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Credit Unions Urged To Adopt Robust Risk Assessment Process

NEWS RELEASE:
From CUNA Mutual Group Public Relations
www.cunamutual.com

For more information:
Phil Tschudy 608/665-7188 philip.tschudy@cunamutual.com
Rick Uhlmann 608/665-8940 rick.uhlmann@cunamutual.com

LAS VEGAS – Boards of directors have the responsibility to ensure their credit unions implement a formal risk assessment process to identify, measure and control risks that threaten their institution’s net worth and earnings, a CUNA Mutual Group risk consultant said Wednesday.

Speaking to a CUES Directors Conference breakout session audience, Ann Davidson, senior risk management consultant, said the ultimate goal in performing a risk assessment is to reduce internal and external risks to a tolerable level.

Any product, service or process may expose a credit union to multiple risks. Internal risks include employee theft and employment practices liability resulting from discrimination, harassment or a hostile working environment. External risks range from physical threats, such as robbery and natural disasters, to ACH fraud, data breaches and identity theft.

Risk assessments should answer these questions: What can go wrong? How can it go wrong? What is the potential impact? What preventative measures can be taken? And how can it be stopped from happening again or at all? “It’s the board’s responsibility to determine their credit union’s risk tolerance and formally establish it through approved policies,” Davidson said.

A robust risk assessment process forms the foundation for an enterprise risk management process, which is becoming increasingly important due to increased regulatory requirements. For example, the Federal Financial Institutions Examination Council (FFIEC) issued new online authentication guidance in June that stresses and reinforces the importance of performing periodic risk assessments. Examiners will start reviewing credit union controls under the updated guidance beginning in January 2012.

Risk assessments are not “one and done” activities nor is there a “one size fits all” approach to completing them. Rather, assessments involve a continuous process comprised of four distinct activities – identifying, analyzing, controlling and monitoring risks. Davidson provided a breakdown of each:

Identify – This step establishes all potentials sources of loss associated with a particular product, service or process. It is the most important step in the risk assessment process and should include existing and potential risks. Identification resources include checklists, physical inspections, compliance reviews, loss history reviews CUNA Mutual Group RISK Alerts and media reports.
Analyze – Analyzing risk involves measuring the potential impact various risks can have on a credit union. For service offerings, it means balancing the need for member service with the risk exposure and considering the frequency and severity of potential losses.
Control – Techniques to control risk include avoidance, reduction, transfer (insurance) or a combination thereof. Included are educational tools such as those in CUNA Mutual Group’s Credit Union Protection Resource Center.
Monitor – Credit unions should continuously monitor risks, since they change, particularly with evolving technology. Risk assessments should be updated when necessary, Davidson added.

“Risk can never be entirely eliminated, but using risk assessments as part of an enterprise-wide risk management strategy will help credit unions continue to provide meaningful products and services to members while including necessary safeguards to protect the credit union,” she said.

CUNA Mutual Group insurance, retirement and investment products provide financial security and protection to credit unions and their members worldwide. With more than 75 years of true market commitment, CUNA Mutual Group’s vision is unwavering: To be a trusted business partner who delivers service excellence through customer-focused products and market-driven insight. More information on the company is available on the company’s Web site at www.cunamutual.com.

CUNA Mutual Group is the marketing name of CUNA Mutual Insurance Society, its affiliates and subsidiaries, including CUMIS Insurance Society, Inc. Product availability and features may vary by jurisdiction and are subject to actual policy language. Corporate headquarters are located in Madison, Wisconsin.