Compliance Blog

Mar 07, 2014
Categories: Board and Governance

NCUA Releases Guidance on Derivatives Rule and Exam Expectations; NAFCU Compliance Resources Updated; Programming Notes

Written by JiJi Bahhur, Director of Regulatory Compliance

On Monday, NCUA’s new derivatives rule went into effect.  The rule allows credit unions with $250 million or more in assets that have a CAMEL rating of 1, 2, or 3 and a management component of 1 or 2 to use derivatives to hedge against interest rate risks.  Credit unions meeting this criterion must complete a two-step application process in order to qualify for derivatives authority.  

Coinciding with the effective date of the rule, NCUA issued Letter to CU 14-CU-04 to describe this application process.  NCUA also included Supervisory Letter No. 14-02, which clarifies the agency’s supervisory expectations about those derivatives products used by federal credit unions and federally-insured, state-chartered credit unions.

 The Letter to CU 14-CU-04 advises that “[t]hose credit unions approved for derivatives use will have limited authority to invest in simple interest rate derivatives for balance sheet management and risk reduction, including interest rate swaps, interest rate caps, interest rate floors, basis swaps, and Treasury futures.”   According to the Supervisory Letter, “NCUA will ensure that all federally-insured credit unions have the management, policies, procedures, and tools in place to safely use derivatives.”

While the Supervisory Letter details NCUA regulations and guidelines for credit unions that use derivatives, it notes that “[w]hen used properly, derivatives can help a credit union protect its earnings and capital from interest rate changes by hedging a portion of its interest rate risk (or other risks, for some FISCUs).”  

For more information on the derivatives rule, be sure to check out NAFCU’s Final Regulation, which provides a summary and detailed breakdown of the rule’s requirements. 


NAFCU Resources Updated.  I wouldn’t want to toot our horn or anything, but I will on this lovely Friday morning.  NAFCU’s compliance team has updated a number of its compliance resources which are now available to members (NAFCU log-in required). 

  • NAFCU’s ten (10) mortgage rule scope and applicability charts have been updated and made available on our mortgage resources webpage.


  • Also, the mortgage rules consolidated regulatory text was updated and posted to the website.


  • Last, a new section – TILA/RESPA Integrated Mortgage Disclosures – was added to the mortgage resources page.  This new section will be further developed with more resources on the final rule throughout 2014. 

And don’t worry!  We’ve got something for members and non-members alike.  In February, the compliance team completed an extensive editing project of NAFCU’s Credit Union Compliance GPS.  The electronic manual was edited to include regulatory changes throughout the past year, including the addition of 7 new sections on the CFPB’s mortgage regulations and a more developed subsection on remittances in the Regulation E section.  The GPS overhaul resulted in over 100 new pages in the manual.  The 2014 GPS will be available for purchase in the next week or so. 


Programming Notes.  Next week (March 10 – 15), NAFCU’s compliance team and several other NAFCU staff will either be attending or presenting at NAFCU’s 2014 Regulatory Compliance School.  Because the compliance team will be in and out of the office all week, it is possible that we will have a delay on responding to our member questions, but we will get back to you as soon as possible! 

If you’re attending School, please don’t hesitate to come up and say hello!  We love putting faces with names.  And, if you have been following the growth of my twins on this blog - now 18 months old - you just might catch a glimpse of them in the halls of the Gaylord at the end of the week!