would adequately protect the NCUSIF in the event of a failure and liquidation given that goodwill is not a tangible asset. Several commenters urged the agency to permit credit unions to include goodwill in the risk-based capital numerator. One commenter stated that deducting supervisory goodwill restricts growth and decreases the likelihood that a healthy, well-capitalized credit union will assist with a supervisory merger of an under-capitalized credit union. Another commenter said the deduction penalizes credit unions that have just gone through a merger.

Under the 2015 Final Rule, the Board permitted credit unions to exclude certain goodwill and other intangible assets from the deduction in the numerator that occurred on or before December 28, 2015. The proposed rule asked whether this date should be updated considering the subsequent delays to the risk-based capital rule. A few commenters encouraged the agency to alleviate any potential confusion by amending this date. Several commenters suggested grandfathering all goodwill prior the effective date of the CCULR framework or the risk-based capital framework. Another commenter recommended establishing a formal approval process for grandfathered goodwill with required criteria such as annual goodwill impairment testing. Another commenter stated that the relief provided by the original 13-year period, in which grandfathered goodwill is not deducted, has been diminished due to the delayed effective date for the risk-based capital rule.

As discussed previously, in response to comments about the proposed treatment of goodwill, the Board has made two changes in the final rule. The first change modifies the CCULR qualifying criteria by not including excluded goodwill and excluded other intangible assets as part of the calculation of the two percent qualifying criteria. This change aligns the treatment of goodwill in CCULR with the treatment in risk-based capital. For additional discussion on this change, see Section B. Qualifying Complex Credit Unions.

The final rule also amends the treatment of goodwill under the 2015 Final Rule. Specifically, the final rule removes the 2029 sunset date for excluded goodwill and excluded other intangible assets. Under the final rule, credit unions will not be required to deduct excluded goodwill from the risk-based capital numerator, even after January 1, 2029. Credit unions would not be required to deduct other intangible assets such as core deposit intangible, member relationship intangible, or trade name intangible originating from a supervisory merger or combination that was completed on or before December 28, 2015. The Board believes credit unions that previously supported the NCUSIF by assisting in supervisory mergers should not be penalized for these decisions. Specifically, the Board is amending the 2015 Final Rule in response to commenters' concerns relating to the deduction of excluded goodwill from the risk-based capital numerator after the completion of supervisory mergers. The Board does not believe the subsequent change in capital treatment will unduly penalize credit unions.

The final rule includes several technical amendments to part 702, including some discussed in the proposed rule and others that the Board has identified in finalizing this rule. First, the definition of total assets in 12 CFR 702.2 is amended to carry forward the PPP-related change made in the 2020 interim final rule. Specifically, under the final rule, the definition of total assets would be amended to explicitly state that PPP loans pledged to the Federal Reserve Board's PPP Lending Facility to support PPP lending are excluded from the definition of total assets. 104 This 2020 interim final rule made this change to the definition of total assets in the currently effective version of 12 CFR 702.2, but did not make the change to the definition of total assets as implemented by the 2015 Final Rule. This technical correction will ensure the definition carries past 2021 as intended. The definition will also include an amended citation. The 2015 Final Rule stated that, for each quarter, a credit union must elect one of the measures of total assets to apply except for 12 CFR 702.103 through 702.106 (risk-based capital requirement). The exception should be for 12 CFR 702.103 through 702.105. This change has been made in the final rule.

The second technical amendment adjusts the definition of the net worth ratio from the 2015 Final Rule. The change clarifies that the net worth ratio is rounded to two decimal places, but the rounding occurs only after the ratio is expressed as percentage.

The final rule also includes two technical amendments to 12 CFR part 703 that were included in the proposed rule. Both amendments make minor corrections related to the 2015 Final Rule. The Board received no comment on the proposed amendments and is finalizing them without change.

Several commenters offered recommendations that went beyond the scope of the proposed changes to the 2015 Final Rule. For example, several commenters recommended the Board consider rescinding or delaying the 2015 Final Rule. The Board continues to believe the current risk-based net worth standards have weaknesses and revised standards with enhanced risk sensitivity are appropriate for complex credit unions. The Board is not currently rescinding the 2015 Final Rule. Delaying the 2015 Final Rule is also outside the scope of the proposed rule, which did not discuss amending the effective date of the 2015 Final Rule. Also, the Board continues to believe that a delay to the effective date of the 2015 Final Rule is unnecessary, as discussed previously.

Another commenter recommended the Board consider refinements to the subordinated debt framework contemporaneously with changes to the risk-based capital rule. Neither the subordinated debt final rule nor the 2015 Final Rule are yet effective. The Board will separately monitor implementation of the subordinated rule and consider any appropriate changes in the future.

Other commenters urged the Board to eliminate the higher risk-weighting for concentrations of first-lien mortgages, junior-lien mortgages, MSAs, and commercial loans. One commenter stated these concentration limits are not generally comparable to the risk-based capital rules of the other banking agencies or the Basel Framework. One commenter requested investments in CUSOs be risk-weighted at no more than 100 percent. Another commenter stated MSAs should not be subject to a higher risk weight under the risk-based capital rule, which is currently 250 percent. The commenter recommended 150 percent. The Board believes these recommendations are beyond the scope of the proposed rule. As discussed previously, amendments to risk-weights can be considered anytime in the future by the Board, or during the Board's regular process to review regulations every three years.

The Regulatory Flexibility Act  105 requires the NCUA to prepare an analysis describing any significant economic impact a regulation may have on a substantial number of small entities (primarily those under $100 million in assets). 106 This final rule affects only credit unions with over $500 million in assets, which are subject to the 2015 Final Rule and the 2018 Supplemental Rule when they go into effect in January 2022. As a result, credit unions with under $100 million in total assets would not be affected by this final rule. Accordingly, the NCUA certifies this final rule does not have a significant economic impact on 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 amends an existing burden. For purposes of the PRA, a paperwork burden may take the form of a reporting, disclosure or recordkeeping requirement, each referred to as an information collection. The final rule will revise existing information collection requirements to the Call Report (Office of Management and Budget control number 3133-0004). These revisions will be addressed in a separate Federal Register notice and will be submitted for approval by the Office of Information and Regulatory Affairs at the Office of Management and Budget.

Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. 107 The NCUA, an independent regulatory agency, as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order to adhere to fundamental federalism principles. The final rule applies to all federally insured natural-person credit unions, including federally insured, state-chartered natural-person credit unions. Accordingly, the Final Rule 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 executing the statutory mandate to adopt a system of PCA to apply to all federally insured, natural-person credit unions. The NCUA has consulted with representatives of state regulators regarding the impact of the final rule during the rulemaking process.

The NCUA has determined that this rule would 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).

The Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) generally provides for congressional review of agency rules. 108 A reporting requirement is triggered in instances where the NCUA issues a final rule as defined in the Administrative Procedure Act. 109 Besides being subject to congressional oversight, an agency rule may also be subject to a delayed effective date if it is a “major rule.” As required by SBREFA, the NCUA will submit this final rule to the Office of Management and Budget for it to determine if it is a “major rule” for purposes of SBREFA. The NCUA also will file appropriate reports with Congress and the Government Accountability Office so this rule may be reviewed.

The Administrative Procedure Act typically requires a 30-day delayed effective date, except for (1) substantive rules which grant or recognize an exemption or relieve a restriction; (2) interpretative rules and statements of policy; or (3) as otherwise provided by the agency for good cause. 110 Because qualifying complex credit unions that opt into the CCULR framework under the final rule are exempt from compliance with the 2015 Final Rule, the final rule is exempt from the Administrative Procedure Act's delayed effective date requirement.

For the reasons stated in the preamble, the NCUA amends 12 CFR parts 702 and 703, as follows:

At its December 2020 meeting, the Board issued a final Subordinated Debt rule permitting LICUs, Complex Credit Unions, and New Credit Unions to issue Subordinated Debt for purposes of Regulatory Capital treatment. 1 Relevant to this final rule, the Subordinated Debt rule grandfathered secondary capital issued before January 1, 2022, and allowed such secondary capital to receive regulatory capital treatment until January 1, 2042 (20 years from the effective date of the Subordinated Debt rule). 2 The grandfathering provision of the Subordinated Debt rule allows LICUs with grandfathered secondary capital to continue to be subject to the requirements of 12 CFR 701.34(b), (c), and (d) (recodified in the December 2020 final Subordinated Debt rule as 12 CFR 702.414), rather than the requirements of the Subordinated Debt rule. 3

The Subordinated Debt rule also includes a provision stating that any issuances of secondary capital not completed by January 1, 2022, are, as of January 1, 2022, subject to the requirements applicable to Subordinated Debt in the Subordinated Debt rule. 4 This provision would nullify any approved secondary capital application if the associated issuance is not completed before January 1, 2022. Any LICU in this situation would be required to reapply under the Subordinated Debt rule if such LICU sought to proceed with its planned secondary capital issuance.

Subsequent to the issuance of the Subordinated Debt rule, Congress passed the Consolidated Appropriations Act, 2021 (CAA). 5 The CAA, among other things, created the ECIP. Under the ECIP, Congress appropriated funds and directed Treasury to make investments in “eligible institutions” to support their efforts to “provide loans, grants, and forbearance for small businesses, minority-owned businesses, and consumers, especially in low-income and underserved communities.”  6 The definition of “eligible institutions” includes federally insured credit unions that are minority depository institutions or community development financial institutions, provided such credit unions are not in troubled condition or subject to any formal enforcement actions related to unsafe or unsound lending practices. 7

Under the terms developed by Treasury, investments in eligible credit unions will be in the form of subordinated debt. Treasury also aligned its investments in LICUs with the Federal Credit Union Act and the NCUA's regulations to allow eligible LICUs to apply to the NCUA for secondary capital treatment for these investments.

Treasury opened the ECIP application process on March 4, 2021, with an application deadline of May 7, 2021. Treasury subsequently extended this deadline multiple times, with the most recent deadline being September 1, 2021.

At its September 2021 meeting, the Board issued a notice of proposed rulemaking to amend the Subordinated Debt rule to address a specific situation with funding of approved secondary capital applications. 8

As discussed in subsection A of this section, if the ECIP investments, or investments from any other programs administered by the U.S. Government that can fund secondary capital, are not funded by the end of 2021, those approved LICUs would be required to reapply under the Subordinated Debt rule to complete an issuance. As this scenario would impose an unnecessary burden on these LICUs, the Board proposed to amend the Subordinated Debt rule to permit funding of secondary capital approved under the current secondary capital rule, beyond 2021, without the need to reapply under the Subordinated Debt rule. Regardless of the issuance date of the secondary capital, such secondary capital would, for the purposes of the Subordinated Debt rule, be considered Grandfathered Secondary Capital, and remain subject to 12 CFR 701.34(b), (c) and (d) of the NCUA's regulations (recodified in the December 2020 final Subordinated Debt rule as 12 CFR 702.414). The Board notes that the proposed changes were narrowly tailored to provide an exception to the issuance cutoff date, if the secondary capital issuance is:

1. To the U.S. Government; and

2. Being conducted under a secondary capital application that was approved before January 1, 2022, under either § 701.34 of the NCUA's regulations, for federal credit unions, or § 741.203 of the NCUA's regulations, for federally insured, state-chartered credit unions.

Consistent with the final Subordinated Debt rule, any LICU not meeting the above criteria will remain subject to the requirement to complete any issuance by the end of 2021 or such issuance will be subject to the requirements of the final Subordinated Debt rule.

The Board also proposed to amend the starting point for Grandfathered Secondary Capital to retain its status as Regulatory Capital. Currently, the Subordinated Debt rule states that all Grandfathered Secondary Capital will be treated as regulatory capital until January 1, 2042 (20 years from the effective date of the final Subordinated Debt rule). As the proposed rule would allow limited issuances of Grandfathered Secondary Capital beyond January 1, 2022, the Board proposed to allow such secondary capital to count as regulatory capital for up to 20 years from the date of issuance. The Board noted that this proposed amendment would provide equitable treatment for all issuances of Grandfathered Secondary Capital.

The NCUA received 15 comments following publication of the proposed rule. All of the commenters that addressed the proposed rule were in support of the proposed amendments. There were no commenters that opposed the proposed amendments.

All of the commenters recommended additional changes to the Subordinated Debt rule. In the proposed rule, however, the Board stated the proposed changes contained therein were narrowly tailored to address a specific situation with funding of approved secondary capital applications. 9 Therefore, the Board noted it was not considering any other changes to the final Subordinated Debt rule at that time and comments outside the scope of the proposed rule would be treated as such for the purpose of any final rule the Board may issue. 10

While the comments recommending changes to the Subordinated Debt rule are outside the scope of this rulemaking, the Board will retain these comments for use in any future proposals to amend the Subordinated Debt rule.

As no commenters opposed the proposed rule, the Board is finalizing the proposed amendments without change.

The Administrative Procedure Act (APA) generally requires that a final rule be published in the Federal Register no less than 30 days before its effective date except for (1) substantive rules which grant or recognize an exemption or relieve a restriction; (2) interpretative rules and statements of policy; or (3) as otherwise provided by the agency for good cause. 11 Because the final rule relieves a restriction, the final rule is exempt from the APA's delayed effective date requirement. 12 Therefore, this final rule will become effective on January 1, 2022.

The Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121) (SBREFA) generally provides for congressional review of agency rules. 13 A reporting requirement is triggered in instances where the NCUA issues a final rule as defined by Section 551 of the APA. 14 The NCUA does not believe this rule is a “major rule” within the meaning of the relevant sections of SBREFA. As required by SBREFA, the NCUA will submit this final rule to the Office of Management and Budget for it to determine if the final rule is a “major rule” for purposes of SBREFA. The NCUA also will file all appropriate Congressional reports.

The Paperwork Reduction Act of 1995 (44 U.S.C. 3501 et seq. ) requires that the Office of Management and Budget approve all collections of information by a Federal agency from the public before they can be implemented. Respondents are not required to respond to any collection of information unless it displays a valid Office of Management and Budget control number. This final rule extends the time for certain issuances of secondary capital and the corresponding Regulatory Capital treatment of such issuances. As such, this rule does not require any information collection as defined by the Paperwork Reduction Act of 1995.

The Regulatory Flexibility Act (RFA)  15 generally requires an agency to consider whether the rule it proposes will have a significant economic impact on a substantial number of small entities. For purposes of the RFA, the Board considers credit unions with assets less than $100 million to be small entities. 16

The Board determined that the proposed rule would affect a small number of LICUs with approved secondary capital applications for issuances to the U.S. Government or its subdivisions. The rule is focused on relieving administrative application requirements that would otherwise apply. As such, the Board found that an RFA analysis was not required for the proposed rule. Accordingly, the Board certifies that the final rule does not have a significant economic impact on a substantial number of small credit unions.

Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. The NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order to adhere to fundamental federalism principles.

The rule relieves administrative application requirements that would otherwise apply and does not alter substantive requirements that apply to state-chartered credit unions generally. The Board has therefore determined that this rule does not constitute a policy that has federalism implications for purposes of the executive order.

The NCUA has determined that this rule will not affect family well-being within the meaning of § 654 of the Treasury and General Government Appropriations Act, 1999, Public Law 105-277, 112 Stat. 2681 (1998).

For the reasons discussed in the preamble, the NCUA is amending 12 CFR parts 702 and 741, as amended by 86 FR 11060 (Feb. 23, 2021) and effective on January 1, 2022, as follows:

While the Act provides specific, statutory investment powers for FCUs, 1 the Board has adopted regulatory prohibitions against certain investments and investment activities on the basis of safety and soundness concerns, including the purchase of mortgage servicing rights (MSRs) as an investment. 2 In December 2020, by a vote of 2-1, the Board approved a notice of proposed rulemaking (NPR)  3 to amend the agency's Investment and Deposit Activities Rule (Investment Rule), 12 CFR part 703, to explicitly permit FCUs to purchase MSRs from other federally insured credit unions (FICUs) based on express statutory authority that permits an FCU “to sell all or a part of its assets to another credit union [and] to purchase all or part of the assets of another credit union. . .subject to regulations of the Board.”  4 The proposed regulatory text provided the following requirements for this investment authority:

The NPR also included several questions as to whether the rule should place additional conditions on the authority, such as capital requirements, concentration limits, or other measures to address consumer financial protection, compliance risk and liquidity risk.

Generally, when a lender originates a mortgage loan, the lender may retain the loan and the servicing function for the loan in its portfolio, sell the loan along with the MSRs to another party, or separate the MSRs from its mortgage loan and transfer either the loan or the MSRs to another party. The NPR focused on the purchase of MSRs as assets that are distinct from their underlying mortgage loans. The Board proposed to permit FCUs to purchase MSRs by removing MSRs from the list of prohibited investments  6 in the Investment Rule and adding the purchase of MSRs from other FICUs to the rule's list of permissible investments for FCUs. 7

Under the current Investment Rule, MSRs are defined as “a contractual obligation to perform mortgage servicing and the right to receive compensation for performing those services. Servicing is the administration of a mortgage loan, including collecting monthly payments and fees, providing recordkeeping and escrow functions, and, if necessary, curing defaults and foreclosing.”  8 Mortgage loan servicers, therefore, are intermediaries between borrowers and owners of the mortgage loans; their servicing functions are subject to a servicing agreement and consumer protection laws, as applicable. 9 MSRs, or mortgage servicing assets, a term used interchangeably with MSRs, are recorded in accordance with Generally Accepted Accounting Principles (GAAP). 10

Mortgage servicing can carry various risks. Servicers are exposed to liquidity risk if servicing agreements require the servicer to remit mortgage loan payments to the investors of sold loans even when borrowers fail to make their monthly payments. There are also operational risks related to mortgage servicing due to a myriad of statutes and regulations that protect consumers, which can expose FCUs to reputational, legal, and compliance risk. The compliance and reputation risk of a mortgage servicer can be considerable due to the high touch nature of interactions with consumers and the attendant legal requirements imposed on mortgage servicers. For example, depending on the particular servicer and its activities, servicers must comply with a variety of requirements, including the Real Estate Settlement Procedures Act (RESPA) and its implementing regulation, Regulation X; the Truth in Lending Act (TILA) and its implementing regulation, Regulation Z; as well as amendments to Regulations X and Z under the Mortgage Servicing Rules promulgated by the Consumer Financial Protection Bureau, which implement provisions of the Dodd-Frank Wall Street Reform and Consumer Protection Act. 11 As applicable, servicers must comply with other federal laws regarding mortgage servicing, including the Servicemembers Civil Relief Act (SCRA), 12 the Fair Debt Collection Practices Act, and Section 5 of the Federal Trade Commission Act, which prohibits unfair or deceptive acts or practices, 13 as well as any applicable state laws regarding servicing. 14 To be successful, servicers need to understand the complexities in determining the value of these assets, and have effective information and compliance management systems, trained personnel, robust internal controls, as well as appropriate risk management to properly service the loans.

Although limited by the prohibition in the Investment Rule to purchase MSRs, FCUs record MSRs under two circumstances. When an FCU originates a residential mortgage loan and sells the loan to investors on the secondary market or other purchasers, the FCU may retain the corresponding servicing rights for various reasons, including maintaining its servicing relationship with its member. Alternatively, FCUs can retain MSRs if they later sell residential mortgage loans purchased from the originating lender.

Similar to other financial institutions involved in residential lending, FCUs engage in both origination and servicing activities related to residential lending. As of June 30, 2021, approximately 3,600 FICUs held $449 billion in aggregate outstanding first lien residential mortgage loans that they originated, commonly referred to as “portfolio loans,” with 2,138, or 59.4 percent, of FCUs accounting for $223 billion, or 49.7 percent, of the total amount. 15 An FCU does not recognize a servicing asset for a portfolio mortgage loan in which the FCU has retained servicing, because it has not undertaken an obligation to service the loan for another party.

Credit unions, similar to other lenders involved with mortgage finance, actively sell residential mortgage loans to investors on the secondary market. As of June 2021, FICUs collectively sold and serviced $270 billion of mortgage real estate loans with FCUs accounting for 53 percent of the total balance. In 2020, approximately 1,100 FICUs collectively sold $120 billion in first lien residential mortgage loans. Of the total $120 billion sold, 535 FCUs accounted for $58 billion of the total amount sold. Comparatively, approximately 1,100 FICUs collectively sold $63 billion in residential mortgage loans in 2019, with 556 FCUs accounting for $39 billion of the total amount sold.

The Board proposed to amend NCUA's Investment Rule to permit FCUs to purchase MSRs from other FICUs. Specifically, the proposed rule removed the current prohibition on FCUs purchasing MSRs from the Investment Rule. The Board proposed to amend § 703.14 to explicitly permit an FCU to purchase MSRs from other FICUs, provided:

To ensure that MSRs purchased by FCUs meet the same requirements and standards applicable to the loans that a buying FCU can make, the proposed rule allowed purchases of MSRs from FICUs only if the underlying mortgage loans from which the MSRs are derived meet the same conditions for loans the FCU is empowered to grant. This is the same standard applicable to FCUs when buying certain eligible obligations under § 701.23(b).

Consistent with § 701.23, the proposed rule also required that FCUs purchase MSRs within the limitations of the FCU's board of directors' written purchase policies and that the FCU's board of directors or investment committee approves the purchase in advance.

The proposed rule removed the regulatory text that prohibits the purchase of MSRs in § 703.16(a) and reserved the paragraph to correspond to the change in § 703.14. The remaining provision in § 703.16(a), which recognizes an FCU's incidental powers authority to service the loans owned by a member engaged in mortgage lending, was transferred to part 721 as another example of a loan-related product. While loan servicing is an incidental powers activity when performed for other credit unions under § 721.3(c) as a correspondent service, the proposed addition to paragraph (h) reflected the existing authority currently found in § 703.16(a) to provide loan-related services to members.

In addition, the Board requested comment on the following questions with the expressed intention that the final rule would incorporate appropriate safeguards and limitations as informed by the responses the Board received in response to the NPR.

• Benefits: How would the proposed rule to permit an FCU to purchase MSRs from other FICUs benefit an FCU's mortgage loan servicing operations?

• Compliance Risk: If FCUs purchase volumes of MSRs from different FICUs, are they prepared to ensure they have effective compliance management systems for compliance with the consumer protection-related laws and regulations that apply to mortgage loan servicers?

• Capital and CAMEL Requirements: Should the proposed rule include additional criteria for an FCU to be eligible to purchase MSRs? In particular, should the FCU be required to be “well capitalized” as defined in part 702? If so, similarly to the eligible obligations rule, should it be well capitalized for a minimum of the six quarters preceding its purchase of MSRs? Should the FCU be required to have a composite CAMEL rating of 1 or 2 with a Management rating of a 1 or 2 for at least the last two examination cycles?

• Concentration Risk: Should the final rule include a limit on the amount of MSRs an FCU can hold to address concentration risk? Specifically, should a limit on the amount of MSRs held by an FCU be determined using the total amount of MSRs purchased by the FCU or, alternatively, the aggregate amount of MSRs purchased from other parties and MSRs retained after the sale of the underlying mortgage loans by the FCU? Should the rule limit the total amount of MSRs that an FCU may hold to no more than 25 percent of the FCU's net worth or would another standard, such as a concentration limit based on assets, be more appropriate to address concentration risk?

• Liquidity Risk: To address the liquidity risk of the purchasing FCU, should the final rule limit the amount of months an FCU is obligated to remit payments to the mortgage loan owner if the borrower fails to make payments? Specifically, should there be a maximum of three to six months of payments made to the mortgage loan owner when a borrower fails to make payment on the serviced mortgage loan?

In addition to the questions listed, the Board also solicited comment on whether the safeguards and limitations applicable to FCUs in the final rule should be extended to all FICUs in light of the risks associated with the purchase of MSRs, as a requirement for obtaining and maintaining federal share insurance.

The final rule removes the prohibition on FCUs from purchasing MSRs under the Investment Rule. 16 The final rule also removes the current defined term “mortgage servicing rights” in the Investment Rule and replaces it with the term “mortgage servicing assets.” For consistency with part 702, the final rule adopts the same definition for “mortgage servicing assets” that the Board adopted under its amendments to the risk-based capital (RBC) rule. 17 Under the RBC rule, MSAs are defined as “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.”  18 This alignment in the final rule does not make substantive definitional changes to terms that are commonly used interchangeably by industry and regulators, but rather ensures uniformity and clarity in the regulatory text for compliance with both the investment and capital rules. 19

The final rule amends § 703.14 to explicitly permit an FCU to purchase MSAs from other FICUs, provided:

The Board notes that under recent amendments to the RBC rule, complex credit unions with MSAs will also factor the criteria in § 702.104 to calculate their RBC requirements. 21

The final rule removes the current prohibition against MSR purchases imposed in § 703.16(a) and reserves the paragraph to correspond to the change in § 703.14. The remaining provision in § 703.16(a), which recognizes an FCU's incidental powers authority to service the loans owned by a member engaged in mortgage lending, is transferred to part 721 as another example of loan-related product. While loan servicing is an incidental powers activity when performed for other credit unions under § 721.3(c) as a correspondent service, the addition to paragraph (h) reflects the authority found in § 703.16(a) to provide loan-related services to members.

Over decades, the NCUA has issued many regulations and opinions recognizing the authority of an FCU to engage in loan servicing activities. Since 1979, an FCU has been permitted “to service any eligible obligation it purchases or sells in whole or in part” under the NCUA's eligible obligations rule. 22 FCUs also have the authority to provide correspondent services, including loan servicing, to other credit unions under the incidental powers regulation. 23 In adopting that regulation, the Board observed: “Correspondent services are services or functions provided by an FCU to another credit union that the FCU is authorized to perform for its own members or as part of its operation.”  24 During the part 721 rulemaking in 2001, the Board agreed with commenters that loan servicing and escrow services were examples of permitted correspondent services. 25 Furthermore, although the purchase of MSRs was prohibited under the Investment Rule, the Board recognized during the incidental powers rulemaking that an FCU could perform servicing for a member engaged in making mortgage loans as a financial service to its member:

Therefore, the authority to provide mortgage loan servicing as a financial service to members, under the conditions above, has been in place since 2003. 27 FCUs are also permitted to provide mortgage loan servicing to others as a charitable contribution. 28 Further, under the NCUA's Credit Union Service Organization (CUSO) regulation, CUSOs  29 are expressly preapproved to provide loan support services, including loan servicing and debt collection services. 30

The authority for FCUs to purchase MSAs is found in Section107(14) of the Act, which permits an FCU “to sell all or a part of its assets to another credit union [and] to purchase all or part of the assets of another credit union . . . subject to regulations of the Board.”  31 Given that MSAs are financial assets that may be sold separately from their underlying mortgage loans, an FCU has the statutory authority to sell MSAs to, and purchase MSAs from, another credit union.

By the plain language of Section 107(14), FCUs may purchase MSAs only from other credit unions. Contrast the authority to purchase MSAs “of another credit union”  32 to an FCU's express statutory power to enter loan participation agreements with “other credit unions, credit union organizations or financial organizations.”  33 Under NCUA's loan participation rule, subject to certain conditions, an FCU can purchase a participation interest in a loan from a credit union, credit union organization, or financial organization, which means any federally chartered or federally insured financial institution or any state or federal government agency and its subdivisions. 34 As such, the Act makes a greater number of participation partner-types (sellers of loan participation interests) available to an FCU than is permitted to the FCU if it is purchasing MSAs.

Lastly, the Board has engaged in several rulemakings to amend its RBC rule to, among other changes, include a guardrail for complex credit unions that purchase MSAs. 35 The final rule includes a deduction to the RBC numerator for MSA balances that exceed 25 percent of the capital numerator with the remaining balance risk-weighted at 250 percent in the RBC denominator. As mentioned in the preamble of the 2015 RBC final rule, 36 the Board believes the risks of MSAs contribute to a high level of uncertainty regarding the ability of credit unions to realize value from these assets. In adopting the December 2021 amendments to the RBC rule, the Board determined that it was appropriate to add a risk-based numerator deduction to address the potential of complex credit unions purchasing MSAs from other FICUs. 37

This rulemaking is promulgated pursuant to Section 120(a) of the Act, 38 which is a general grant of regulatory authority that authorizes the Board to prescribe rules and regulations for the administration of the Act. 39 In addition, Section 206 of the Act grants the Board broad authority to take enforcement action against a FICU or an “institution-affiliated party”  40 that is engaging, has engaged, or the Board has reasonable cause to believe that it is about to engage, in an unsafe or unsound practice in conducting the business of such credit union. 41 Congress chose not to define “unsafe or unsound practices” in the Act, leaving determinations regarding which actions are unsafe or unsound to the Board.

In the NPR, the Board proposed to amend 12 CFR 703.14 to include the following three prerequisites in order for an FCU to purchase MSRs from a FICU:

In response, the Board received eleven comment letters from two natural person FCUs, eight credit union leagues and trade associations, and one individual. All but one of the commenters supported the removal of the regulatorily imposed prohibition in the Investment Rule that currently prevents FCUs from purchasing MSRs. Several commenters stated that additional conditions should be considered or included in the final rule. However, two commenters urged against conditions that would limit the investment authority, suggesting that FCUs and FICUs should be solely responsible for managing their risk mitigation due to their ample experience of servicing their own mortgages, as well as selling mortgage loans to the government-sponsored enterprises (GSEs). 42 These commenters stated that the rules should be more expansive to include purchases of MSRs from parties other than FICUs.

One commenter suggested the rulemaking is premature. This commenter stated that it is paramount for FCUs to understand how MSR purchases could affect both long- and short-term earnings of an FCU, particularly if the FCU retains low margin MSRs, as well as the degree of negative convexity for the MSRs as an investment. This commenter noted that many assumptions go into deriving the underlying MSR value, requiring considerable judgment, and that many FCU supervisory personnel may lack understanding or expertise. The commenter concludes, however, that these concerns may be mitigated if an FCU applies a prudent retention strategy backed by organization policy and guidance.

In response to a question in the NPR seeking comment on whether the proposed rule would benefit an FCU's mortgage loan servicing operations, many commenters identified benefits to the expanded investment authority to include the purchase of MSRs. Most commenters believe that the proposed rule would provide flexibility for FCUs to operate their mortgage loan business and would provide FICUs another avenue to sell their MSRs, which could generate a higher selling price and keep the MSRs within the credit union system. Two commenters stated that the additional flexibility would allow smaller institutions that want to grow and sell their mortgages to have more options to sell while also allowing growth opportunities for the FCUs who purchase those MSRs. Similarly, another commenter stated that MSRs can potentially provide an ongoing stream of income to an FCU's bottom line, given that the FCU understands and prepares for potential risks involved. Another commenter noted the benefits of mortgage servicing, which include a more positive member/borrower experience, new cross-selling opportunities, and additional revenue sources. Two commenters also found that the rule would encourage more cooperation between credit unions.

Several commenters stated that the proposed rule will offer FCUs opportunities to realize economies of scale. One commenter noted that smaller credit unions may seek to partner with their larger marketplace colleagues to enter the MSR marketplace. A large FCU stated that FCUs that service their own mortgage loans devote significant resources to meeting the operational and compliance responsibilities associated with mortgage servicing. If these fixed costs can be spread over a larger mortgage servicing portfolio, FCUs will be able to execute their mortgage lending businesses more effectively. This commenter also noted that, while mortgage servicing is a complex undertaking, purchasing MSRs will not add incremental risk for FCUs or the National Credit Union Share Insurance Fund (NCUSIF) because the risks associated with this new authority are similar to those already assumed as part of mortgage lending. Rather than adding risk, MSRs will allow FCUs to better address the inherent liquidity and interest rate risks posed by mortgage lending, and such risk mitigation will better protect the NCUSIF. One commenter stated that in 2019, about $240 billion in real estate loans were sold outside of the credit union system; consequently, removing the prohibition will promote safety and soundness by keeping revenue within the credit union system. Finally, one commenter commended the agency's timing of the rulemaking as the elongated pandemic health emergency has resulted in increased deposit flows rendering additional investment options a welcome tool.

Six commenters explicitly supported the three conditions proposed for this investment activity, finding the criteria appropriate to an FCU's purchase of MSRs from FICUs. Two commenters stated that FCUs can put proper controls in place to adequately mitigate associated risks. One of these commenters stated that it is prudent to consider certain safeguards that would apply before an FCU is eligible to purchase MSRs, depending on the complexity of the FCU's business model and staff composition.

Two commenters believe the requirements that MSR purchases be made in accordance with the board of directors' written purchase policies and receive advance approval by the board or investment committee should help ensure that MSR purchases are managed and properly vetted by the FCU. One commenter, however, does not support the requirements that MSRs be purchased within the limitations set by the board of directors' written purchase policies and that an FCU's board of directors or investment committee approve MSR purchases in advance. This commenter stated that the advance approval condition would only delay transactions, create more paperwork for the volunteers on board of directors or investment committees, and likely not have a material impact on the decision of whether to purchase MSRs.

One commenter expressed concern that, if the underlying mortgage loans of the MSRs must be loans the FCU is empowered to grant before an FCU can purchase MSRs, this condition will limit the number of FCUs that may take advantage of the new investment authority. This commenter stated that, while the purchase of MSRs will allow FCUs the ability to market and offer their product and services to prospective members, an FCU with a “closed field of membership” would have a difficult time purchasing MSRs that fit into their field of membership. This commenter requests that NCUA clarify how an FCU with, a single-common bond field of membership, for example, can take advantage of this investment authority.

The Board believes that FCUs have demonstrated experience originating and servicing residential mortgage loans, including in the mitigation of the attendant operational and compliance risks of mortgage servicing. The Board agrees with the comments in support of the proposed investment authority, particularly in its benefits to the credit union system. The opportunity to purchase MSRs provides flexibility for FCUs to operate their mortgage loan businesses, as well as providing the opportunity for FICUs to sell their MSRs. As one commenter noted, a readily available control for FCUs is the use of third parties to perform valuations of servicing portfolios, not only to ensure that conformance with GAAP, but also to ensure that an independent, expert financial analysis is conducted to minimize risk through timely adjustments. For these reasons, the Board believes removing the prohibition in the Investment Rule is appropriate and consistent with safety and soundness.

In addition to the CAMELS rating requirement discussed below, the final rule adopts the three conditions provided in the NPR as proposed. To purchase MSAs from a FICU, an FCU must meet the following requirements:

The final rule requires that the underlying mortgage loans to any MSAs purchased by an FCU must meet the same requirements and standards applicable to mortgage loans that the FCU could originate. This is the same standard applicable to FCUs when buying certain eligible obligations under § 701.23(b). Note that the eligible obligations rule does not require FCUs to purchase the loans of its members under § 701.23(b)(2), a rule adopted in accordance with § 107(14) of the Act. 43 When an FCU uses this authority to buy eligible obligations, the obligation must be in accordance with the FCU's loan authority under the Act, NCUA regulations, FCU Bylaws, and the FCU's internal policies. The loan, however, is not required to be of an obligation of a member of the FCU or a person within the FCU's field of membership. Likewise, the authority of an FCU to purchase MSAs from other FICUs is not limited to loans made to persons in the purchasing FCU's field of membership. In addition, like § 701.23, the final rule requires that an FCU purchase MSAs within the limitations of the FCU's board of directors' written purchase policies and that its board of directors or investment committee approve of the purchase in advance.

In the NPR, the Board requested comment as to whether FCUs have effective compliance management systems (CMS) to help them to comply with the consumer protection-related laws and regulations applicable to mortgage loan servicers if they purchase MSRs from other FICUs.

A majority of commenters believe that an FCU can effectively manage its exposure to compliance risk through a comprehensive compliance program, which typically includes policies, procedures, processes, monitoring, and an audit function. While two commenters acknowledged the compliance and legal risks inherent in the acquisition of MSRs, they asserted FCUs that service mortgages they originated have long been able to manage these risks as part of their regular course of business. This includes maintaining expert compliance and legal personnel on staff, as well as engaging with outside counsel when necessary. Two commenters noted that FICUs have been selling mortgage loans to the GSEs for many years. Consequently, their CMS would not need much expanding to comply with the consumer protections that apply to the transfer and servicing of mortgage loans. One commenter stated that, while adjustments to CMS may be warranted if an FCU expands its loan servicing operations, changes to comply with the consumer protections that apply to the transfer and servicing of mortgage loans will not be significant.

One commenter discussed the use of proper controls related to the purchase of MSRs and tools that FCUs can leverage to mitigate associated risks. This commenter stated that one control is for FCUs to invest in robust mortgage servicing software that is integrated with other in-house software, including the core system and loan origination system, to efficiently service mortgage loans. The commenter stated that the adoption of a comprehensive set of technologies is necessary for servicers to work efficiently and comply with regulations. The commenter also stated that, as FCUs consider upgrades to their CMS, specifically their mortgage lending quality control programs, any final rule should permit flexibility in examination findings because FCUs may need to amend existing CMS contracts and enhance staff training. Similarly, another commenter noted that FCUs will need to consider CMS upgrades, specifically to their mortgage lending quality control programs, and should consider the need to closely review custom loan documents, including promissory notes. FCUs may need to consider creating or hiring specialized due diligence teams to review loans to ensure they meet the NCUA's regulations and the FCU's own internal policies.

Another commenter stated that mortgage servicing operations should be certified or confirmed through third-party reviews and/or audits. Further, this commenter asserted that FCUs would need increased due diligence over third-party vendors that service mortgages and to secure insurance coverage sufficient to support possible losses. This commenter agreed that FCUs that decide to purchase MSRs should have appropriate expertise on staff to avoid problems. The commenter suggests NCUA may wish to take steps to develop a risk-rating matrix to measure performance and credit quality of loans in a selected pool.

The Board recognizes that FCUs have experience originating and servicing mortgage loans and managing their exposure to compliance risk through their CMS. An FCU that currently services mortgage loans that it originates is expected to have an effective CMS that addresses compliance with mortgage servicing laws and regulations, and includes the following components:

• Board and senior management oversight,

• Policies and procedures,

• Training,

• Monitoring,

• Member complaint response, and

• An audit function.

An effective CMS also promotes compliance with consumer protection-related laws and regulations and prevents consumer harm. Due to the existing and extensive consumer protection laws that are specific to mortgage loan servicing, 44 including those under Regulation X and Regulation Z, which are promulgated by the Consumer Financial Protection Bureau, the Board believes that it is not necessary to include additional consumer protections in the final Investment Rule. 45 However, the NCUA will use the examination process to assess the effectiveness of an FCU's CMS for compliance with consumer protection-related laws and regulations that apply to mortgage servicers, as appropriate. 46 Further, as appropriate, the NCUA will employ supervisory tools or take enforcement action to address any CMS deficiencies related to mortgage servicing that cause consumer harm. Moreover, the Board notes that any FCUs that currently operate under the small servicer exceptions to these rules will no longer benefit from the exemption from certain requirements if they begin to purchase MSAs from non-affiliate owners of the underlying mortgage loans. 47

In the NPR, the Board requested comment as to whether the final rule should require FCUs to be “well capitalized” as defined in part 702, and whether, like the eligible obligations rule, an FCU should be well capitalized for a minimum of the six quarters preceding its purchase of MSRs. The Board further asked whether the final rule should limit eligibility for the authority to purchase MSRs from other FICUs to FCUs that have a composite CAMEL rating of 1 or 2 with a Management rating of a 1 or 2 for at least the last two examinations.

Three commenters specifically supported a requirement that an FCU be well capitalized in order to purchase MSRs from other FICUs. One commenter stated that not every investment vehicle is appropriate for all credit unions and additional criteria for an FCU to be eligible to purchase MSRs is needed, including criteria based on “net worth” or “well capitalized” as defined by NCUA regulations. Another commenter stated that, for the safety and soundness of an FCU purchasing MSRs, capitalization will be a prudent factor and that RBC rules at Tier 1 should apply. The third commenter stated that an FCU should be required to be “well capitalized” in order to purchase MSRs from FICUs and that capital levels should be sustained for at least six quarters before MSRs can be purchased from other FICUs.

One commenter opposed eligibility criteria based on a credit union's capital levels or CAMEL rating. This commenter stated that, although the safety and soundness of the credit union system is a top priority, such limitations would potentially hinder credit unions' ability to grow, make more loans to its members, and better serve their communities. This commenter also noted that when FCUs are servicing a loan that they originate, they are not subject to conditions regarding their capital levels and CAMEL rating, so there is no need for any eligibility criteria if they were to purchase MSRs from an FICU. Another commenter also opposed using the CAMEL system as additional eligibility criteria. This commenter stated that the CAMEL system may be overly qualitative and could lead to unintended consequences for non-participating FCUs with a CAMEL 1 or 2 rating. This commenter suggested that FCUs could possibly suffer reputational harm if they chose not to participate in MSR purchases because interested parties might presume the FCU has a CAMEL 3 or 4 rating.

Two commenters stated that the rule should require FCUs to have a composite CAMEL rating of 1 or 2 and one of these commenters also supported a requirement that eligible FCUs also have a Management rating of a 1 or 2 for at least the last two examination cycles before they can purchase MSRs.

In order to purchase MSAs from other FICUs, the final rule requires that an FCU have a composite CAMELS rating of 1 or 2, which must include a Management component rating of 1 or 2, assigned at the completion of the FCU's last full examination. Note that the final rule refers to the CAMELS rating instead of the CAMEL rating referred to in the preamble of the NPR because, effective April 1, 2022, the NCUA's supervisory rating system will change from CAMEL to CAMELS by adding the “S” (Sensitivity to Market Risk) component to the existing CAMEL rating system and redefining the “L” (Liquidity Risk) component. The Board determined that it was beneficial to add the “S” component in order to enhance transparency and allow the NCUA and federally insured natural person and corporate credit unions to better distinguish between liquidity risk (“L”) and sensitivity to market risk (“S”). 48 The effective date of the final rule, therefore, aligns with the effective date of the change to the rating system. If the rating for the last full examination of the credit union predates the change to the rating system that goes into effect on April 1, 2022, FCUs that received a composite 1 or 2 CAMEL rating with a Management component rating of 1 or 2 for their most recent full examination will qualify to purchase MSAs under the final rule, provided all of the conditions of the rule are met.

The Board believes the requirement that an FCU have received a CAMELS composite rating of 1 or 2, with a Management component rating of 1 or 2, for its most recent full examination is a fundamental precondition and safeguard for purchasing MSAs. A Management component rating of 2 “indicates satisfactory management and board practices relative to the credit union's size, complexity, and risk profile.”  49 For an FCU to achieve at least a CAMEL composite rating of 2, that FCU will have “no material supervisory concerns and, as a result, the supervisory response is informal and limited.”  50 An FCU meeting this requirement of the final rule generally demonstrates an appropriate level of sound management and operation necessary to address the attendant financial, operational, and compliance risks involved with purchasing MSAs and loan servicing activities. For these reasons, the Board believes that adding the additional classification requirement of “well capitalized” to the final rule would be redundant.

In the NPR, the Board requested comment as to whether the final rule should limit the amount of MSRs an FCU can hold to address concentration risk. Specifically, the Board asked whether any concentration limits in the final rule should include:

• A limit on the amount of MSRs held by an FCU using either the total amount of MSRs purchased by the FCU or, alternatively, the aggregate amount of MSRs purchased from other parties and MSRs retained after the sale of the underlying mortgage loans by the FCU;

• A limit set at the total amount of MSRs that an FCU may hold to no more than 25 percent of the FCU's net worth; or

• A concentration limit based on assets.

The Board also sought feedback from commenters on whether other standards should apply to address concentration risk.

Five commenters generally supported the Board addressing the concentration risk of MSRs held by FCUs. One commenter acknowledged that high concentrations in a particular asset, such as MSRs, can expose a credit union to undue risk and stated it may be appropriate to establish in the final rule a limit on the amount of MSRs that an FCU can hold to address concentration risk. Likewise, another commenter suggested that concentration risk should be evaluated. One commenter generally supports a limit on the amount of MSRs held by an FCU based only on the total amount of MSRs purchased. Further, this commenter also supported a concentration limit based on the total amount of MSRs that an FCU may hold using traditional metrics, such as assets. The commenter, however, opposed a limit on the aggregate amount of MSRs both purchased from other parties and retained by the FCU after the sale of the underlying mortgage loans.

Two commenters supported a concentration risk limit in some form to alleviate risks, possibly using a limit based on a percentage of the credit union's net worth, similar to NCUA's loan participations rule. 51 One of these commenters also offered two additional suggestions: (1) A limit set as a percentage of total loans under servicing to total assets, instead of using MSRs as a factor in the calculation, due to the potential valuation swings with MSR assets, or (2) as suggested by another commenter, bifurcating the concentration limitation between mortgages originated with servicing retained, and purchased loans with MSRs, as another way to separate the risk while not limiting the FCU's organic mortgage production.

One commenter found the suggested cap in the question, to limit the total amount of MSRs that an FCU may hold to no more than 25 percent of net worth, as unwarranted. The commenter stated the cap reflects an arbitrary “one size fits all” approach, as opposed to a risk-based approach addressed by policy and serves to reinforce the long-held myth that FCUs are subject to a 25 percent aggregate mortgage limit. This commenter also stated the proposed 25 percent of net worth limit could have a disproportionate impact on modest sized FCUs.

One commenter opposed any concentration limits in the final MSR rule. This commenter stated that FCUs and FICUs should be able to set their own concentration limits internally, if they determine such limits are necessary after conducting a risk assessment. Further, a blanket concentration limit for the entire industry fails to account for the unique circumstances of each FCU and its membership and removes control over business decisions from credit union management.

The final rule does not include a concentration limit for MSAs. High concentrations in a particular asset can expose a credit union to undue risk and, as a general matter, credit union officials and management have a fiduciary responsibility to identify, measure, monitor, and control concentration risk. 52 Furthermore, the NCUA may review concentration risk as part of its supervisory activities to determine if an FCU's balance sheet reveals potentially high exposure related to MSAs. With regard to complex credit unions, however, the Board has recently taken regulatory action as part of its RBC rulemaking to prevent the excessive exposure of MSAs, similarly to rules adopted by the other federal banking agencies. 53 While non-complex credit unions are not subject to the RBC provisions addressing concentration risk, smaller FCUs are less likely to purchase MSAs from other FICUs and generally present a lower risk to the NCUSIF. As noted, the Board believes the agency's supervisory functions can sufficiently address concerns regarding MSA concentrations.

To address liquidity risk, the Board requested comment as to whether the rule should limit the amount of months an FCU servicer is obligated to remit payments to the mortgage loan owner if the borrower fails to make payments. If so, the Board also asked whether the rule should specifically limit the amount of months to no more than three to six months of payments to the mortgage loan owner after a borrower fails to make payments.

Two commenters did not see a need for the rule to address liquidity risk as suggested in the NPR. While recognizing that the FCU purchasing MSRs may face liquidity risks, the commenters stated that an FCU is aware of these risks when buying MSRs and can perform its own cost-benefit analysis. One commenter stated that FCUs that have demonstrated the ability to comply with regulations pertaining to MSRs and to handle the risk of defaulting borrowers and remitting payments to MSR shareholders, despite being unable to collect from borrowers, should be permitted to purchase MSRs without any additional regulatory hurdles. This commenter suggests such considerations are no different from normal evaluations of safety and soundness for FCUs of any size or complexity. The other commenter stated the Board should allow the purchaser and seller to determine the extent of any liquidity protection in their agreement instead of imposing a blanket requirement for all FCUs.

Six commenters offered a range of comments regarding whether the rule should address liquidity risk. One commenter suggested the Board further examine whether limiting the number of months an FCU is obligated to remit payments to the mortgage loan owner when a borrower defaults would appropriately address any liquidity risk of the purchasing FCU. Similarly, another commenter stated while MSRs can pose liquidity risk, those risks should be evaluated, for example, the number of months an MSR is obligated to remit payments to the mortgage loan owner if the borrower is delinquent. Likewise, in recognizing the liquidity risk in servicing arrangements, another commenter stated the final rule could limit the number of months an FCU is obligated to remit payments to the mortgage loan owner if the borrower fails to make payments.

Two commenters explicitly supported a provision in the rule that establishes a maximum of three to six months of payments made to the mortgage loan owner when a borrower fails to make payment on the serviced mortgage. One of these commenters also suggested a standardized agreement could be used between credit unions selling and purchasing MSRs to enhance transparency between the parties.

One commenter stated that payment remittance on MSRs should follow the requirements of the GSEs as opposed to other limitations on the remittance structure. In addition, this commenter stated an FCU should perform liquidity stress tests within the scope of the organization, including in relation to MSRs.

The Board believes FCUs that have a CAMELS composite rating of 1 or 2 with a Management rating of 1 or 2, should be capable of managing the liquidity risk associated with this investment authority. The Board therefore has not included a provision in the final rule to address liquidity risk but staff will issue future guidance as appropriate.

The NPR also solicited comments on whether the safeguards and limitations in the final rule should be extended to all FICUs as a condition for obtaining and maintaining federal share insurance, in light of the risks associated with MSRs. One commenter, an advocate of additional guardrails or limitations in the final rule, supports extending the same safeguards and limitations applicable to FCUs to all FICUs. Another commenter also specifically supported extending the rule to all FICUs because the risk to the NCUSIF is the same for FCUs and FISCUs.

In addition, one commenter strongly recommended that NCUA work with state regulators to address supervisory concerns regarding MSRs in a manner that does less harm to the dual chartering system, more effectively mitigates material risk, and improves oversight while not unnecessarily burdening credit unions.

The final rule applies only to FCUs by removing the NCUA's previous prohibition against the purchase of MSRs in its investment regulation. It is not apparent to the Board that state laws applicable to FISCUs widely provide for similar investment authority, although most state regulators can grant parity for state-chartered credit unions so those institutions may engage in the same activities authorized for FCUs. Further, to the extent that FISCUs engage in the purchase of MSAs from other parties, the conditions on these assets under the RBC requirements in part 702 apply to all complex federally insured credit unions. The NCUA will monitor this activity in FISCUs and will consider whether to extend § 703.14(l) to FISCUs under part 741, subpart B, if necessary. Finally, the Board notes that it is committed to the agency's continued communications with state regulators to address supervisory concerns, including those related to MSAs.

The Regulatory Flexibility Act requires the NCUA to prepare an analysis to describe any significant economic impact a regulation may have on a substantial number of small entities. 54 For purposes of this analysis, the NCUA considers small credit unions to be those having under $100 million in assets. 55 The rule imposes no requirement or costs on small entities and only expands the types of investments an FCU can make by including MSAs. The conditions in the final rule for a threshold CAMELS rating and written investment policies are prerequisites for other investment activities, therefore the Board does not expect these requirements to entail substantial regulatory burden. Accordingly, the associated cost is minimal. The NCUA certifies the rule 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 creates a new or amends existing information collection requirements. 56 For the purpose of the PRA, an information collection requirement may take the form of a reporting, recordkeeping, or a third-party disclosure requirement. The rule does not contain any new information collection requirements that require approval by OMB under the PRA. Current recordkeeping requirements are covered under OMB control number 3133-0133.

Executive Order 13132 encourages independent regulatory agencies to consider the impact of their actions on state and local interests. In adherence to fundamental federalism principles, the NCUA, an independent regulatory agency as defined in 44 U.S.C. 3502(5), voluntarily complies with the executive order. This rule will not have a substantial direct effect on the states, on the connection between the National Government and the states, or on the distribution of power and responsibilities among the various levels of government. The NCUA has determined this rule does not constitute a policy that has federalism implications for purposes of the executive order.

The NCUA has determined that this rule will not affect family well-being within the meaning of Section 654 of the Treasury and General Government Appropriations Act, 1999. 57

The Small Business Regulatory Enforcement Fairness Act of 1996 (SBREFA) generally provides for congressional review of agency rules. 58 A reporting requirement is triggered in instances where the NCUA issues a final rule as defined by Section 551 of the Administrative Procedure Act. An agency rule, in addition to being subject to congressional oversight, may also be subject to a delayed effective date if the rule is a “major rule.” The NCUA does not believe this rule is a “major rule” within the meaning of the relevant sections of SBREFA. As required by SBREFA, the NCUA will submit this final rule to OMB for it to determine if the final rule is a “major rule” for purposes of SBREFA. The NCUA also will file appropriate reports with Congress and the Government Accountability Office so this rule may be reviewed.

For the reasons discussed above, the NCUA Board amends 12 CFR parts 703 and 721 as follows:

The Bureau is amending Regulation C, which implements the HMDA asset thresholds, to establish the asset-sized exemption threshold for depository financial institution for 2022. The asset threshold will be $50 million for 2022.

The Home Mortgage Disclosure Act of 1975 (HMDA)  1 requires most mortgage lenders located in metropolitan areas to collect data about their housing related lending activity. Annually, lenders must report their data to the appropriate Federal agencies and make the data available to the public. The Bureau's Regulation C  2 implements HMDA.

Prior to 1997, HMDA exempted certain depository institutions as defined in HMDA ( i.e., banks, savings associations, and credit unions) with assets totaling $10 million or less as of the preceding year-end. In 1996, HMDA was amended to expand the asset-size exemption for these depository institutions. 3 The amendment increased the dollar amount of the asset-size exemption threshold by requiring a one-time adjustment of the $10 million figure based on the percentage by which the CPI-W for 1996 exceeded the CPI-W for 1975, and it provided for annual adjustments thereafter based on the annual percentage increase in the CPI-W, rounded to the nearest multiple of $1 million.

The definition of “financial institution” in § 1003.2(g) provides that the Bureau will adjust the asset threshold based on the year-to-year change in the average of the CPI-W, not seasonally adjusted, for each 12-month period ending in November, rounded to the nearest $1 million. For 2021, the threshold was $48 million. During the 12-month period ending in November 2021, the average of the CPI-W increased by 4.7 percent. As a result, the exemption threshold is increased to $50 million for 2022. Thus, banks, savings associations, and credit unions with assets of $50 million or less as of December 31, 2021, are exempt from collecting data in 2022. An institution's exemption from collecting data in 2022 does not affect its responsibility to report data it was required to collect in 2021.

Under the Administrative Procedure Act (APA), notice and opportunity for public comment are not required if the Bureau finds that notice and public comment are impracticable, unnecessary, or contrary to the public interest. 4 Pursuant to this final rule, comment 2(g)-2 in Regulation C, supplement I, is amended to update the exemption threshold. The amendment in this final rule is technical and non-discretionary, and it merely applies the formula established by Regulation C for determining any adjustments to the exemption threshold. For these reasons, the Bureau has determined that publishing a notice of proposed rulemaking and providing opportunity for public comment are unnecessary. Therefore, the amendment is adopted in final form.

Section 553(d) of the APA generally requires publication of a final rule not less than 30 days before its effective date, except (1) a substantive rule which grants or recognizes an exemption or relieves a restriction; (2) interpretive rules and statements of policy; or (3) as otherwise provided by the agency for good cause found and published with the rule. 5 At a minimum, the Bureau believes the amendments fall under the third exception to section 553(d). The Bureau finds that there is good cause to make the amendments effective on January 1, 2022. The amendment in this final rule is technical and non-discretionary, and it applies the method previously established in the agency's regulations for determining adjustments to the threshold.

Because no notice of proposed rulemaking is required, the Regulatory Flexibility Act does not require an initial or final regulatory flexibility analysis. 6

The Bureau has determined that this final rule does not impose any new or revise any existing recordkeeping, reporting, or disclosure requirements on covered entities or members of the public that would be collections of information requiring approval by the Office of Management and Budget under the Paperwork Reduction Act. 7

Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq. ), the Bureau will submit a report containing this rule and other required information to the United States Senate, the United States House of Representatives, and the Comptroller General of the United States prior to the rule taking effect. The Office of Information and Regulatory Affairs (OIRA) has designated this rule as not a “major rule” as defined by 5 U.S.C. 804(2).

The Associate Director of Research, Markets, and Regulations, Janis K. Pappalardo, having reviewed and approved this document, is delegating the authority to electronically sign this document to Laura Galban, a Bureau Federal Register Liaison, for purposes of publication in the Federal Register .

For the reasons set forth above, the Bureau amends Regulation C, 12 CFR part 1003, as set forth below:

Section 129D of the Truth in Lending Act (TILA) contains a general requirement that an escrow account be established by a creditor to pay for property taxes and insurance premiums for certain first-lien higher-priced mortgage loan transactions. TILA section 129D also generally permits an exemption from the higher-priced mortgage loan escrow requirement for a creditor that meets certain requirements, including any asset-size threshold the Bureau may establish.

In the 2013 Escrows Final Rule, 1 the Bureau established such an asset-size threshold of $2 billion, which would adjust automatically each year, based on the year-to-year change in the average of the CPI-W for each 12-month period ending in November, with rounding to the nearest million dollars. 2 In 2015, the Bureau revised the asset-size threshold for small creditors and how it applies. The Bureau included in the calculation of the asset-size threshold the assets of the creditor's affiliates that regularly extended covered transactions secured by first liens during the applicable period and added a grace period to allow an otherwise eligible creditor that exceeded the asset limit in the preceding calendar year (but not in the calendar year before the preceding year) to continue to operate as a small creditor with respect to transactions with applications received before April 1 of the current calendar year. 3 For 2021, the threshold was $2.230 billion.

During the 12-month period ending in November 2021, the average of the CPI-W increased by 4.7 percent. As a result, the exemption threshold is increased to $2.336 billion for 2022. Thus, if the creditor's assets together with the assets of its affiliates that regularly extended first-lien covered transactions during calendar year 2021 are less than $2.336 billion on December 31, 2021, and it meets the other requirements of § 1026.35(b)(2)(iii), the creditor will be exempt from the escrow-accounts requirement for higher-priced mortgage loans in 2022 and will also be exempt from the escrow-accounts requirement for higher-priced mortgage loans for purposes of any loan consummated in 2023 with applications received before April 1, 2023. The adjustment to the escrows asset-size exemption threshold will also increase the threshold for small-creditor portfolio and balloon-payment qualified mortgages under Regulation Z. The requirements for small-creditor portfolio qualified mortgages at § 1026.43(e)(5)(i)(D) reference the asset threshold in § 1026.35(b)(2)(iii)(C). Likewise, the requirements for balloon-payment qualified mortgages at § 1026.43(f)(1)(vi) reference the asset threshold in § 1026.35(b)(2)(iii)(C). Under § 1026.32(d)(1)(ii)(C), balloon-payment qualified mortgages that satisfy all applicable criteria in § 1026.43(f)(1)(i) through (vi) and (f)(2), including being made by creditors that have (together with certain affiliates) total assets below the threshold in § 1026.35(b)(2)(iii)(C), are also excepted from the prohibition on balloon payments for high-cost mortgages.

In the 2018 Economic Growth, Regulatory Relief, and Consumer Protection Act (EGRRCPA), 4 Congress directed the Bureau to issue regulations to add a new exemption from TILA's escrow requirement that exempts transactions by certain insured depository institutions and insured credit unions. 5 In 2021, the Bureau issued a final rule implementing this exemption in § 1026.35(b)(2)(vi) (2021 Escrows Rule). 6 The final rule exempted from the Regulation Z HPML escrow requirement any loan made by an insured depository institution or insured credit union and secured by a first lien on the principal dwelling of a consumer if: (1) The institution has assets of $10 billion or less; (2) the institution and its affiliates originated 1,000 or fewer loans secured by a first lien on a principal dwelling during the preceding calendar year; and (3) certain of the existing HPML escrow exemption criteria are met. In the 2021 Escrows Rule, the Bureau established such an asset-size threshold of $10 billion or less in § 1026.35(b)(2)(vi)(A), which will adjust automatically each year, based on the year-to-year change in the average of the CPI-W, not seasonally adjusted, for each 12-month period ending in November, with rounding to the nearest million dollars. Unlike the asset threshold in § 1026.35(b)(2)(iii) and the other thresholds in § 1026.35(b)(2)(vi), affiliates are not considered in calculating compliance with this threshold. For calendar year 2021, the asset threshold was $10 billion.

During the 12-month period ending in November 2021, the average of the CPI-W increased by 4.7 percent. As a result, the exemption threshold is increased to $10.473 billion for 2022. Thus, a creditor that is an insured depository institution or insured credit union that during calendar year 2021 had assets of $10.473 billion or less on December 31, 2021, satisfies this criterion for purposes of any loan consummated in 2022 and for purposes of any loan secured by a first lien on a principal dwelling of a consumer consummated in 2023 for which the application was received before April 1, 2023.

Under the Administrative Procedure Act (APA), notice and opportunity for public comment are not required if the Bureau finds that notice and public comment are impracticable, unnecessary, or contrary to the public interest. 5 U.S.C. 553(b)(B). Pursuant to this final rule, comment 35(b)(2)(iii)-1 in Regulation Z is amended to update the exemption threshold in § 1026.35(b)(2)(iii) and comment 35(b)(2)(vi)(A)-1 in Regulation Z is amended to update the exemption threshold in § 1026.35(b)(2)(vi). The amendments in this final rule are technical and merely apply the formulae previously established in Regulation Z for determining any adjustments to the exemption thresholds. For these reasons, the Bureau has determined that publishing a notice of proposed rulemaking and providing opportunity for public comment are unnecessary. Therefore, the amendments are adopted in final form.

Section 553(d) of the APA generally requires publication of a final rule not less than 30 days before its effective date, except (1) a substantive rule which grants or recognizes an exemption or relieves a restriction; (2) interpretive rules and statements of policy; or (3) as otherwise provided by the agency for good cause found and published with the rule. 5 U.S.C. 553(d). At a minimum, the Bureau believes the amendments fall under the third exception to section 553(d). The Bureau finds that there is good cause to make the amendments effective on January 1, 2022. The amendment in this final rule is technical and non-discretionary, and it merely applies the method previously established in the agency's regulations for automatic adjustments to the threshold.

Because no notice of proposed rulemaking is required, the Regulatory Flexibility Act does not require an initial or final regulatory flexibility analysis. 7

The Bureau has determined that this final rule does not impose any new or revise any existing recordkeeping, reporting, or disclosure requirements on covered entities or members of the public that would be collections of information requiring approval by the Office of Management and Budget under the Paperwork Reduction Act. 8

Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq. ), the Bureau will submit a report containing this rule and other required information to the United States Senate, the United States House of Representatives, and the Comptroller General of the United States prior to the rule taking effect. The Office of Information and Regulatory Affairs (OIRA) has designated this rule as not a “major rule” as defined by 5 U.S.C. 804(2).

The Associate Director for Research, Markets and Regulations, Janis K. Pappalardo having reviewed and approved this document, is delegating the authority to electronically sign this document to Laura Galban, a Bureau Federal Register Liaison, for purposes of publication in the Federal Register .

For the reasons set forth above, the Bureau amends Regulation Z, 12 CFR part 1026, as set forth below:

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to Airbus Helicopters Model EC225LP helicopters with a LH fuel supply hose part number (P/N) 704A34416087 installed. The NPRM published in the Federal Register on October 7, 2020 (85 FR 63235, October 7, 2020). For helicopters delivered to the first operator before November 30, 2018, and for helicopters delivered to the first operator on or after November 30, 2018, that have had the LH fuel supply hose replaced or reinstalled before May 10, 2019, the NPRM proposed to require visually inspecting the LH fuel supply hose for twisting, and if needed, borescope inspecting the entire length of the inside of the fuel supply hose for twisting. Depending on the inspection results, the NPRM proposed to require reinstalling or removing the fuel supply hose from service. Additionally, the NPRM proposed to prohibit installing a certain part-numbered LH fuel supply hose on any helicopter unless that LH fuel supply hose is installed by following certain procedures specified in the manufacturer's service bulletin. The proposed requirements were intended to prevent a decrease of the LH engine power when accelerating to a power setting corresponding to One Engine Inoperative (OEI) power and subsequent reduced control of the helicopter.

The NPRM was prompted by EASA AD 2019-0092, dated April 26, 2019 (EASA AD 2019-0092), issued by EASA, which is the Technical Agent for the Member States of the European Union, to correct an unsafe condition for Airbus Helicopters (formerly Eurocopter) Model EC 225 LP helicopters, all serial numbers. EASA advised that an occurrence was reported where during an in-flight single engine power check, the LH side engine experienced a power loss. EASA stated that a subsequent investigation determined that the fuel flow to the affected engine was restricted by a twisted fuel supply hose. EASA stated that this condition, if not detected and corrected, could lead to a decrease of the LH engine power when accelerating to the power setting corresponding to OEI power, and subsequent reduced control of the helicopter. Accordingly, EASA AD 2019-0092 required a one-time visual inspection of the fuel supply hose and depending on the inspection results, removing from service or replacing the affected part. EASA AD 2019-0092 also introduced re-installation requirements for a fuel supply hose that is being replaced or reinstalled.

After the FAA issued the NPRM, the FAA issued a supplemental notice of proposed rulemaking (SNPRM) to amend 14 CFR part 39 by adding an AD that would apply to Airbus Helicopters Model EC225LP helicopters with a LH fuel supply hose P/N 704A34416087 installed. The SNPRM published in the Federal Register on May 10, 2021 (86 FR 24783, May 10, 2021) (the May 2021 SNPRM). The May 2021 SNPRM proposed to require visually inspecting the LH fuel supply hose P/N 704A34416087 for twisting, and if needed, borescope inspecting the entire length of the inside of the fuel supply hose for twisting. Depending on the inspection results, the May 2021 SNPRM proposed to require reinstalling or removing the fuel supply hose from service. Additionally, the May 2021 SNPRM proposed to prohibit installing a certain part-numbered LH fuel supply hose on any helicopter unless that LH fuel supply hose is installed by following certain procedures specified in the manufacturer's service bulletin.

The May 2021 SNPRM was prompted by the FAA's determination that operators may not have the information required to comply with the proposed requirements in the NPRM. Operators may not know the date the helicopter was delivered to the first operator. Additionally, operators may not know whether the LH fuel supply hose has been previously removed or reinstalled since the maintenance regulations do not require certain operators to maintain these records after one year.

Accordingly, the FAA determined that revising proposed paragraph (e)(1) of the NPRM by deleting the language referring to delivery dates and dates of LH fuel supply hose replacement or reinstallation was necessary. As a result of these changes, the FAA revised the NPRM to specify that all helicopters included in the applicability paragraph would be required to comply with the proposed requirements in the May 2021 SNPRM. Also, after the NPRM was issued, the FAA determined that a limit on special flight permits was required. The May 2021 SNPRM reflected this change and stated that special flight permits may be permitted provided that there are no passengers on board.

Since the May 2021 SNPRM was issued, EASA issued EASA AD 2021-0156, dated July 2, 2021 (EASA AD 2021-0156), which supersedes EASA AD 2019-0092. EASA advises that Airbus Helicopters has developed an improved fuel supply hose P/N 704A34416101 and modification instructions to install the improved part. Accordingly, EASA AD 2021-0156 retains the requirements of EASA AD 2019-0092 and requires replacing the affected part with the improved part. EASA AD 2021-0156 also allows a terminating action for the inspection requirements once the improved part has been installed according to the installation requirements.

Accordingly, the FAA issued a second SNPRM to amend 14 CFR part 39 by adding an AD that would apply to Airbus Helicopters Model EC225LP helicopters with a LH fuel supply hose P/N 704A34416087 installed. This SNPRM published in the Federal Register on September 7, 2021 (86 FR 49937, September 7, 2021) (the September 2021 SNPRM). The September 2021 SNPRM proposed to require visually inspecting the LH fuel supply hose for twisting, and if needed, borescope inspecting the entire length of the inside of the fuel supply hose for twisting. Depending on the inspection results, the September 2021 SNPRM proposed to require reinstalling or removing the fuel supply hose from service.

Additionally, the September 2021 SNPRM proposed to prohibit installing a certain part-numbered LH fuel supply hose on any helicopter unless that LH fuel supply hose is installed by following certain procedures described in the manufacturer's service bulletin. Finally, the September 2021 SNPRM proposed to require modifying your helicopter by removing from service LH fuel supply hose P/N 704A34416087 and installing the improved LH fuel supply hose P/N 704A34416101. This modification would provide terminating action for the proposed inspection requirements of the September 2021 SNPRM.

The FAA received comments from six commenters on the September 2021 SNPRM. Five commenters supported the SNPRM without change and one individual supported the SNPRM but requested a certain change. The following presents this comment and the FAA's response.

One individual requested that the FAA revise the Required Actions section of this AD to include repetitive inspections of the LH fuel supply hose for one year after initial installation of the new supply hose. The individual stated this will ensure maximum safety and efficiency.

The FAA disagrees with this request because the unsafe condition is adequately addressed by installing the improved fuel supply hose in accordance with this AD.

These helicopters have been approved by EASA and are approved for operation in the United States. Pursuant to the FAA's bilateral agreement with the European Union, EASA has notified the FAA about the unsafe condition described in its AD. The FAA reviewed the relevant data, considered the comments received, and determined that air safety requires adopting this AD as proposed. Accordingly, the FAA is issuing this AD to address the unsafe condition on these helicopters.

The FAA reviewed Airbus Helicopters Alert Service Bulletin No. EC225-71A019, Revision 2, dated May 21, 2021 which specifies procedures for removing the fuel supply hose from the LH power plant, visually inspecting the fuel supply hose for twisting, and depending on inspection results, performing an endoscope inspection on the inside of the hose. This service information also specifies procedures required to install the improved fuel supply hose.

This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

The FAA also reviewed Airbus Helicopters Alert Service Bulletin No. EC225-71A019, Revision 1, dated February 28, 2019, which also specifies procedures for removing the fuel supply hose, visually inspecting the fuel supply hose for twisting, performing an endoscope inspection on the inside of the hose, and specifies procedures required to install a serviceable fuel supply hose.

EASA AD 2021-0156 requires compliance within 110 flight hours or 6 months, whichever occurs first after the effective date of EASA AD 2019-0092, while this AD requires compliance within 110 hours time-in-service after the effective date of this AD. EASA AD 2021-0156 requires reporting information to Airbus Helicopters if the LH fuel supply hose is twisted on the inside, while this AD does not. Additionally, EASA AD 2021-0156 is applicable to all serial-numbered EC225LP helicopters, whereas this AD applies to EC225LP helicopters with a certain LH fuel supply hose installed.

The FAA estimates that this AD affects 28 helicopters of U.S. Registry. Labor rates are estimated at $85 per work-hour. Based on these numbers, the FAA estimates the following costs to comply with this AD.

Visually inspecting the LH fuel supply hose for twisting takes about 1 work-hour for an estimated cost of $85 per helicopter and $2,380 for the U.S. fleet.

Replacing a LH fuel supply hose takes about 8 work-hours and parts cost about $2,363 for an estimated replacement cost of $3,043 per replacement.

Borescope inspecting the LH fuel supply hose takes about 8 work-hours for an estimated cost of $680 per helicopter.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: General requirements. Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on helicopters identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Will not affect intrastate aviation in Alaska, and

(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to all DG Flugzeugbau GmbH Model DG-500MB and DG-1000M gliders with a Solo Kleinmotoren GmbH Solo Model 2625 02i engine installed. The NPRM published in the Federal Register on September 17, 2021 (86 FR 51838). The NPRM was prompted by MCAI originated by the European Union Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union. EASA issued EASA AD 2020-0056, dated March 13, 2020 (referred to after this as “the MCAI”), to address an unsafe condition on Solo Kleinmotoren GmbH Solo Model 2625 02 engines, variation 02i with electronic fuel injection, installed on but not limited to Binder Motorenbau, DG-Flugzeugbau, and Schempp-Hirth powered sailplanes (gliders). The MCAI states:

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 to supersede AD 2020-11-05, Amendment 39-21130 (85 FR 31042, May 22, 2020), (AD 2020-11-05). AD 2020-11-05 applied to Airbus Helicopters Model EC120B helicopters, all serial numbers. The NPRM published in the Federal Register on October 8, 2021 (86 FR 56220). In the NPRM, the FAA proposed to retain some of the requirements of AD 2020-11-05, and proposed to require, within 15 hours time-in-service (TIS) or 7 days, whichever occurs first, performing repetitive inspections of the TR hub body for a crack and depending on the inspection results, removing the affected parts from service. The NPRM also proposed to require inspecting the TR spline flange for corrosion, impacts, fretting, wear, and a crack and depending on the inspection results, removing the TR splined flange from service. For helicopters with 9,000 or more total hours TIS or with unknown total hours TIS, the NPRM proposed to require, within 15 hours TIS or 7 days, whichever occurs first, and thereafter at intervals not to exceed 1,000 hours TIS, removing from service any bolt, washer, and nut installed on the TR hub body, replacing them with airworthy parts, inspecting the TR splined flange, and depending on the inspection results, removing the TR splined flange from service.

Additionally, the NPRM proposed to require, for helicopters with less than 9,000 total hours TIS, within 1,000 hours TIS or before accumulating 9,000 total hours TIS, whichever occurs first, and thereafter at intervals not to exceed 1,000 hours TIS, removing from service any bolt, washer, and nut installed on the TR hub body replacing them with airworthy parts, inspecting the TR splined flange, and depending on the inspection results, removing the TR splined flange from service. Finally, the NPRM proposed to prohibit the installation of a certain part-numbered TR hub body unless certain actions have been accomplished.

The NPRM was prompted by EASA AD 2021-0069, dated March 11, 2021 (EASA AD 2021-0069), issued by EASA, which is the Technical Agent for the Member States of the European Union, to correct an unsafe condition for Airbus Helicopters, formerly Eurocopter, Eurocopter France, Model EC120 B helicopters, all serial numbers. EASA advises that an inspection of the TR hub body revealed a recurring loss of tightening torque on several attachment bolts. This condition, if not addressed, could result in cracking and potential loss of the TR drive and consequent loss of yaw control of the helicopter.

Accordingly, EASA AD 2021-0069 retains the requirements of EASA AD 2019-0272R1, dated November 18, 2019 (EASA AD 2019-0272R1), which prompted AD 2020-11-05, and requires additional repetitive detailed inspections of the interface between the TR hub body part number C642A0100103 and the splined flange. Depending on the inspection results, EASA AD 2021-0069 requires accomplishment of applicable corrective actions.

The FAA received no comments on the NPRM or on the determination of the costs.

These helicopters have been approved by EASA and are approved for operation in the United States. Pursuant to the FAA's bilateral agreement with the European Union, EASA has notified the FAA about the unsafe condition described in its AD. The FAA reviewed the relevant data, and determined that air safety requires adopting this AD as proposed. Accordingly, the FAA is issuing this AD to address the unsafe condition on these helicopters. Except for minor editorial changes, this AD is adopted as proposed in the NPRM.

The FAA reviewed Airbus Helicopters Emergency Alert Service Bulletin 05A020, Revision 2, dated February 8, 2021. This service information specifies procedures for repetitive inspections of the TR hub body for cracks and the TR spline flange for cracks and fretting and the appropriate corrective actions.

This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

EASA AD 2021-0069 uses flight hours (FH) for certain compliance times, whereas this AD uses hours TIS. EASA AD 2021-0069 retains the compliance time of November 1, 2019 for certain actions, which is the effective date of EASA AD 2019-0272R1, whereas this AD requires compliance in terms of the effective date of this AD.

Where Note 1 of EASA AD 2021-0069 allows a non-cumulative tolerance of 100 FH to be applied to the compliance times for the initial replacement of bolts, washers, and nuts (Table 1 of EASA AD 2021-0069) to allow for synchronization of the required inspections with other maintenance tasks, this AD does not allow a non-cumulative tolerance to be applied to the compliance times.

The FAA estimates that this AD affects 89 helicopters of U.S. Registry. Labor rates are estimated at $85 per work-hour. Based on these numbers, the FAA estimates the following costs to comply with this AD.

Visually inspecting each TR hub body for a crack takes about 0.25 work-hour for an estimated cost of $22 per inspection and $1,958 for the U.S. fleet per inspection.

Visually inspecting each TR spline flange for corrosion, impacts, fretting, wear, and a crack takes about 0.25 work-hour for an estimated cost of $22 per inspection and $1,958 for the U.S. fleet per inspection.

Replacing a TR hub body takes about 2 work-hours and parts would cost about $16,417 for an estimated cost of $16,587 per TR hub body replacement.

Replacing a TR spline flange takes about 0.5 work-hour and parts would cost about $2,950 for an estimated cost of $2,993 per TR spline flange replacement.

Replacing a bolt, washer, and nut takes about 0.5 work-hour and parts would cost about $68 for an estimated cost of $111 per replacement.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, Section 106, describes the authority of the FAA Administrator. Subtitle VII, Aviation Programs, describes in more detail the scope of the Agency's authority.

The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: General requirements. Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Will not affect intrastate aviation in Alaska, and

(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to Bell Textron Canada Limited Model 206, 206A, 206A-1, 206B, 206B-1, 206L, 206L-1, 206L-3, and 206L-4 helicopters with nut part number (P/N) MS21042L4 or P/N MS21042L5 installed on the TRDS Thomas couplings. The NPRM published in the Federal Register on September 14, 2021 (86 FR 51038). In the NPRM, the FAA proposed to require, within 600 hours time-in-service (TIS) after the effective date of this AD, removing each affected nut from service, installing a newly designed nut, and applying a specific torque and a torque stripe to each newly installed nut. The NPRM also proposed to require, within 25 hours TIS after installation of each newly designed nut, inspecting the torque of each nut, and depending on the results of the inspection, further inspections and removing certain parts from service. Finally, the NPRM proposed to prohibit installing any affected nut on any TRDS Thomas coupling.

The NPRM was prompted by a series of ADs issued by Transport Canada, which is the aviation authority for Canada. Initially, Transport Canada issued Canadian AD CF-2019-34, dated September 25, 2019 (Transport Canada AD CF-2019-34), to correct an unsafe condition for Bell Helicopter Textron Canada Limited (now Bell Textron Canada Limited) Model 206, 206A, 206A-1, 206B, 206B-1, 206L, 206L-1, 206L-3, and 206L-4 helicopters, all serial numbers. Transport Canada AD CF-2019-34 advised of reports of cracked or missing nuts at the TRDS Thomas couplings, which could have been caused by improper torque or hydrogen embrittlement. This condition, if not addressed, could result in loss of the tail rotor and subsequent loss of control of the helicopter.

After Transport Canada issued Transport Canada AD CF-2019-34, it was determined that helicopters modified in accordance with Supplemental Type Certificate (STC) SH2750NM or Transport Canada STC SH99-202, were not able to comply with Transport Canada AD CF-2019-34. Accordingly, Transport Canada issued AD CF-2020-15, dated May 13, 2020 (Transport Canada AD CF-2020-15) which supersedes Transport Canada AD CF-2019-34, and contains a new requirement for helicopters with STC SH2750NM or Transport Canada STC SH99-202 installed or models that have been modified per Bell Service Instruction BHT-206-SI-2052, Revision 1, dated October 14, 2010 (BHT-206-SI-2052). Transport Canada advises for certain model helicopters, the newly designed nuts cannot be installed because STC SH2750NM and Transport Canada STC SH99-202 install a pulley at the Thomas coupling location causing insufficient clearance. Transport Canada further advises for certain model helicopters with STC SH2750NM or Transport Canada STC SH99-202 installed, different part-numbered nuts may be installed which were not identified in the applicable service information and are now required to be replaced with a new part-numbered nut that is not vulnerable to the unsafe condition. Accordingly, Air Comm Corporation, the STC holder for STC SH2750NM, issued new service information to address these additional issues and provide newly developed instructions which apply to certain model helicopters with STC SH2750NM or Transport Canada STC SH99-202 installed.

Additionally, Transport Canada advises that BHT-206-SI-2052, which is optional, specifies procedures for Model 206L-1 and 206L-3 helicopters to upgrade the airframe and systems and also includes installation of the Model 206L-4 TRDS Thomas coupling. According to Transport Canada, models that have incorporated BHT-206-SI-2052, with STC SH2750NM or Transport Canada STC SH99-202 installed, will have the Model 206L-4 helicopter pulley configuration and are subject to the Air Comm Corporation service information.

Accordingly, Transport Canada AD CF-2020-15 requires the replacement of the affected nuts with the newly designed nuts at each TRDS Thomas coupling.

The FAA received comments from one commenter; Bell. Bell recommended certain changes pertaining to the torque limits applied to each newly installed nut and the time for performing the torque recheck. The following presents the comments received on the NPRM and the FAA's response to each comment.

Bell commented that the NPRM calls for an initial torque of 50 in/lb to each nut, whereas the Bell maintenance manual requires an initial torque of 50-70 in/lb to each nut. Additionally, Bell explained that, as per its Standards Practice Manual (BHT-ALL-SPM) Chapter 2, tare torque must also be taken into consideration for self-locking hardware and that the total assembly torque is the measured tare torque plus the standard torque or specified torque. Bell requested that the installation torque in the AD be revised to read 50-70 in/lb.

The FAA agrees that in this instance the maximum initial torque limit and the tare torque should be consistent with Bell's maintenance manuals and has revised this AD accordingly.

Bell also commented that the NPRM calls for the torque recheck to be performed within 25 hours, whereas its maintenance manual requires the torque recheck between 10-25 hours. Bell recommended that the torque recheck be done within 25 hours TIS. The FAA agrees with the comment but no changes to this AD were necessary.

These helicopters have been approved by the aviation authority of Canada and are approved for operation in the United States. Pursuant to the FAA's bilateral agreement with Canada, Transport Canada, its technical representative, has notified the FAA of the unsafe condition described in its AD. The FAA reviewed the relevant data, considered the comments received, and determined that air safety requires adopting this AD as proposed. Accordingly, the FAA is issuing this AD to address the unsafe condition on these helicopters. However, after the NPRM was published, the FAA discovered that costs were inadvertently excluded in the NPRM; those costs, which are nominal, are included in this final rule. Except for minor editorial changes, the change to the costs of compliance, and any other changes described previously, this AD is adopted as proposed in the NPRM. None of the changes will significantly increase the economic burden on any operator.

The FAA reviewed Bell Alert Service Bulletin 206-19-136, dated August 27, 2019 for FAA-certificated Model 206, 206A-series, and 206B-series helicopters and non FAA-certificated Model TH-67 helicopters and Bell Alert Service Bulletin 206L-19-181, Revision A, dated August 29, 2019 for Model 206L, 206L-1, 206L-3, and 206L-4 helicopters. This service information specifies procedures for replacing the affected nuts with the newly designed corrosion-resistant nuts.

This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

The FAA reviewed Air Comm Corporation Service Bulletin SB 206EC-092619, Revision NC, dated September 26, 2019, which also specifies procedures for replacing the affected nuts with the newly designed corrosion-resistant nuts, but explains that affected helicopters equipped with Air Comm Corporation air conditioning systems installed under STC SH2750NM use the affected nut to attach a pulley onto the TRDS, which causes clearance issues for the nuts to be installed at the coupling. Therefore, this service bulletin specifies replacing the nut with a lower profile nut.

The FAA also reviewed BHT-206-SI-2052. This service information specifies procedures to upgrade Model 206L-1 and 206L-3 helicopters to allow operations at an increased internal gross weight.

Transport Canada AD CF-2020-15 requires compliance within 600 hours air time or within the next 24-months, whichever occurs first, whereas this AD requires compliance within 600 hours TIS and an additional inspection within 25 hours TIS after installation of certain nuts.

The FAA estimates that this AD affects 1,439 helicopters of U.S. Registry. Labor rates are estimated at $85 per work-hour. Based on these numbers, the FAA estimates the following costs to comply with this AD.

Replacing each affected nut with the newly designed nut and applying torque and a torque stripe will take about 4 work-hours, and parts will cost about $75 for an estimated cost of $415 per nut replacement and $597,185 per nut replacement for the U.S. fleet.

Checking the torque, and if applicable, applying a torque stripe, will take a minimal amount of time and have a nominal parts cost. If required, inspecting each TRDS Thomas coupling, and each bolt, nut, and washer for elongated holes and fretting on the fasteners will take about 0.5 work-hour for an estimated cost of $43 per inspection. Replacing each TRDS Thomas coupling will take about 4 work-hours, and parts will cost about $4,000 for an estimated cost of $4,340 per TRDS Thomas coupling replacement. Replacing each nut will take about 4 work-hours, and parts will cost about $75 for an estimated cost of $415 per nut replacement. Replacing a bolt or washer will take a minimal amount of time and parts will cost a nominal amount.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: General requirements. Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Will not affect intrastate aviation in Alaska, and

(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to all Stemme AG Model Stemme S 12 gliders. The NPRM published in the Federal Register on August 27, 2021 (86 FR 48065). The NPRM was prompted by MCAI originated by the European Union Aviation Safety Agency (EASA), which is the Technical Agent for the Member States of the European Union. EASA issued EASA AD 2019-0082, dated April 12, 2019 (referred to after this as “the MCAI”), to address an unsafe condition on Stemme AG Model Stemme S 12 gliders. The MCAI states:

You may examine the MCAI in the AD docket at https://www.regulations.gov by searching for and locating Docket No. FAA-2021-0716.

The FAA received no comments on the NPRM or on the determination of the costs.

This product has been approved by the aviation authority of another country and is approved for operation in the United States. Pursuant to the FAA's bilateral agreement with this State of Design Authority, it has notified the FAA of the unsafe condition described in the MCAI and service information referenced above. The FAA reviewed the relevant data and determined that air safety requires adopting this AD as proposed. Accordingly, the FAA is issuing this AD to address the unsafe condition on these products. This AD is adopted as proposed in the NPRM.

The FAA reviewed Stemme Service Bulletin No. P062-980027, Revision 00, dated December 17, 2018. The service information specifies checking the ASI markings and provides illustrations of correct markings. The service information specifies the procedure to replace an affected ASI with an ASI with correct markings. The service information also includes a temporary page to insert into the AFM until the ASI is replaced. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in ADDRESSES .

The FAA estimates that this AD affects 20 gliders of U.S. registry. The FAA estimates it would take about 0.5 work-hour per glider to comply with the inspection requirements of this AD. The average labor rate is $85 per work-hour.

Based on these figures, the FAA estimates the cost of this AD on U.S. operators to be $850 or $42.50 per glider.

The FAA estimates that amending the AFM to insert and then remove the temporary page as a result of the inspection would take about 1 work-hour per glider for a total cost of $85 per glider. The FAA estimates that replacing the ASI would take about 3.5 work-hours and require parts costing $603, for a total cost of $900.50 per glider. The FAA has no way of determining the number of gliders that may need these actions.

The FAA has included all known costs in its cost estimate. According to the manufacturer, however, some of the costs of this AD may be covered under warranty, thereby reducing the cost impact on affected operators.

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: General requirements. Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial 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. For the reasons discussed above, I certify that this AD. For the reasons discussed above, I certify this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Will not affect intrastate aviation in Alaska, and

(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

EASA, which is the Technical Agent for the Member States of the European Union, has issued EASA AD 2021-0130R1, dated June 10, 2021 (EASA AD 2021-0130R1) (also referred to as the MCAI), to correct an unsafe condition for all Airbus SAS Model A350-941 and -1041 airplanes.

The FAA issued a notice of proposed rulemaking (NPRM) to amend 14 CFR part 39 by adding an AD that would apply to all Airbus SAS Model A350-941 and -1041 airplanes. The NPRM published in the Federal Register on September 23, 2021 (86 FR 52848). The NPRM was prompted by reports of slat transmission jams caused by frozen SGRAs at slat 5 track 12. Further investigation showed that the jams occur when water in the SGRA freezes due to low temperature during cruise and insufficient water drainage. The NPRM proposed to require repetitive water drainage and plug cleaning of the left- and right-hand SGRAs having a certain part number installed on slat 5 track 12 with certain functional item numbers, as specified in EASA AD 2021-0130R1.

The FAA is issuing this AD to address SGRA jams, which could result in reduced control of the airplane. See the MCAI for additional background information.

The FAA received a comment from The Air Line Pilots Association, International (ALPA) who supported the NPRM without change.

The FAA reviewed the relevant data, considered the comment received, and determined that air safety requires adopting this AD as proposed. Except for minor editorial changes, this AD is adopted as proposed in the NPRM. None of the changes will increase the economic burden on any operator. Accordingly, the FAA is issuing this AD to address the unsafe condition on these products.

EASA AD 2021-0130R1 describes procedures for repetitive water drainage and plug cleaning of the left- and right-hand SGRAs having part number 4775A0000-02 installed on slat 5 track 12 with functional item number (FIN) 5045CW and FIN 5145CW (including reinstalling incorrectly installed drain plug assemblies and replacing any damaged or missing nylon pins). This material is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in the ADDRESSES section.

The FAA estimates that this AD affects 15 airplanes of U.S. registry. The FAA estimates the following costs to comply with this AD:

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: General requirements. Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Will not affect intrastate aviation in Alaska, and

(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

The FAA issued a supplemental notice of proposed rulemaking (SNPRM) to amend 14 CFR part 39 by adding an AD that would apply to RRD Trent 1000-A2, Trent 1000-AE2, Trent 1000-C2, Trent 1000-CE2, Trent 1000-D2, Trent 1000-E2, Trent 1000-G2, Trent 1000-H2, Trent 1000-J2, Trent 1000-K2, and Trent 1000-L2 model turbofan engines. The SNPRM published in the Federal Register on September 20, 2021 (86 FR 52111). The SNPRM was prompted by the manufacturer revising the engine TLM life limits of certain critical rotating parts, updating DAC data files, and updating certain maintenance tasks. The SNPRM proposed to require operators to revise the ALS of their approved maintenance program by incorporating the revised tasks of the applicable TLM for each affected model turbofan engine. The SNPRM proposed to require accomplishing the actions specified in EASA AD 2020-0241, dated November 5, 2020 (also referred to as the Mandatory Continuing Airworthiness Information, or the MCAI), as incorporated by reference, except for any differences identified as exceptions in the regulatory text of the proposed AD and except as discussed under “Differences Between this Proposed AD and the EASA AD.” The FAA is issuing this AD to address the unsafe condition on these products. See the MCAI for additional background information.

EASA, which is the Technical Agent for the Member States of the European Union, has issued EASA AD 2020-0241 to correct an unsafe condition for all RRD Trent 1000-A2, Trent 1000-AE2, Trent 1000-C2, Trent 1000-CE2, Trent 1000-D2, Trent 1000-E2, Trent 1000-G2, Trent 1000-H2, Trent 1000-J2, Trent 1000-K2, and Trent 1000-L2 model turbofan engines.

The FAA received one comment from an individual commenter. The commenter expressed support for the SNPRM without change, but incorrectly referenced automotive engines within the rationale for the support.

The FAA reviewed the relevant data, considered the comment received, and determined that air safety requires adopting this AD as proposed. Accordingly, the FAA is issuing this AD to address the unsafe condition on these products. Except for minor editorial changes, this AD is adopted as proposed in the SNPRM. None of the changes will increase the economic burden on any operator.

The FAA reviewed EASA AD 2020-0241. EASA AD 2020-0241 requires accomplishment of the actions specified in RRD's updated TLM for affected engines as specified in Rolls-Royce Trent 1000 TLM T-Trent-10RRC, Chapters 05-10 and 05-20, Revision 20, dated August 1, 2020. This service information is reasonably available because the interested parties have access to it through their normal course of business or by the means identified in ADDRESSES .

The FAA estimates that this AD affects 20 engines installed on airplanes of U.S. registry.

The FAA estimates the following costs to comply with this AD:

Title 49 of the United States Code specifies the FAA's authority to issue rules on aviation safety. Subtitle I, section 106, describes the authority of the FAA Administrator. Subtitle VII: Aviation Programs, describes in more detail the scope of the Agency's authority.

The FAA is issuing this rulemaking under the authority described in Subtitle VII, Part A, Subpart III, Section 44701: General requirements. Under that section, Congress charges the FAA with promoting safe flight of civil aircraft in air commerce by prescribing regulations for practices, methods, and procedures the Administrator finds necessary for safety in air commerce. This regulation is within the scope of that authority because it addresses an unsafe condition that is likely to exist or develop on products identified in this rulemaking action.

This AD will not have federalism implications under Executive Order 13132. This AD will not have a substantial 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.

For the reasons discussed above, I certify that this AD:

(1) Is not a “significant regulatory action” under Executive Order 12866,

(2) Will not affect intrastate aviation in Alaska, and

(3) Will not have a significant economic impact, positive or negative, on a substantial number of small entities under the criteria of the Regulatory Flexibility Act.

Accordingly, under the authority delegated to me by the Administrator, the FAA amends 14 CFR part 39 as follows:

On October 21, 2021, the Secretary announced his decision to continue to temporarily restrict the non-essential travel of individuals from Canada into the United States via land POEs and ferry terminals along the United States-Canada border. 1 The Secretary further announced that he intended to lift these restrictions for individuals who are fully vaccinated against COVID-19 and have appropriate proof of vaccination to align with changes to international travel by air. 2 The Secretary stated that any such modifications to the restrictions would be accomplished via a posting to the DHS website ( https://www.dhs.gov ) and followed by a publication in the Federal Register . 3

On October 29, 2021, DHS posted to its website an announcement that beginning November 8, 2021, non-essential travel would be permitted through land POEs and ferry terminals, provided that the traveler is fully vaccinated against COVID-19 and can present proof of COVID-19 vaccination status. DHS stated that unvaccinated travelers may continue to cross the U.S.-Canada border at land POEs and ferry terminals for essential travel, including lawful trade, emergency response, and public health purposes. 4 Thus, starting November 8, 2021, when arriving at a U.S. land POE or ferry terminal, travelers who are traveling for a non-essential reason should be prepared to: (1) Present proof of COVID-19 vaccination as outlined on the CDC website;  5 and (2) verbally attest to the reason for their travel and COVID-19 vaccination status. The lifting of restrictions for fully vaccinated individuals does not affect U.S. citizens and lawful permanent residents returning to the United States, regardless of whether the individual is fully vaccinated, because such travel is currently defined as essential travel.

Consistent with the October 21, 2021 Federal Register notice and the October 29, 2021 web posting, DHS is publishing this notice of the lifting of the non-essential travel restrictions for certain individuals as described above.

On October 21, 2021, the Secretary announced his decision to continue to temporarily restrict the non-essential travel of individuals from Mexico into the United States via land POEs and ferry terminals along the United States-Mexico border. 1 The Secretary further announced that he intended to lift these restrictions for individuals who are fully vaccinated against COVID-19 and have appropriate proof of vaccination to align with changes to international travel by air. 2 The Secretary stated that any such modifications to the restrictions would be accomplished via a posting to the DHS website ( https://www.dhs.gov ) and followed by a publication in the Federal Register . 3

On October 29, 2021, DHS posted to its website an announcement that beginning November 8, 2021, non-essential travel would be permitted through land POEs and ferry terminals, provided that the traveler is fully vaccinated against COVID-19 and can present proof of COVID-19 vaccination status. DHS stated that unvaccinated travelers may continue to cross the U.S.-Mexico border at land POEs and ferry terminals for essential travel, including lawful trade, emergency response, and public health purposes. 4 Thus, starting November 8, 2021, when arriving at a U.S. land POE or ferry terminal, travelers who are traveling for a non-essential reason should be prepared to: (1) Present proof of COVID-19 vaccination as outlined on the CDC website;  5 and (2) verbally attest to the reason for their travel and COVID-19 vaccination status. The lifting of restrictions for fully vaccinated individuals does not affect U.S. citizens and lawful permanent residents returning to the United States, regardless of whether the individual is fully vaccinated, because such travel is currently defined as essential travel.

Consistent with the October 21, 2021 Federal Register notice and the October 29, 2021 web posting, DHS is publishing this notice of the lifting of the non-essential travel restrictions for certain individuals as described above.

The purposes of the Bank Secrecy Act (BSA), Titles I and II of Public Law 91-508, as amended, codified at 12 U.S.C. 1829b, 12 U.S.C. 1951-1959, and 31 U.S.C. 5311-5314 and 5316-5336, include, among other things, requiring certain reports or records that are highly useful in criminal, tax, or regulatory investigations. The regulations implementing the BSA appear at 31 CFR chapter X. The Secretary's authority to administer the BSA has been delegated to the Director of FinCEN. 1

Pursuant to 31 U.S.C. 5314, the Secretary is authorized to require any “resident or citizen of the United States or a person in, and doing business in, the United States, to . . . keep records and file reports, when the resident, citizen, or person makes a transaction or maintains a relation for any person with a foreign financial agency.” The regulations implementing 31 U.S.C. 5314 appear at 31 CFR 1010.350, 1010.360, and 1010.420. Section 1010.350 sets forth the requirements for filing a Foreign Bank Account Report (FBAR), which generally require each U.S. person having a financial interest in, or signature or other authority over, a bank, securities, or other financial account in a foreign country to report such relationship for each year in which such relationship exists. Section 1010.420 outlines the recordkeeping requirements associated with foreign financial accounts required to be reported under Section 1010.350. Section 1010.360, commonly referred to as the report of foreign financial agency transactions, provides that FinCEN may promulgate regulations requiring specified financial institutions to file reports of certain transactions with designated foreign financial agencies.

Section 5321 of Title 31 of the U.S. Code describes civil monetary penalties for violations of the BSA. In October 1986, Congress amended 31 U.S.C. 5321 to add a provision—31 U.S.C. 5321(a)(5)—authorizing a civil monetary penalty for willful violations of section 5314. (Pub. L. 99-570, section 1357(c), October 26, 1986) (“the Anti-Drug Abuse Act of 1986” or the “1986 Act”)). The terms of the 1986 amendment were incorporated into the BSA implementing regulations at 31 CFR 1010.820(g). 2

The American Jobs Creation Act of 2004 amended 31 U.S.C. 5321(a)(5). The amendments revised the manner in which the penalty is calculated, including an increase to the maximum amount that could be assessed for willful violations of section 5314.

Section 821 of the American Jobs Creation Act of 2004 is self-executing, and the penalty provisions apply to violations occurring after the date of its enactment. For those reasons, the provisions in 31 CFR 1010.820(g) are obsolete and superseded by statute. FinCEN is therefore rescinding 31 CFR 1010.820(g). The remaining paragraphs (h) and (i) in § 1010.820 are redesignated as paragraphs (g) and (h).

Under 5 U.S.C. 553(b)(3)(B) of the Administrative Procedure Act (APA), an agency may, for good cause, find (and incorporate the finding and a brief statement of reasons therefore in the rules issued) that notice and public procedure thereon are impracticable, unnecessary, or contrary to the public interest. The final rule rescinds civil penalty regulations at 31 CFR 1010.820(g)(1) and (2) because they have been rendered obsolete with the 2004 amendments to 31 U.S.C. 5321(a)(5). The agency has therefore determined that publishing a notice of proposed rulemaking and providing opportunity for public comment is unnecessary. This amendment to the regulations merely conforms the regulations to the current statute.

Under 5 U.S.C. 553(d)(3) of the APA, the required publication or service of a substantive rule shall be made not less than 30 days before its effective date, except, among other things, as provided by the agency for good cause found and published with the rule. FinCEN finds that there is good cause for shortened notice since 31 CFR 1010.820(g) is obsolete and the revisions made by this final rule are non-substantive and technical. This final rule takes effect on December 23, 2021.

The Regulatory Flexibility Act (5 U.S.C. 601 et seq. ) (RFA) does not apply to a rulemaking where a general notice of proposed rulemaking is not required. As noted above, FinCEN has determined that it is unnecessary to publish a notice of proposed rulemaking for this final rule. Accordingly, the RFA's requirements relating to an initial and final regulatory flexibility analysis do not apply.

Executive Orders 13563 and 12866 direct agencies to assess 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, distributive impacts, and equity). Executive Order 13563 emphasizes the importance of quantifying both costs and benefits, of reducing costs, of harmonizing rules, and of promoting flexibility. FinCEN has determined that Executive Orders 13563 and 12866 do not apply to this final rulemaking.

There is no collection of information requirement in this final rule.

Section 202 of the Unfunded Mandates Reform Act of 1995, 12 U.S.C. 1532, Public Law 104-4 (March 22, 1995) (Unfunded Mandates Act), requires that an agency prepare a budgetary impact statement before promulgating a rule that may result in expenditure by state, local, and tribal governments, in the aggregate, or by the private sector, of $100 million or more in any one year. If a budgetary impact statement is required, Section 202 of the Unfunded Mandates Act also requires an agency to identify and consider a reasonable number of regulatory alternatives before promulgating a rule. FinCEN has determined that no portion of this final rule will result in expenditures by State, local, and tribal governments, or by the private sector, of $100 million or more in any one year. Accordingly, this final rule is not subject to section 202 of the Unfunded Mandates Act.

For the reasons set forth above in the preamble, 31 CFR part 1010 is amended as follows:

On January 26, 2021, the Copyright Royalty Judges (Judges) received a Joint Notice of Settlement of Participating Parties  1 informing the Judges that they have agreed not to seek a quinquennial adjustment in the existing Section 111 royalty rates or gross receipts limitations pursuant to 17 U.S.C. 804(b)(1)(A)-(B) for the 2020-2024  2 period. As a result, the Participating Parties requested that the Judges terminate this proceeding without making any changes in (1) the royalty rates currently set forth in 17 U.S.C. 111(d)(1)(B) and 37 CFR 256.2(c)-(d);  3 and (2) the gross receipts limitations set forth in 17 U.S.C. 111(d)(1)(E)-(F). Joint Notice at 2. Section 111 of the Copyright Act grants a statutory copyright license to cable television systems for the retransmission of over-the-air television and radio broadcast stations to their subscribers. 17 U.S.C. 111(c). In exchange for the license, cable operators submit to the Copyright Office semiannually royalty payments and statements of account detailing their retransmissions. 17 U.S.C. 111(d)(1). The Copyright Office deposits the royalties into the United States Treasury for later distribution to copyright owners of the broadcast programming that the cable systems retransmit. 17 U.S.C. 111(d)(2).

A cable system calculates its royalty payments in accordance with the statutory formula described in 17 U.S.C. 111(d)(1). Royalty rates are based upon a cable system's gross receipts from subscribers who receive retransmitted broadcast signals. For rate calculation purposes, cable systems are divided into three tiers (small, medium, and large) based on their gross receipts. 17 U.S.C. 111(d)(1)(B) through (F). Both the applicable rates and the tiers are subject to adjustment. 17 U.S.C. 801(b)(2).

Every five years persons with a significant interest in the royalty rates may file petitions to initiate a proceeding to adjust the rates. 17 U.S.C. 804(a)-(b). No person with a significant interest filed a petition to initiate a proceeding in 2020. Therefore, the Judges initiated a rate adjustment proceeding by publishing a notice and request for petitions to participate in the Federal Register . 85 FR 34467 (June 4, 2020). The Judges accepted the petitions to participate of each of the Participating Parties and commenced a Voluntary Negotiation Period (VNP). Notice of Participants, Commencement of Voluntary Negotiation Period, and Scheduling Order (Oct. 20, 2020). 4 In response to that Notice and Order, on January 26, 2021, the Participating Parties submitted a Joint Notice of Settlement of Participating Parties notifying the Judges that they have agreed not to seek a quinquennial adjustment in the existing Section 111 royalty rates or gross receipts limitations pursuant to 17 U.S.C. 804(b)(1)(A)-(B) for the 2020-2024 period. 5 They requested that the Judges terminate this proceeding without making any changes in the applicable royalty rates and gross receipts limitations.

Section 801(b)(7)(A) allows for the adoption of rates and terms negotiated by “some or all of the participants in a proceeding at any time during the proceeding” provided the parties submit the negotiated rates and terms to the Judges for approval. That provision directs the Judges to provide those who would be bound by the negotiated rates and terms an opportunity to comment on the agreement. Unless a participant in a proceeding objects and the Judges conclude that the agreement does not provide a reasonable basis for setting statutory rates or terms, or the Judges find the negotiated rates and terms are contrary to law, the Judges adopt the negotiated rates and terms. 17 U.S.C. 801(b)(7)(A).

On February 4, 2021, the Judges published the proposed settlement in the Federal Register and requested comments from interested parties pursuant to 17 U.S.C. 801(b)(7)(A). 86 FR 8222 (Feb. 4, 2021). The Judges received no comments. Therefore, the Judges adopt the existing rates and terms in 37 CFR 387.2 (c) and (d) for the 2020-2024 rate period and close the proceeding. The Judges hereby give notice that the adopted rates and terms and gross receipts limitations will continue to be binding on all cable systems that retransmit over-the-air television and radio broadcast stations to their subscribers and on all copyright owners of the broadcast programming that the cable systems retransmit during the license period 2020-2024.

You may be potentially affected by this action if you are an agricultural producer, food manufacturer, or pesticide manufacturer. The following list of North American Industrial Classification System (NAICS) codes is not intended to be exhaustive, but rather provides a guide to help readers determine whether this document applies to them. Potentially affected entities may include:

• Crop production (NAICS code 111).

• Animal production (NAICS code 112).

• Food manufacturing (NAICS code 311).

• Pesticide manufacturing (NAICS code 32532).

You may access a frequently updated electronic version of EPA's tolerance regulations at 40 CFR part 180 through the Office of the Federal Register's e-CFR site at https://www.ecfr.gov/current/title-40.

Under FFDCA section 408(g), 21 U.S.C. 346a, any person may file an objection to any aspect of this regulation and may also request a hearing on those objections. You must file your objection or request a hearing on this regulation in accordance with the instructions provided in 40 CFR part 178. To ensure proper receipt by EPA, you must identify docket ID number EPA-HQ-OPP-2019-0542 in the subject line on the first page of your submission. All objections and requests for a hearing must be in writing and must be received by the Hearing Clerk on or before February 22, 2022. Addresses for mail and hand delivery of objections and hearing requests are provided in 40 CFR 178.25(b).

In addition to filing an objection or hearing request with the Hearing Clerk as described in 40 CFR part 178, please submit a copy of the filing (excluding any Confidential Business Information (CBI)) for inclusion in the public docket. Information not marked confidential pursuant to 40 CFR part 2 may be disclosed publicly by EPA without prior notice. Submit the non-CBI copy of your objection or hearing request, identified by docket ID number EPA-HQ-OPP-2019-0542, by one of the following methods:

• Federal eRulemaking Portal: https://www.regulations.gov. Follow the online instructions for submitting comments. Do not submit electronically any information you consider to be CBI or other information whose disclosure is restricted by statute.

• Mail: OPP Docket, Environmental Protection Agency Docket Center (EPA/DC), (28221T), 1200 Pennsylvania Ave. NW, Washington, DC 20460-0001.

• Hand Delivery: To make special arrangements for hand delivery or delivery of boxed information, please follow the instructions at https://www.epa.gov/dockets/contacts.html.

Additional instructions on commenting or visiting the docket, along with more information about dockets generally, is available at https://www.epa.gov/dockets.

In the Federal Register of April 22, 2021 (86 FR 21317) (FRL-10022-59), and of June 1, 2021 (86 FR 29229) (FRL-10023-95), EPA issued a document pursuant to FFDCA section 408(d)(3), 21 U.S.C. 346a(d)(3), announcing the filing of a pesticide petition (PP 9F8777) by Syngenta Crop Protection, LLC, P.O. Box 18300, Greensboro, NC 27419-8300. The petition requested that 40 CFR part 180 be amended by establishing tolerances for residues of the herbicide bicyclopyrone, 4-hydroxy-3-}2-[(2-methoxyethoxy)methyl{-6-(trifluoromethyl) 3pyridylcarbonyl{bicyclo[3.2.1]oct-3-en-2-one, in or on rosemary, fresh at 0.03 parts per million (ppm); rosemary, dried at 0.3 ppm; lemongrass, fresh at 0.3 ppm; lemongrass, dried at 0.5 ppm; wormwood, fresh at 0.05 ppm and wormwood, dried at 0.09 ppm. That document referenced a summary of the petition prepared by Syngenta Crop Protection, LLC., the registrant, which is available in the docket, https://www.regulations.gov. There were no comments received in response to the notice of filing.

Section 408(b)(2)(A)(i) of FFDCA allows EPA to establish a tolerance (the legal limit for a pesticide chemical residue in or on a food) only if EPA determines that the tolerance is “safe.” Section 408(b)(2)(A)(ii) of FFDCA defines “safe” to mean that “there is a reasonable certainty that no harm will result from aggregate exposure to the pesticide chemical residue, including all anticipated dietary exposures and all other exposures for which there is reliable information.” This includes exposure through drinking water and in residential settings but does not include occupational exposure. Section 408(b)(2)(C) of FFDCA requires EPA to give special consideration to exposure of infants and children to the pesticide chemical residue in establishing a tolerance and to “ensure that there is a reasonable certainty that no harm will result to infants and children from aggregate exposure to the pesticide chemical residue. . . .”

Consistent with FFDCA section 408(b)(2)(D), and the factors specified in FFDCA section 408(b)(2)(D), EPA has reviewed the available scientific data and other relevant information in support of this action. EPA has sufficient data to assess the hazards of and to make a determination on aggregate exposure for bicyclopyrone including exposure resulting from the tolerances established by this action. EPA's assessment of exposures and risks associated with bicyclopyrone follows.

EPA has evaluated the available toxicity data and considered its validity, completeness, and reliability as well as the relationship of the results of the studies to human risk. EPA has also considered available information concerning the variability of the sensitivities of major identifiable subgroups of consumers, including infants and children. The bicyclopyrone database is considered complete for risk assessment purposes.

Bicyclopyrone is a 4-hydroxyphenylpyruvate dioxygenase (HPPD)-inhibiting chemical. HPPD is an enzyme involved in the catabolism of tyrosine, an essential amino acid for mammals. Recently OPP evaluated ( HPPD Inhibiting Herbicides: State of the Science. 9/18/2020. Authors: K. Yozzo and M. Perron) a proposed mode-of-action (MOA)/adverse-outcome pathway (AOP) for HPPD inhibitors in mammals and determined there was sufficient evidence to establish the MOA/AOP. The initiating event in the MOA/AOP for HPPD-inhibiting chemicals, including bicyclopyrone, involves binding of the chemical to the HPPD enzyme causing complete or virtually complete enzyme inhibition, which leads to a build-up of systemic tyrosine levels (tyrosinemia) and a spectrum of tyrosine-mediated effects. In laboratory animals, these have been identified as ocular and skeletal developmental effects.

Bicyclopyrone is classified as “Suggestive Evidence of Carcinogenic Potential” based on the presence of rare ocular tumors in male rats. The EPA has determined that using a non-linear approach ( i.e., chronic reference dose (cRfD)) will adequately account for all chronic toxicity, including carcinogenicity that could result from exposure to bicyclopyrone.

A complete discussion of the toxicological profile for bicyclopyrone as well as specific information on the studies received and the nature of the adverse effects caused by bicyclopyrone as well as the no-observed-adverse-effect-level (NOAEL) and the lowest-observed-adverse-effect-level (LOAEL) from the toxicity studies can be found in the document titled “Bicyclopyrone: Human Health Risk Assessment for the Establishment of Permanent Tolerances for Residues in/on Lemongrass, Rosemary, and Wormwood ” (hereinafter “Bicyclopyrone Human Health Risk Assessment”) in docket ID number EPA-HQ-OPP-2019-0542 in regulations.gov.

Once a pesticide's toxicological profile is determined, EPA identifies toxicological points of departure (POD) and levels of concern to use in evaluating the risk posed by human exposure to the pesticide. For hazards that have a threshold below which there is no appreciable risk, the toxicological POD is used as the basis for derivation of reference values for risk assessment. PODs are developed based on a careful analysis of the doses in each toxicological study to determine the dose at which the NOAEL and the LOAEL are identified. Uncertainty/safety factors are used in conjunction with the POD to calculate a safe exposure level—generally referred to as a population-adjusted dose (PAD) or a reference dose (RfD)—and a safe margin of exposure (MOE). For non-threshold risks, the Agency assumes that any amount of exposure will lead to some degree of risk. Thus, the Agency estimates risk in terms of the probability of an occurrence of the adverse effect expected in a lifetime. For more information on the general principles EPA uses in risk characterization and a complete description of the risk assessment process, see https://www2.epa.gov/pesticide-science-and-assessing-pesticide-risks/assessing-human-health-risk-pesticides.

The ability of a species to clear excess tyrosine can impact its sensitivity to HPPD-inhibiting chemicals and its relevance for human health risk assessment. Therefore, during the evaluation of the MOA/AOP for HPPD inhibitors in mammals, endpoints for human health risk assessment of HPPD inhibitors, including bicyclopyrone, were selected from studies available in mice and dogs. The developmental and reproduction toxicity studies in mice are not available for bicyclopyrone; however, mouse developmental and reproduction toxicity studies for other HPPD inhibitors are available for bridging across the chemical class. The reproduction toxicity study for mesotrione (a HPPD inhibitor) provides the lowest point of departure (no-observed adverse-effect level (NOAEL) = 71 mg/kg/day) for these studies and was considered in conjunction with the bicyclopyrone database for endpoint selection.

A summary of the toxicological endpoints for bicyclopyrone used for human risk assessment can be found in the Bicyclopyrone Human Health Risk Assessment in the docket.

1. Dietary exposure from food and feed uses. In evaluating dietary exposure to bicyclopyrone, EPA considered exposure under the petitioned-for tolerances as well as all existing bicyclopyrone tolerances in 40 CFR 180.682. EPA assessed dietary exposures from bicyclopyrone in food as follows:

i. Acute exposure. Quantitative acute dietary exposure and risk assessments are performed for a food-use pesticide, if a toxicological study has indicated the possibility of an effect of concern occurring as a result of a 1-day or single exposure.

No such effects were identified in the toxicological studies for bicyclopyrone; therefore, a quantitative acute dietary exposure assessment is unnecessary.

ii. Chronic exposure. In conducting the chronic dietary exposure assessment EPA used the 2003-2008 food consumption data from the U.S. Department of Agriculture's (USDA's) National Health and Nutrition Examination Survey, What We Eat in America (NHANES/WWEIA). As to residue levels in food, EPA conducted a partially refined analysis that assumed average field trial residues for registered crops, tolerance levels for the proposed crops, average empirical processing factors for registered crops, anticipated residues for livestock commodities, and percent crop treated (PCT) for registered crop commodities.

iii. Cancer. Based on the data discussed in Unit III.A., EPA has determined that a separate cancer exposure assessment does not need to be conducted and that using a non-linear approach ( i.e., reference dose (RfD)) will adequately account for all chronic toxicity, including carcinogenicity, that could result from exposure to bicyclopyrone.

iv. Anticipated residue and percent crop treated (PCT) information. Section 408(b)(2)(E) of FFDCA authorizes EPA to use available data and information on the anticipated residue levels of pesticide residues in food and the actual levels of pesticide residues that have been measured in food. If EPA relies on such information, EPA must require pursuant to FFDCA section 408(f)(1) that data be provided 5 years after the tolerance is established, modified, or left in effect, demonstrating that the levels in food are not above the levels anticipated. For the present action, EPA will issue such data call-ins as are required by FFDCA section 408(b)(2)(E) and authorized under FFDCA section 408(f)(1). Data will be required to be submitted no later than 5 years from the date of issuance of these tolerances.

Section 408(b)(2)(F) of FFDCA states that the Agency may use data on the actual percent of food treated for assessing chronic dietary risk only if:

• Condition a: The data used are reliable and provide a valid basis to show what percentage of the food derived from such crop is likely to contain the pesticide residue.

• Condition b: The exposure estimate does not underestimate exposure for any significant subpopulation group.

• Condition c: Data are available on pesticide use and food consumption in a particular area, and the exposure estimate does not understate exposure for the population in such area.

In addition, the Agency must provide for periodic evaluation of any estimates used. To provide for the periodic evaluation of the estimate of PCT as required by FFDCA section 408(b)(2)(F), EPA may require registrants to submit data on PCT.

The chronic dietary assessment incorporated the following average PCT estimates: Barley, 1%; field corn, 10%; sweet corn, 5%; pop corn, 10% (used the higher of the corn PCTs); and wheat, 5% (used spring wheat PCT which was higher than winter wheat PCT). The PCT for livestock commodities is based on the PCT value for the livestock feed item used in the dietary burden with the highest percent crop treated (field corn, 10%).

In most cases, EPA uses available data from the United States Department of Agriculture/National Agricultural Statistics Service (USDA/NASS), proprietary market surveys, and the California Department of Pesticide Regulation (CalDPR) Pesticide Use Reporting (PUR) for the chemical/crop combination for the most recent 10 years. EPA uses an average PCT for chronic dietary risk analysis and a maximum PCT for acute dietary risk analysis. The average PCT figure for each existing use is derived by combining available public and private market survey data for that use, averaging across all observations, and rounding to the nearest 5%, except for those situations in which the average PCT is less than 1% or less than 2.5%. In those cases, the Agency would use less than 1% or less than 2.5% as the average PCT value, respectively. The maximum PCT figure is the highest observed maximum value reported within the most recent 10 years of available public and private market survey data for the existing use and rounded up to the nearest multiple of 5%, except where the maximum PCT is less than 2.5%, in which case, the Agency uses less than 2.5% as the maximum PCT.

The Agency believes that the three conditions discussed in Unit III.C.1.iv. have been met. With respect to Condition a, PCT estimates are derived from Federal and private market survey data, which are reliable and have a valid basis. The Agency is reasonably certain that the percentage of the food treated is not likely to be an underestimation. As to Conditions b and c, regional consumption information and consumption information for significant subpopulations is taken into account through EPA's computer-based model for evaluating the exposure of significant subpopulations including several regional groups. Use of this consumption information in EPA's risk assessment process ensures that EPA's exposure estimate does not understate exposure for any significant subpopulation group and allows the Agency to be reasonably certain that no regional population is exposed to residue levels higher than those estimated by the Agency. Other than the data available through national food consumption surveys, EPA does not have available reliable information on the regional consumption of food to which bicyclopyrone may be applied in a particular area.

2. Dietary exposure from drinking water. The Agency used screening level water exposure models in the dietary exposure analysis and risk assessment for bicyclopyrone in drinking water. These simulation models take into account data on the physical, chemical, and fate/transport characteristics of bicyclopyrone. Further information regarding EPA drinking water models used in pesticide exposure assessment can be found at https://www2.epa.gov/pesticide-science-and-assessing-pesticide-risks/about-water-exposure-models-used-pesticide.

The Surface Water Concentration Calculator (SWCC) computer model was used to generate surface water Estimated Drinking Water Concentrations (EDWCs), while the Pesticide Root Zone Model for Groundwater (PRZM-GW) and the Screening Concentration in Ground Water (SCI-GROW) models were used to generate groundwater EDWCs. The maximum acute and chronic surface water EDWCs associated with bicyclopyrone use were 3.43 and 1.02 parts per billion (ppb), respectively. For groundwater sources of drinking water, the maximum acute and chronic and cancer EDWCs of bicyclopyrone in shallow groundwater from PRZM-GW were 4.82 and 4.2 ppb, respectively.

3. From non-dietary exposure. The term “residential exposure” is used in this document to refer to non-occupational, non-dietary exposure ( e.g., for lawn and garden pest control, indoor pest control, termiticides, and flea and tick control on pets). Bicyclopyrone is not registered for any use patterns that would result in residential exposure.

4. Cumulative effects from substances with a common mechanism of toxicity. Section 408(b)(2)(D)(v) of FFDCA requires that, when considering whether to establish, modify, or revoke a tolerance, the Agency consider “available information” concerning the cumulative effects of a particular pesticide's residues and “other substances that have a common mechanism of toxicity.”

The Agency is required to consider the cumulative risks of chemicals sharing a common mechanism of toxicity per OPP's Guidance For Identifying Pesticide Chemicals and Other Substances that have a Common Mechanism of Toxicity, which can be found at https://www.epa.gov/pesticide-science-and-assessing-pesticide-risks/guidance-identifying-pesticide-chemicals-and-other. As a result, the Agency has determined that the (p-hydroxyphenyl-pyruvate dioxygenase) HPPD inhibitors, including bicyclopyrone, share a common mechanism of toxicity as discussed in the HPPD Inhibiting Herbicides: State of the Science paper ( HPPD Inhibiting Herbicides: State of the Science. 9/18/2020. Authors: K. Yozzo and M. Perron). As explained in that document, the members of this group share the ability to bind to and inhibit the HPPD enzyme resulting in elevated systemic tyrosine levels and common apical outcomes that are mediated by tyrosine, including ocular and developmental effects. In 2021, after establishing a common mechanism grouping for the HPPD inhibitors, the Agency conducted a cumulative risk assessment (CRA) (J. Godshall; 30-June-2021; D462487) and concluded that cumulative exposures to HPPD inhibitors (based on proposed and registered pesticidal uses at the time the assessment was conducted) did not present risks of concern.

1. In general. Section 408(b)(2)(C) of FFDCA provides that EPA shall apply an additional tenfold (10X) margin of safety for infants and children in the case of threshold effects to account for prenatal and postnatal toxicity and the completeness of the database on toxicity and exposure unless EPA determines based on reliable data that a different margin of safety will be safe for infants and children. This additional margin of safety is commonly referred to as the Food Quality Protection Act (FQPA) Safety Factor (SF). In applying this provision, EPA either retains the default value of 10X, or uses a different additional safety factor when reliable data available to EPA support the choice of a different factor.

2. Prenatal and postnatal sensitivity. Although there is potential evidence of neurotoxicity and increased quantitative susceptibility, concern is low because neurotoxicity was only observed in the rat, which is not considered a relevant model for evaluating HPPD inhibitors, and selected endpoints are protective of the potential sensitivity/susceptibility for animal models appropriate for evaluating HPPD inhibitors.

3. Conclusion. EPA has determined that reliable data show the safety of infants and children would be adequately protected if the FQPA SF were reduced to 1X for all exposure scenarios, except for the chronic dietary endpoint where the FQPA SF is being retained as a database UF because of the use of a LOAEL as the point of departure (UF L ). That decision is based on the following findings:

i. The toxicity database for bicyclopyrone is complete.

ii. There is no evidence of neurotoxicity in the bicyclopyrone database, including in the rat acute or subchronic neurotoxicity studies; however, histopathological findings were observed in the chronic dog study (swelling of the dorsal root ganglion and nerve fiber degeneration). Concern is low since the chronic dietary endpoint is based upon these effects, and these are the most sensitive effects in the bicyclopyrone hazard database in one of them most appropriate species for risk assessment.

iii. There was evidence of increased susceptibility in rat and rabbit developmental studies for bicyclopyrone. Since developmental and reproduction toxicity studies in mice are not available for bicyclopyrone, mouse developmental and reproduction toxicity studies for other HPPD inhibitors are available for bridging. In some instances, increased quantitative susceptibility was also observed in these mouse studies, including the 2-generation reproduction toxicity study for mesotrione. Although there was evidence of increased susceptibility, concern is low because: (1) Rat and rabbits were not considered appropriate animal models for assessing human health risk for HPPD inhibitors, (2) there are clear NOAEL/LOAEL values for the observed developmental and offspring effects, (3) developmental/offspring effects in mice for other HPPD inhibitors were seen at doses ≥600 mg/kg/day, except the mesotrione 2-generation reproduction toxicity study, (4) the offspring LOAEL of 300 mg/kg/day in the mesotrione reproduction toxicity study was set conservatively based on a low incidence of opaque/cloudy eyes, and (5) selected endpoints are protective of any potential sensitivity observed in mice.

iv. There are no residual uncertainties identified in the exposure databases. The dietary assessment does not underestimate exposure. In addition, there are no currently proposed residential uses.

EPA determines whether acute and chronic dietary pesticide exposures are safe by comparing aggregate exposure estimates to the acute PAD (aPAD) and chronic PAD (cPAD). For linear cancer risks, EPA calculates the lifetime probability of acquiring cancer given the estimated aggregate exposure. Short-, intermediate-, and chronic-term risks are evaluated by comparing the estimated aggregate food, water, and residential exposure to the appropriate PODs to ensure that an adequate MOE exists.

1. Acute risk. An acute aggregate risk assessment takes into account acute exposure estimates from dietary consumption of food and drinking water. No adverse effect resulting from a single oral exposure was identified and no acute dietary endpoint was selected. Therefore, bicyclopyrone is not expected to pose an acute risk.

2. Chronic risk. Using the exposure assumptions described in this unit for chronic exposure, EPA has concluded that chronic exposure to bicyclopyrone from food and water will utilize 9.5% of the cPAD for all infants, the population group receiving the greatest exposure.

3. Short-term risk. A short-term adverse effect was identified; however, bicyclopyrone is not registered for any use patterns that would result in short-term residential exposure. Short-term risk is assessed based on short-term residential exposure plus chronic dietary exposure. Because there is no short-term residential exposure and chronic dietary exposure has already been assessed under the appropriately protective cPAD (which is at least as protective as the POD used to assess short-term risk), no further assessment of short-term risk is necessary, and EPA relies on the chronic dietary risk assessment for evaluating short-term risk for bicyclopyrone.

4. Intermediate-term risk. An intermediate-term adverse effect was identified; however, bicyclopyrone is not registered for any use patterns that would result in intermediate-term residential exposure. Intermediate-term risk is assessed based on intermediate-term residential exposure plus chronic dietary exposure. Because there is no intermediate-term residential exposure and chronic dietary exposure has already been assessed under the appropriately protective cPAD (which is at least as protective as the POD used to assess intermediate-term risk), no further assessment of intermediate-term risk is necessary, and EPA relies on the chronic dietary risk assessment for evaluating intermediate-term risk for bicyclopyrone.

5. Aggregate cancer risk for U.S. population. Because the Agency has determined that the chronic RfD will be protective of any potential cancer risk and there are no chronic risks that exceeds the Agency's level of concern, EPA concludes that there is not a concern for cancer risk from exposure to bicyclopyrone.

6. Determination of safety. Based on these risk assessments, EPA concludes that there is a reasonable certainty that no harm will result to the general population, or to infants and children from aggregate exposure to bicyclopyrone residues.

More detailed information about the Agency's analysis can be found in the Bicyclopyrone Human Health Risk Assessment in docket ID number EPA-HQ-OPP-2019-0542 in regulations.gov at https://www.regulations.gov.

Adequate enforcement methodology liquid chromatography-mass spectroscopy/mass spectroscopy (LCMS/MS) methods for tolerance enforcement have been developed and independently validated. For all matrices and analytes, the level of quantification (LOQ), defined as the lowest spiking level where acceptable precision and accuracy data were obtained, was determined to be 0.01 ppm for each of the common moieties, SYN503780 and CSCD686480, for a combined LOQ of 0.02 ppm is available to enforce the tolerance expression.

The method may be requested from: Chief, Analytical Chemistry Branch, Environmental Science Center, 701 Mapes Rd., Ft. Meade, MD 20755-5350; telephone number: (410) 305-2905; email address: residuemethods@epa.gov.

In making its tolerance decisions, EPA seeks to harmonize U.S. tolerances with international standards whenever possible, consistent with U.S. food safety standards and agricultural practices. EPA considers the international maximum residue limits (MRLs) established by the Codex Alimentarius Commission (Codex), as required by FFDCA section 408(b)(4).

The Codex has not established a MRL for residues of bicyclopyrone in/on lemongrass, rosemary, or wormwood.

Therefore, tolerances are established for residues of bicyclopyrone, 4-hydroxy-3-{2-[(2-methoxyethoxy)methyl]-6-(trifluoromethyl)-3-pyridylcarbonyl}bicyclo[3.2.1]oct-3-en-2-one, including its metabolites and degradates in or on lemongrass, dried at 0.5 ppm; lemongrass, fresh at 0.3 ppm; rosemary, dried at 0.3 ppm; rosemary, fresh at 0.03 ppm; wormwood, dried at 0.09 ppm; and wormwood, fresh at 0.05 ppm.

This action establishes tolerances under FFDCA section 408(d) in response to a petition submitted to the Agency. The Office of Management and Budget (OMB) has exempted these types of actions from review under Executive Order 12866, entitled “Regulatory Planning and Review” (58 FR 51735, October 4, 1993). Because this action has been exempted from review under Executive Order 12866, this action is not subject to Executive Order 13211, entitled “Actions Concerning Regulations That Significantly Affect Energy Supply, Distribution, or Use” (66 FR 28355, May 22, 2001) or Executive Order 13045, entitled “Protection of Children from Environmental Health Risks and Safety Risks” (62 FR 19885, April 23, 1997). This action does not contain any information collections subject to OMB approval under the Paperwork Reduction Act (PRA) (44 U.S.C. 3501 et seq. ), nor does it require any special considerations under Executive Order 12898, entitled “Federal Actions to Address Environmental Justice in Minority Populations and Low-Income Populations” (59 FR 7629, February 16, 1994).

Since tolerances and exemptions that are established on the basis of a petition under FFDCA section 408(d), such as the tolerance in this final rule, do not require the issuance of a proposed rule, the requirements of the Regulatory Flexibility Act (RFA) (5 U.S.C. 601 et seq. ), do not apply.

This action directly regulates growers, food processors, food handlers, and food retailers, not States or Tribes, nor does this action alter the relationships or distribution of power and responsibilities established by Congress in the preemption provisions of FFDCA section 408(n)(4). As such, the Agency has determined that this action will not have a substantial direct effect on States or Tribal Governments, on the relationship between the National Government and the States or Tribal Governments, or on the distribution of power and responsibilities among the various levels of government or between the Federal Government and Indian Tribes. Thus, the Agency has determined that Executive Order 13132, entitled “Federalism” (64 FR 43255, August 10, 1999) and Executive Order 13175, entitled “Consultation and Coordination with Indian Tribal Governments” (65 FR 67249, November 9, 2000) do not apply to this action. In addition, this action does not impose any enforceable duty or contain any unfunded mandate as described under Title II of the Unfunded Mandates Reform Act (UMRA) (2 U.S.C. 1501 et seq. ).

This action does not involve any technical standards that would require Agency consideration of voluntary consensus standards pursuant to section 12(d) of the National Technology Transfer and Advancement Act (NTTAA) (15 U.S.C. 272 note).

Pursuant to the Congressional Review Act (5 U.S.C. 801 et seq. ), EPA will submit a report containing this rule and other required information to the U.S. Senate, the U.S. House of Representatives, and the Comptroller General of the United States prior to publication of the rule in the Federal Register . This action is not a “major rule” as defined by 5 U.S.C. 804(2).

Therefore, for the reasons stated in the preamble, EPA is amending 40 CFR chapter I as follows:

This final rule is organized as follows:

To view any documents mentioned as being available in the docket, go to https://www.regulations.gov/docket/FMCSA-2021-0063/document and choose the document to review. To view comments, click this final rule, then click “Browse Comments.” If you do not have access to the internet, you may view the docket online by visiting Dockets Operations at U.S. Department of Transportation, Room W12-140, 1200 New Jersey Avenue SE, Washington, DC 20590-0001, between 9 a.m. and 5 p.m., Monday through Friday, except Federal holidays. To be sure someone is there to help you, please call (202) 366-9317 or (202) 366-9826 before visiting Dockets Operations.

This final rule updates an incorporation by reference found at 49 CFR 385.4(b)(1) and referenced at § 385.415(b). The provision at § 385.4(b)(1) currently references the April 1, 2019, edition of CVSA's handbook titled “North American Standard Out-of-Service Criteria and Level VI Inspection Procedures and Out-of-Service Criteria for Commercial Highway Vehicles Transporting Transuranics and Highway Route Controlled Quantities of Radioactive Materials as defined in 49 CFR part 173.403.” The CVSA handbook contains inspection procedures and Out-of-Service Criteria (OOSC) for inspections of shipments of transuranic waste and highway route controlled quantities of radioactive material. The OOSC, while not regulations, provide enforcement personnel nationwide, including FMCSA's State partners, with uniform enforcement tolerances for inspections. The material is available, and will continue to be available, for inspection at the FMCSA, Office of Enforcement and Compliance, 1200 New Jersey Avenue SE, Washington, DC 20590 (Attention: Chief, Compliance Division) at (202) 366-1812. The document may be purchased from the Commercial Vehicle Safety Alliance, 6303 Ivy Lane, Suite 310, Greenbelt, MD 20770, telephone (301) 830-6143, www.cvsa.org.

Twenty-one updates distinguish the April 1, 2021, handbook edition from the 2019 edition. The updates are all described in detail in the July 6, 2021, notice of proposed rulemaking (NPRM) for this rule (86 FR 35445-47). The incorporation by reference of the 2021 edition does not impose new regulatory requirements.

Congress has enacted several statutory provisions to ensure the safe transportation of hazardous materials in interstate commerce. Specifically, in provisions codified at 49 U.S.C. 5105(d), relating to inspections of motor vehicles carrying certain hazardous material, and 49 U.S.C. 5109, relating to motor carrier safety permits, the Secretary of Transportation is required to promulgate regulations as part of a comprehensive safety program on hazardous materials safety permits. The FMCSA Administrator has been delegated authority under 49 CFR 1.87(d)(2) to carry out the rulemaking functions vested in the Secretary of Transportation. Consistent with that authority, FMCSA has promulgated regulations under 49 CFR part 385, subpart E, to address the congressional mandate on hazardous materials safety permits. Those regulations are the underlying provisions to which the material incorporated by reference discussed in this final rule is applicable.

In 1986, the U.S. Department of Energy and CVSA entered into a cooperative agreement to develop a higher level of inspection procedures, out-of-service (OOS) conditions and/or criteria, an inspection decal, and a training and certification program for inspectors to conduct inspections of shipments of transuranic waste and highway route controlled quantities of radioactive material. CVSA developed the North American Standard Level VI Inspection Program for Transuranic Waste and Highway Route Controlled Quantities of Radioactive Material. This inspection program for select radiological shipments includes inspection procedures, enhancements to the North American Standard Level I Inspection, radiological surveys, CVSA Level VI decal requirements, and the “North American Standard Out-of-Service Criteria and Level VI Inspection Procedures and Out-of-Service Criteria for Commercial Highway Vehicles Transporting Transuranics and Highway Route Controlled Quantities of Radioactive Materials as defined in 49 CFR part 173.403.” As of January 1, 2005, all vehicles and carriers transporting highway route controlled quantities of radioactive material are regulated by the U.S. Department of Transportation. All highway route controlled quantities of radioactive material must pass the North American Standard Level VI Inspection prior to the shipment being allowed to travel in the United States. All highway route controlled quantities of radioactive material shipments entering the United States must also pass the North American Standard Level VI Inspection either at the shipment's point of origin or when the shipment enters the United States.

Section 385.415 of title 49, Code of Federal Regulations, prescribes operational requirements for motor carriers transporting hazardous materials for which a hazardous materials safety permit is required. Section 385.415(b) requires that motor carriers ensure a pre-trip inspection is performed on each motor vehicle to be used to transport a highway route controlled quantity of a Class 7 (radioactive) material, in accordance with the requirements of CVSA's handbook titled “North American Standard Out-of-Service Criteria and Level VI Inspection Procedures and Out-of-Service Criteria for Commercial Highway Vehicles Transporting Transuranics and Highway Route Controlled Quantities of Radioactive Materials as defined in 49 CFR part 173.403.”

According to 2015-2019 data from FMCSA's Motor Carrier Management Information System (MCMIS), approximately 3.34 million Level I-Level VI inspections were performed annually. Nearly 97 percent of these were Level I, 1 Level II, 2 and Level III  3 inspections. During the same period, an average of 611 Level VI inspections were performed annually, comprising only 0.02 percent of all inspections. On average, OOS violations were cited in only 7.8 Level VI inspections annually (2 percent), whereas on average, OOS violations were cited in 266,025 Level I inspections (25 percent), 275,840 Level II inspections (23 percent), and 61,201 Level III inspections (6 percent) annually. As these statistics demonstrate, OOS violations are cited in a far lower percentage of Level VI inspections than Level I, II, and III inspections, due largely to the enhanced oversight and inspection of vehicles involved in Level VI inspections because of the sensitive nature of the cargo being transported.

The changes from the 2019 edition of the CVSA handbook to the 2021 edition, which includes changes adopted in the 2020 edition, are intended to ensure clarity in the presentation of the OOS conditions and are generally editorial or ministerial. As discussed below, FMCSA does not expect the changes made in the 2021 edition of the CVSA handbook to affect the number of OOS violations cited during Level VI inspections.

FMCSA published a notice of proposed rulemaking (NPRM) on July 6, 2021 (86 FR 35443). Whereas the incorporation by reference found at 49 CFR 385.4 and referenced at 49 CFR 385.415(b) references the April 1, 2019, edition of CVSA's “North American Standard Out-of-Service Criteria and Level VI Inspection Procedures and Out-of-Service Criteria for Commercial Highway Vehicles Transporting Transuranics and Highway Route Controlled Quantities of Radioactive Materials as defined in 49 CFR part 173.403,” the NPRM proposed to incorporate by reference the April 1, 2021, edition, which also captures changes adopted in the April 1, 2020, edition. Cumulatively, twenty-one updates distinguish the April 1, 2021, edition from the 2019 edition. Each of the changes was described and discussed in detail in the NPRM. Generally, the changes serve to clarify or provide additional guidance to inspectors regarding uniform implementation and application of the out-of-service criteria, and none is expected to affect the number of out-of-service violations cited during Level VI inspections. The incorporation by reference of the 2021 edition does not change what constitutes a violation of FMCSA regulations.

FMCSA solicited comments concerning the NPRM for 30 days ending August 5, 2021. By that date, three comments were received, from CVSA and two private citizens. CVSA commended FMCSA for publishing the NPRM, and encouraged FMCSA to finalize the rule and update the incorporation by reference because “the current reference of the April 1, 2019 edition is outdated and does not reflect the most up to date Standard, which was published on April 1, 2021.”

One comment from a private citizen was outside the scope of this rulemaking.

One comment from a private citizen recommended that FMCSA not include the date of the handbook in the regulations so that updating the date through rulemakings would not be necessary.

Response: FMCSA must specify which version of a document is being incorporated by reference under the requirements of 1 CFR part 51. Therefore, in order to ensure that the most recent version of the handbook is incorporated by reference at 49 CFR 385.415(b), FMCSA must publish a new rulemaking for each updated version.

The Federal Motor Carrier Safety Regulations (FMCSRs), and any exceptions to the FMCSRs, apply only within the United States (and, in some cases, United States territories). Motor carriers and drivers are subject to the laws and regulations of the countries in which they operate, unless an international agreement states otherwise. Drivers and carriers should be aware of the regulatory differences among nations.

The CVSA is an organization representing Federal, State, and Provincial motor carrier safety enforcement agencies in the United States, Canada, and Mexico. The OOSC provide uniform enforcement tolerances for inspections conducted in all three countries.

Section 385.4(b)(1), is amended by replacing the reference to the April 1, 2019, edition date with a reference to the new edition date of April 1, 2021.

FMCSA has considered the impact of this final rule under E.O. 12866 (58 FR 51735, Oct. 4, 1993), Regulatory Planning and Review, E.O. 13563 (76 FR 3821, Jan. 21, 2011), Improving Regulation and Regulatory Review, and DOT's regulatory policies and procedures. The Office of Information and Regulatory Affairs (OIRA) determined that this final rule is not a significant regulatory action under section 3(f) of E.O. 12866, as supplemented by E.O. 13563, and does not require an assessment of potential costs and benefits under section 6(a)(3) of that Order. Accordingly, the Office of Management and Budget (OMB) has not reviewed it under these orders.

The final rule updates an incorporation by reference from the April 1, 2019, edition to the April 1, 2021, edition of CVSA's handbook titled “North American Standard Out-of-Service Criteria and Level VI Inspection Procedures and Out-of-Service Criteria for Commercial Highway Vehicles Transporting Transuranics and Highway Route Controlled Quantities of Radioactive Materials as defined in 49 CFR part 173.403.” FMCSA reviewed its MCMIS data on inspections performed from 2015 to 2019 and does not expect the handbook updates to have any effect on the number of OOS violations cited during Level VI inspections. Therefore, the final rule's impact would be de minimis.

Pursuant to the Congressional Review Act (5 U.S.C. 801, et seq. ), OIRA designated this rulemaking as not a “major rule,” as defined by 5 U.S.C. 804(2). 4

The Regulatory Flexibility Act of 1980 (5 U.S.C. 601 et seq. ) (RFA), as amended by the Small Business Regulatory Enforcement Fairness Act of 1996 (Pub. L. 104-121, 110 Stat. 857), requires Federal agencies to consider the effects of the regulatory action on small business and other small entities and to minimize any significant economic impact. The term “small entities” comprises small businesses and not-for-profit organizations that are independently owned and operated and are not dominant in their fields, and governmental jurisdictions with populations of less than 50,000 (5 U.S.C. 601(6)). Accordingly, DOT policy requires an analysis of the impact of all regulations on small entities, and mandates that agencies strive to lessen any adverse effects on these businesses. None of the updates from the 2021 edition imposes new requirements or makes substantive changes to the FMCSRs.

When an Agency issues a rulemaking proposal, the RFA requires the Agency to “prepare and make available an initial regulatory flexibility analysis” that will describe the impact of the proposed rule on small entities (5 U.S.C. 603(a)). Section 605 of the RFA allows an agency to certify a rule, instead of preparing an analysis, if the final rule is not expected to impact a substantial number of small entities. This final rule updates an incorporation by reference found at 49 CFR 385.4(b)(1) and referenced at 49 CFR 385.415(b), and incorporates by reference the April 1, 2021, edition of the CVSA handbook. The changes to the 2021 edition of the CVSA handbook from the 2019 edition are intended to ensure clarity in the presentation of the OOS conditions and are generally editorial or ministerial. As noted above, FMCSA does not expect the changes made in the 2021 edition of the CVSA handbook to affect the number of OOS violations cited during Level VI inspections. Accordingly, I certify that this final rule will not have a significant economic impact on a substantial number of small entities.

In accordance with section 213(a) of the Small Business Regulatory Enforcement Fairness Act of 1996, FMCSA wants to assist small entities in understanding this rulemaking so they can better evaluate its effects on themselves and participate in the rulemaking initiative. If the rulemaking would affect your small business, organization, or governmental jurisdiction and you have questions concerning its provisions or options for compliance, please consult the person listed under FOR FURTHER INFORMATION CONTACT .

Small businesses may send comments on the actions of Federal employees who enforce or otherwise determine compliance with Federal regulations to the Small Business Administration's Small Business and Agriculture Regulatory Enforcement Ombudsman and the Regional Small Business Regulatory Fairness Boards. The Ombudsman evaluates these actions annually and rates each agency's responsiveness to small business. If you wish to comment on actions by employees of FMCSA, call 1-888-REG-FAIR (1-888-734-3247). DOT has a policy regarding the rights of small entities to regulatory enforcement fairness and an explicit policy against retaliation for exercising these rights.

The Unfunded Mandates Reform Act of 1995 (2 U.S.C. 1531-1538) requires Federal agencies to assess the effects of their discretionary regulatory actions. In particular, the Act addresses actions that may result in the expenditure by a State, local, or Tribal government, in the aggregate, or by the private sector of $170 million (which is the value equivalent of $100 million in 1995, adjusted for inflation to 2020 levels) or more in any one year. Though this rulemaking would not result in such an expenditure, the Agency does discuss the effects of this rulemaking elsewhere in this preamble.

This rulemaking contains no new information collection requirements under the Paperwork Reduction Act of 1995 (44 U.S.C. 3501-3520).

A rule has implications for federalism under Section 1(a) of E.O. 13132 if it has “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.”

FMCSA has determined that this rulemaking does not have substantial direct costs on or for States, nor does it limit the policymaking discretion of States. Nothing in this document preempts any State law or regulation. Therefore, this rulemaking does not have sufficient federalism implications to warrant the preparation of a Federalism Impact Statement.

The Consolidated Appropriations Act, 2005, 5 requires the Agency to conduct a privacy impact assessment (PIA) of a regulation that will affect the privacy of individuals. This rulemaking does not require the collection of personally identifiable information, and therefore a PIA is not necessary.

This rulemaking does not have Tribal implications under E.O. 13175, Consultation and Coordination with Indian Tribal Governments, because it does not have a substantial direct effect on one or more Indian Tribes, on the relationship between the Federal Government and Indian Tribes, or on the distribution of power and responsibilities between the Federal Government and Indian Tribes.

FMCSA analyzed this rulemaking for the purpose of the National Environmental Policy Act of 1969 (42 U.S.C. 4321 et seq. ) and determined this action is categorically excluded from further analysis and documentation in an environmental assessment or environmental impact statement under FMCSA Order 5610.1 (69 FR 9680, March 1, 2004), Appendix 2, paragraph 6(b). This Categorical Exclusion (CE) covers minor revisions to regulations. The requirements in this rulemaking are covered by this CE, and the rulemaking does not have any effect on the quality of the environment.

In consideration of the foregoing, FMCSA amends 49 CFR chapter III, part 385, as set forth below:

Atlantic HMS fisheries, including BFT fisheries, are managed under the authority of the Atlantic Tunas Convention Act (ATCA; 16 U.S.C. 971 et seq. ) and the Magnuson-Stevens Fishery Conservation and Management Act (Magnuson-Stevens Act; 16 U.S.C. 1801 et seq. ). The 2006 Consolidated Atlantic HMS Fishery Management Plan (FMP) and its amendments are implemented by regulations at 50 CFR part 635. Section 635.27 divides the U.S. BFT quota recommended by the International Commission for the Conservation of Atlantic Tunas (ICCAT) and as implemented by the United States among the various domestic fishing categories, per the allocations established in the 2006 Consolidated HMS FMP and its amendments. NMFS is required under the Magnuson-Stevens Act to provide U.S. fishing vessels with a reasonable opportunity to harvest quotas under relevant international fishery agreements such as the ICCAT Convention, which is implemented domestically pursuant to ATCA.

The baseline General category quota is 555.7 mt. The General category baseline subquota for the January through March time-period is 29.5 mt.

Under § 635.27(a)(1)(ii), NMFS has the authority to transfer subquota from one time period to another time period through inseason action after considering determination criteria provided under § 635.27(a)(8). NMFS has considered all of the relevant determination criteria and their applicability to this inseason quota transfer. These considerations include, but are not limited to, the following:

Regarding the usefulness of information obtained from catches in the particular category for biological sampling and monitoring of the status of the stock (§ 635.27(a)(8)(i)), biological samples collected from BFT landed by General category fishermen and provided by tuna dealers provide NMFS with valuable parts and data for ongoing scientific studies of BFT age and growth, migration, and reproductive status. Additional opportunity to land BFT in the General category would support the continued collection of a broad range of data for these studies and for stock monitoring purposes.

NMFS also considered the catches of the General category quota to date (including in December 2021 and during the winter fishery in the last several years) and the likelihood of closure of that segment of the fishery if no adjustment is made (§ 635.27(a)(8)(ii) and (ix)). Without a quota transfer from the December 2022 subquota period, the quota available for the January through March period would be 29.5 mt and participants would have to stop BFT fishing activities once that amount is met, while commercial-sized BFT remain available in the areas where General category permitted vessels operate. Transferring 19.5 mt of the 28.9-mt quota available for the December 2022 subquota period would result in 49 mt (29.5 mt + 19.5 mt = 49 mt) being available for the January through March 2022 subquota period. This quota transfer would provide limited additional opportunities to harvest the U.S. BFT quota while avoiding exceeding it, while preserving the opportunity for General category fishermen to participate in the winter BFT fishery at both the beginning and end of the calendar year.

Regarding the projected ability of the vessels fishing under the General category quota to harvest the additional amount of BFT quota transferred before the end of the fishing year (§ 635.27(a)(8)(iii)), NMFS considered General category landings over the last several years. Landings are highly variable and depend on access to commercial-sized BFT and fishing conditions, among other factors. NMFS may adjust each period's subquota based on overharvest or underharvest in the prior period and may transfer subquota from one time period to another time period. By allowing for such quota adjustments and transfers, NMFS anticipates that the General category quota would be used before the end of the fishing year. For 2021, NMFS transferred 19.5 mt of quota from the December 2021 subquota period to the January through March 2021 subquota period, resulting in an adjusted subquota of 49 mt for the January through March 2021 period and an adjusted subquota of 9.4 mt for the December 2021 period (85 FR 83832, December 23, 2020). NMFS also made a transfer of 26 mt from the Reserve to the General category effective February 8, 2021, resulting in an adjusted subquota of 75 mt for the January through March 2021 period (86 FR 8717, February 9, 2021), and closed the General category fishery for the January through March subquota period effective February 27, 2021 (86 FR 12291).

NMFS also considered the estimated amounts by which quotas for other gear categories of the BFT fishery might be exceeded (§ 635.27(a)(8)(iv)) and the ability to account for all 2022 landings and dead discards. In the last several years, total U.S. BFT landings have been below the available U.S. quota such that the United States has carried forward the maximum amount of underharvest allowed by ICCAT from one year to the next. NMFS will need to account for 2022 landings and dead discards within the adjusted U.S. quota, consistent with ICCAT recommendations, and anticipates having sufficient quota to do that. Thus, this quota transfer would allow fishermen to take advantage of the availability of fish on the fishing grounds to the extent consistent with the available amount of transferrable quota and other management objectives, while avoiding quota exceedance. NMFS also considered the effects of the adjustment on the BFT stock and the effects of the transfer on accomplishing the objectives of the FMP (§ 635.27(a)(8)(v) and (vi)). This transfer would be consistent with established quotas and subquotas, which are implemented consistent with ICCAT recommendations (established in Recommendation 17-06 and maintained in Recommendation 20-06), ATCA, and the objectives of the 2006 Consolidated HMS FMP and amendments. While not yet implemented, NMFS anticipates this transfer would also be consistent with ICCAT Recommendation 21-07. In establishing these quotas and subquotas and associated management measures, ICCAT and NMFS considered the best scientific information available, objectives for stock management and status, and effects on the stock. This quota transfer is in line with the established management measures and stock status determinations. Another principal consideration is the objective of providing opportunities to harvest the available General category quota without exceeding the annual quota, based on the objectives of the 2006 Consolidated HMS FMP and its amendments, including to achieve optimum yield on a continuing basis and to allow all permit categories a reasonable opportunity to harvest available BFT quota allocations (related to § 635.27(a)(8)(x)). Specific to the General category, this includes providing opportunities equitably across all time-periods.

NMFS also anticipates that some underharvest of the 2021 adjusted U.S. BFT quota will be carried forward to 2022 and placed in the Reserve category, in accordance with the regulations. This, in addition to the fact that NMFS may adjust each period's subquota based on overharvest or underharvest in the prior period, as well as NMFS' plan to actively manage the subquotas to avoid any exceedances, makes it likely that General category quota will remain available through the end of 2022 for December fishery participants, even with the quota transfer. NMFS also may choose to transfer unused quota from the Reserve or other categories, inseason, based on consideration of the determination criteria, as NMFS did for late 2021. NMFS anticipates that General category participants in all areas and time periods will have opportunities to harvest the General category quota in 2022, through active inseason management actions such as retention limit adjustments and/or the timing of quota transfers, as practicable.

Given these considerations, NMFS is transferring 19.5 mt of the available 28.9-mt General category quota allocated for the December 2022 period to the January through March 2022 period, resulting in an adjusted January through March 2022 subquota of 49 mt, and an adjusted December 2022 subquota of 9.4 mt. The General category fishery will remain open until March 31, 2022, or until the adjusted General category quota is reached, whichever comes first.

NMFS will continue to monitor the BFT fishery closely. Dealers are required to submit landing reports within 24 hours of a dealer receiving BFT. Late reporting by dealers compromises NMFS' ability to timely implement actions such as quota and retention limit adjustments, as well as closures, and may result in enforcement actions. Additionally, and separate from the dealer reporting requirement, General category and HMS Charter/Headboat vessel owners are required to report the catch of all BFT retained or discarded dead within 24 hours of the landing(s) or the end of each trip, by accessing hmspermits.noaa.gov or by using the HMS Catch Reporting app or calling (888) 872-8862 (Monday through Friday from 8 a.m. until 4:30 p.m.).

Under § 635.23(a)(4), NMFS may increase or decrease the daily retention limit of large medium and giant BFT over a range of zero to a maximum of five per vessel based on consideration of the relevant criteria provided under § 635.27(a)(8). However, at this time, NMFS is maintaining the default daily retention limit of one large medium or giant BFT per vessel per day/trip (§ 635.23(a)(2)) for the January through March 2022 General category fishery. Regardless of the duration of a fishing trip, no more than a single day's retention limit may be possessed, retained, or landed. For example (and specific to the limit that will apply beginning January 1, 2022), whether a vessel fishing under the General category limit takes a 2-day trip or makes two trips in 1 day, the daily limit of one fish may not be exceeded upon landing. This General category retention limit is effective in all areas, except for the Gulf of Mexico, where NMFS prohibits targeted fishing for BFT, and applies to those vessels permitted in the General category, as well as to those HMS Charter/Headboat permitted vessels with a commercial sale endorsement when fishing commercially for BFT.

Depending on the level of fishing effort and catch rates of BFT, NMFS may determine that additional adjustments ( e.g., quota adjustment, daily retention limit adjustment, or closure) are necessary to ensure available quota is not exceeded or to enhance scientific data collection from, and fishing opportunities in, all geographic areas. If needed, subsequent adjustments will be published in the Federal Register . In addition, fishermen may call the Atlantic Tunas Information Line at (978) 281-9260, or access hmspermits.noaa.gov, for updates on quota monitoring and inseason adjustments.

NMFS issues this action pursuant to section 305(d) of the Magnuson-Stevens Act and regulations at 50 CFR part 635 and is exempt from review under Executive Order 12866.

The Assistant Administrator for NMFS finds that it is impracticable and contrary to the public interest to provide prior notice of, and an opportunity for public comment on, this action for the following reasons:

The regulations implementing the 2006 Consolidated HMS FMP and its amendments provide for inseason adjustments to respond to the unpredictable nature of BFT availability on the fishing grounds, the migratory nature of this species, and the regional variations in the BFT fishery. Affording prior notice, an opportunity for public comment, and a delay in effective date regarding this quota transfer for the January through March 2022 subquota period is impracticable and contrary to the public interest. NMFS could not have proposed this action earlier, as it needed to consider and respond to updated landings data, including the recently available December 2021 data, in deciding to transfer a portion of the December 2022 subquota to the January through March 2022 subquota. If NMFS was to offer a public comment period or delay in effective date now, after having appropriately considered that data, it could preclude fishermen from harvesting BFT that are legally available consistent with all of the regulatory criteria. This action does not raise conservation and management concerns. Transferring quota within the General category does not affect the overall U.S. BFT quota, and the adjustment would have a minimal risk of exceeding the ICCAT-allocated quota. NMFS notes that the public had an opportunity to comment on the underlying rulemakings that established the U.S. BFT quota and the inseason adjustment criteria. Therefore, the AA finds good cause under 5 U.S.C. 553(b)(B) to waive prior notice and the opportunity for public comment. For these reasons, there also is good cause under 5 U.S.C. 553(d) to waive the 30-day delay in effective date.

The Mid-Atlantic Fishery Management Council (Council) and the Atlantic States Marine Fisheries Commission (Commission) cooperatively manage the summer flounder, scup, and black sea bass fisheries. The Summer Flounder, Scup, and Black Sea Bass Fishery Management Plan (FMP) outlines the Council's process for establishing specifications. The FMP requires NMFS to set an acceptable biological catch (ABC), annual catch limit (ACL), annual catch targets (ACT), commercial quotas, recreational harvest limit (RHL), and other management measures, for each species for 1 to 3 years at a time. This action implments 2022 and projects 2023 ABCs, as well as the recreational and commercial ACLs, ACTs, commercial quotas, and RHLs for all three species, consistent with the recommendations made by the Commission's Summer Flounder, Scup, and Black Sea Bass Board (Board) and the Council at their joint August 2021 meeting.

The Scientific and Statistical Committee (SSC) met on July 22, 2021, to review the results of the 2021 management track stock assessments and recommend 2022 and 2023 ABCs for all three species; specific recommendations are discussed below.

This action approves the Council and Board recommended 2022-2023 summer flounder catch and landings limits as shown in Table 1. The recommendations are based on the most recent (2021) stock assessment and the application of the Council's risk policy. For summer flounder, this results in a 22-percent increase in the recommended 2022 and 2023 ABC over the 2021 ABC. The proposed rule (November 24, 2021; 86 FR 67014) and Section 5.2 of the Council's SIR provides information on how the specifications were calculated.

The final state summer flounder commercial quotas take into account any overages that occurred during the 2020 or current fishing year, through October 31, as described at 50 CFR 648.103(b)(2). The final 2022 state-by-state summer flounder commercial quotas are provided in Table 2.

This action makes no changes to the current commercial management measures, including the minimum fish size (14-inch (36-cm) total length), gear requirements, and possession limits. Changes to 2022 recreational management measures (bag limits, size limits, and seasons) are not considered in this action but will be considered by the Board and Council later this year when additional data are available for 2021.

This action approves the Council and Board recommended 2022-2023 black sea bass catch and landings limits as shown in Table 3. The recommendations are based on the most recent (2021) stock assessment and the application of the Council's risk policy. This results in a 2022 black sea bass ABC that is an 8-percent increase compared to 2021 and a projected 2023 ABC that is a 5-percent decrease compared to 2021. The proposed rule and Section 5.2 of the Council's SIR provides information on how the specifications were calculated.

This action does not change the 2022 commercial management measures for black sea bass, including the commercial minimum fish size (11-inch (27.94-cm) total length) and gear requirements.

This action approves the Council and Board recommended 2022-2023 scup catch and landings limits as shown in Table 4. The recommendations are based on the most recent (2021) stock assessment and the application of the Council's risk policy. This results in a 2022 ABC that is 8 percent less than the 2021 ABC; the projected 2023 ABC is 15 percent less than the 2021 ABC. The proposed rule and Section 5.2 of the Council's SIR provides information on how the specifications were calculated.

The commercial scup quota is divided into three commercial fishery quota periods, as outlined in Table 5.

The current quota period possession limits are not changed by this action and are outlined in Table 6.

The Pacific Coast Groundfish Fishery Management Plan (PCGFMP) and its implementing regulations at title 50 in the Code of Federal Regulations (CFR), part 660, subparts C through G, regulate fishing for over 90 species of groundfish off the coasts of Washington, Oregon, and California. The Pacific Fishery Management Council (Council) develops groundfish harvest specifications and management measures for two year periods ( i.e., a biennium). NMFS published the final rule to implement harvest specifications and management measures for the 2021-2022 biennium for most species managed under the PCGFMP on December 11, 2020 (85 FR 79880). In general, the management measures set at the start of the biennial harvest specifications cycle help the various sectors of the fishery attain, but not exceed, the catch limits for each stock. The Council, in coordination with Pacific Coast Treaty Indian Tribes and the States of Washington, Oregon, and California, recommends adjustments to the management measures during the fishing year to achieve this goal.

At its meeting on November 15-22, 2021, the Council made recommendations for the 2022 fishing year, which included decreasing trip limits for the Limited Entry (LE) and Open Access (OA) fixed gear (FG) sablefish, Daily Trip Limit (DTL) fisheries north of 36° N latitude. The Council also recommended increasing trip limits for the fixed gear lingcod fishery, north of 42° N latitude (LE and OA), beginning January 1, 2022, and for the remainder of the 2022 fishing year unless superseded by a subsequent action. Additionally, the Council recommended new sub-bag limits and sub-trip limits, in recreational and non-trawl commercial fisheries respectively, for two nearshore species, quillback rockfish and copper rockfish, as well as the shelf species vermillion rockfish.

Pacific Coast groundfish fisheries are managed using harvest specifications or limits ( e.g., overfishing limits [OFL], acceptable biological catch [ABC], annual catch limits [ACL] and harvest guidelines [HG]) recommended biennially by the Council and based on the best scientific information available at that time (50 CFR 660.60(b)). During development of the harvest specifications, the Council also recommends management measures ( e.g., trip limits, area closures, and bag limits) that are meant to manage catch so as not to exceed the harvest specifications. The harvest specifications and management measures developed for the 2021-2022 biennium used data through the 2020 fishing year. Each of the adjustments to management measures discussed below are based on updated fisheries information that was unavailable when the analysis for the current harvest specifications was completed. As new fisheries data become available, projected impacts of management measures are updated, and the management measures themselves may need to be adjusted so as to help harvesters achieve but not exceed the harvest limits.

Sablefish ( Anoplopoma fimbria ) is an important commercial species on the West Coast, targeted by vessels using both bottom trawl and fixed gear (longlines and pots/traps). The sablefish stock is managed with a coast-wide OFL and ABC, but with separate ACLs north and south of 36° N latitude. In 2022, the ACL for sablefish north of 36° N latitude is 6,566 metric tons (mt) with a fishery HG of 5,872 mt. The fishery HG north of 36° N latitude is further divided between the LE FG and OA sectors with 90.6 percent, or 5,320 mt, allocated to the LE sector and 9.4 percent, or 552 mt, allocated to the OA sector. The LE share is divided so that 58 percent is allocated to trawl and 42 percent is allocated to FG. The LE FG share is further divided between the sablefish primary (tier) fishery (85% or 1,899 mt) and the daily trip limit (DTL) fisheries (15% or 335 mt), as shown in Table 2c to title 50, part 660, subpart C. The sablefish DTL fisheries are individually managed using landing targets (Table 1), which have accounted for discard mortality a priori, by subtracting 4.5 percent from the DTL catch share. This same method of accounting for discard mortality to calculate the landing target is also used in managing the OA sablefish DTL fishery, north of 36° N latitude (Table 1).

Lingcod ( Ophiodon elongates ) is another important commercial species on the West Coast, and like sablefish, caught by vessels with both trawl and fixed gear (longlines and pots/traps). The lingcod stock is managed separately north and south of 40°10′ N latitude, with a northern ACL of 4,958 mt in 2022, a fishery HG of 4,679.6 mt, and a northern trawl fixed gear allocation of 2,105.8, or 45 percent of the HG, and a northern non-trawl allocation of 2,573.8, or 55 percent. Lingcod north of 40°10′ N latitude are additionally managed north and south of 42° N latitude, typically with different trip limits set north and south of that management line.

Quillback rockfish ( Sebastes maliger ) off California (CA), are currently managed as part of the Minor Nearshore Rockfish complex, which is split north and south of 40°10′ N latitude. A stock assessment conducted in 2021 indicated the stock is not healthy, and interim measures to reduce mortality are warranted while broader measures are being developed as part of the 2023-2024 groundfish biennial harvest specifications and management measures. For 2022, the Minor Nearshore Rockfish complex south of 40°10′ N latitude has an ACL of 1,010 mt, with a contribution ACL value for quillback rockfish of 4.18 mt. The Minor Nearshore Rockfish complex north of 40°10′ N latitude has an ACL of 93.4 mt, with a contribution ACL value for quillback rockfish of 9.74 mt. Quillback rockfish are caught in both recreational and commercial fisheries; while considered a deeper nearshore rockfish species, commonly found in waters shallower than 30 fathoms, they can be encountered in deeper waters, and depth-based encounter rates are largely driven by depth restrictions on the fishery. The Minor Nearshore Rockfish complexes, including quillback rockfish, are managed using trip limits in the commercial fixed gear fishery and bag limits in recreational fishery.

Copper rockfish ( Sebastes caurinus ) off CA are also currently managed as part of the Minor Nearshore Rockfish complex, south of 40°10′ N latitude; as well as the Minor Nearshore Rockfish complex north of 40°10′ N latitude, but only in the area between 42° and 40°10′ N latitude. Copper rockfish are a deeper nearshore rockfish species, but can commonly be found both in shallow nearshore waters, as well as deeper waters considered as the “shelf.” They are caught in both recreational and commercial fisheries. Copper rockfish were also the subject of a 2021 stock assessment which indicated localized depletion within the stock off California. For 2022, the Minor Nearshore Rockfish complex, south of 40°10′ N latitude has an ACL of 1,233.2 mt, and copper rockfish has a component ACL of 202 mt within the southern complex. The Minor Nearshore Rockfish complex, north of 40°10′ N latitude has an ACL of 77 mt, and copper rockfish has an ACL contribution of 8.06 mt within the northern complex.

Vermillion rockfish ( Sebastes miniatus ) off CA are currently managed as part of the Minor Shelf Rockfish complex, south of 40°10′ N latitude; as well as the Minor Shelf Rockfish complex north of 40°10′ N latitude, but only in the area between 42° and 40°10′ N lat. For 2022, the southern complex has an ACL of 1,428 mt, and vermillion has an ACL contribution of 209.5 mt; the northern complex has an ACL of 1,450 mt, and vermillion has an ACL contribution of 7.6 mt within it.

At the November 2021 Council meeting, the Council's Groundfish Management Team (GMT) analyzed updated fishery data, and produced model-based projections for the fixed gear, LE and OA DTL fisheries north of 36° N lat., for the 2022 fishing year. Model projections for 2022 using the current sablefish trip limits in regulation indicated that catch would dramatically exceed target levels, unless lower limits were adopted. The GMT modeled lower alternative trip limits, uniformly distributed among bimonthly periods throughout the year, as requested by the Groundfish Advisory Subpanel (GAP).

The intent of setting sablefish trip limits is to optimize harvest opportunities, within each annual sector target, for vessels targeting sablefish, under a mix of daily, weekly, and bimonthly landings accumulation limits (commonly referred to collectively as “trip limits”). To evaluate potential decreases to sablefish trip limits, the GMT made model-based projections of landings under current regulations, as well as alternative sablefish trip limits, including the limits ultimately recommended by the Council, throughout the year in 2022. Table 1 shows the projected sablefish landings, the sablefish harvest targets, and the projected attainment percentage by fishery under both the current trip limits and the Council's recommended adjusted trip limits. These projections were based on the most recent catch information available through early November 2021. Industry did not request changes to sablefish trip limits for the LE or OA DTL fisheries south of 36° N latitude. Therefore, NMFS and the Council did not consider changes for those fisheries.

As shown in Table 1, under the current trip limits, models predict that landings of sablefish would be far above the harvest targets for LE fixed gear sablefish DTL fishery north of 36° N lat., at approximately 236 percent attainment, under an average price assumption. Under the Council's recommended trip limits, sablefish attainment is projected to be within the sector target, in the LE DTL fishery north of 36° N latitude, at approximately 99 percent attainment under an average price assumption.

The GMT modeled trip limit options for the OA DTL fishery, north of 36° N latitude which were somewhat lower than the LE trip limits. OA trip limits are typically set lower than in LE, maintaining a higher level of access per vessel for those fishing under a limited entry permit. Trip limits being somewhat lower in the OA fishery also helps to buffer against sometimes high variability in participation, a feature typically not present in the LE fishery. As shown in Table 1, under the current trip limits, models predict approximately 74 percent attainment, under an average price assumption for OA fixed gear sablefish DTL fishery north of 36° N lat. Under the Council's recommended trip limits, sablefish attainment is projected at approximately 70 percent attainment (under the same price structure). In this case, the lower projected attainment may also provide something of a buffer, given the higher uncertainty of the OA model, compared with the LE model, and historic potential for volatility in the OA fishery.

The Council also recommended changes to trip limits in 2022 for lingcod north of 42° N latitude, after request from industry and analysis by the GMT. Trip limit increases were recommended to provide additional opportunity and increase attainment (current lingcod attainment in 2021 is just 17 percent of the ACL), as well as minimize regulatory discard because trip limits are being met by vessels in the first few weeks of the bimonthly period, which results in waste and lost revenue. Table 2 shows the current and recommended trip limits for lingcod north of 42° N latitude. Table 3 shows the projected impacts of those limits to total mortality, and percent attainment of the non-trawl allocation, north of 42° N latitude. Projected impacts to lingcod fishing mortality from the recommended trip limits are approximately 3.5 percent higher than for current limits. Based on the analysis by the GMT, the higher landing limits are predicted to convert fish that would otherwise be discarded, into landings and revenue, rather than incentivize additional effort. By maintaining a very similar level of effort, and total fishing mortality, this modest increase in trip limits is predicted to increase bycatch of yelloweye rockfish by only a trace amount (<0.03 mt). Yelloweye rockfish is managed under a rebuilding plan, and is a constraint to fixed-gear lingcod attainment.