NCUA priorities take credit unions back to the basics

What do you do when there’s a lull in action? You get back to the basics. That’s precisely what it appears the NCUA is recommending credit unions do with the welcome break in the rollout of new regulations.

Taken as a group, the NCUA’s 2020 supervisory priorities emphasize policies and procedures that have been in existence (or should have been) for many years. Now is the time, regulators seem to be suggesting, to turn our attention to the core of compliance and ensure the proper controls are in place and working.

While it may sound basic, reevaluating foundational policies and procedures is really important work and a worthwhile endeavor. It’s not hard to imagine some of the more elemental controls being neglected during the chaos of past years’ active regulatory landscape. What’s more, credit unions are quickly evolving to meet the changing demands of a digital consumer. Along with that evolution has come the addition of new products, channels and experiences, each of which must adhere to established regulations. Rules can easily be overlooked in the race to transform.

As your credit union charts its course for compliance this year, it will be smart to follow the NCUA’s published guidance by reassessing the basics. Here are a few simple, tactical approaches you might consider including in your 2020 core compliance revaluation plan:

BSA / AML: Check in on your SAR filing policy, procedure, and importantly, training. Does your frontline team have a good understanding of when and how to file a SAR? This is elemental, but important, especially in this era of heightened threat to credit union’s cybersecurity. Any attempt to seek unauthorized access to electronic systems, services, resources or information to conduct unauthorized transactions should trigger a SAR filing.

Consumer Financial Protection: New this year, the NCUA addressed six specific consumer protection regulations they expect credit unions to review thoroughly. Because examiners are making a greater effort to commend credit unions that are actively monitoring their compliance, it may make sense to invest in a tool to help document your efforts to stay on top of compliance – in the six areas NCUA called out – and beyond.

Credit Risk: Examiners will place an emphasis on the review of a credit union’s loan underwriting standards and procedures. Now is a great time to review your underwriting standards to ensure they are up to snuff. You may want to make sure you are making decisions about the member’s ability to repay, and not relying too heavily on the value of collateral.

Current Expected Credit Losses: There is still time, thanks to the Financial Accounting Standards Board’s extension, to implement the new CECL standard. However, examiners may want to see a written plan for that implantation. If such a document is not in existence, it may be a good idea to get together with leadership and hammer that out on paper.

Cybersecurity: The NCUA has tailored its cybersecurity exam tool for smaller credit unions, which means examiners are likely ready to put it into practice. To ensure you’re ready for a cybersecurity assessment, Consider completing a self-assessment before the examiners arrive. The NCUA has provided numerous tools to help get you started.

LIBOR Cessation Planning: Because the LIBOR reference rate is on its way out, credit unions that offer LIBOR-based products may be facing sizable disruption and risk over the next two years. It will be important to scope out the impact of this change. Examiners will assess how prepared you are to deal with it. After developing the scope, put together a game plan for how you will mitigate your risk as you transition to a new method of rate setting.

Liquidity Risk: A series of macro trends, not the least of which is increased competition for deposits, is increasing examiner attention to a credit union’s liquidity. Get ahead of the game by performing a self-assessment prior to your exam. The NCUA examiner’s guide can prepare you for what they will be looking at when it comes time.

Following several action-packed years of major changes, credit unions are free – at least for the moment – to focus their energy on the fundamentals of regulatory compliance. As you put in the time to recheck core controls, be sure to document everything you find, even the slip ups and missteps. As long as you are also documenting your plan to repair the error, you’ll be in good shape. Examiners seem to be increasingly interested in conducting assessments as part of a learning process – on both sides of the table. Things are changing rapidly in financial services, and examiners appear to appreciate learning just as much as they do teaching.

Jeremy Smith

Jeremy Smith

As Director of Client Partnerships, Jeremy helps manage significant client relationships. Jeremy provides regulatory compliance guidance and training on current laws and regulations to credit union professionals in the U.... Web: Details