§ 703.108 Notification and application requirements.

(a) Notification. A Federal credit union that meets the following requirements must notify the applicable Regional Director in writing or via electronic mail within five business days after entering into its first Derivatives transaction: (1) The Federal credit union's most recent NCUA Management CAMEL component is a rating of 1 or 2; and (2) The Federal credit union has assets of at least $500 million as of its most recent call report. (b) Application. A Federal credit union that does not meet the requirements of paragraphs (a)(1) and/or (2) of this section must obtain approval before engaging in Derivatives under this subpart from its applicable Regional Director, by submitting an application, that, at a minimum, includes the following: (1) An Interest Rate Risk mitigation plan that shows how Derivatives are one aspect of the Federal credit union's overall Interest Rate Risk mitigation strategy, and an analysis showing how the Federal credit union will use Derivatives in conjunction with other on-balance sheet instruments and strategies to effectively manage its Interest Rate Risk; (2) A list of the Derivatives products and characteristics of such products the Federal credit union is planning to use; (3) Draft policies and procedures that the Federal credit union has prepared in accordance with § 703.106; (4) A description of how the Federal credit union plans to acquire, employ, and/or create the resources, policies, processes, systems, internal controls, modeling, experience, and competencies to meet the requirements of this subpart. This includes a description of how the Federal credit union will ensure that Senior Executive Officers, the board of directors, and personnel have the knowledge and experience in accordance with the requirements of this subpart; (5) A description of how the Federal credit union intends to use External Service Providers as part of its Derivatives program, and a list of the name(s) of and service(s) provided by the External Service Providers, as described in § 703.107 of this subpart, it intends to use; (6) A description of how the Federal credit union will support the operations of Margining and collateral, as described in § 703.104 of this subpart; (7) A description of how the Federal credit union will comply with the accounting and financial reporting in GAAP; and (8) Any additional information requested by the Regional Director. (c) Application review. (1) After the applicable Regional Director has completed his or her review, including any requests for additional information, the Regional Director will notify the Federal credit union in writing of his or her decision. Any denials will include the reason(s) for such denial. A Federal credit union subject to paragraph (b) of this section may not enter into any Derivative transactions under this subpart until it receives approval from the applicable Regional Director. At a Regional Director's discretion, a Federal credit union may reapply if its initial application is denied. (2) A Federal credit union that receives a denial of its application may appeal such decision in accordance with part 746 of this chapter. (d) Change in condition—(1) Negative change in condition. A Federal credit union that at any time, experiences a change in negative condition such that it no longer meets the requirements of paragraph (a) of this section or renders its approved application inaccurate must immediately: (i) Cease entering into any new Derivatives; and (ii) Notify the applicable Regional Director. (2) Remedial action for a Federal credit union that experiences a negative change in condition. The applicable Regional Director may take all necessary actions, including, but not limited to, revoking a Federal credit union's authority to engage in Derivatives and/or requiring divesture of current Derivatives. A Federal credit union subject to this paragraph may not enter into new Derivatives unless notified in writing by the applicable Regional Director of its authority to do so. (3) Positive change in condition for a Federal credit union subject to paragraph (b) of this section. A Federal credit union that is required to submit an application under paragraph (b) of this section that, at any time after approval of such application, meets the requirements of paragraph (a) of this section shall no longer be subject to the requirements included in its approved application, but will continue to be subject to the requirements of this subpart.