Risk red flags: How does your credit union measure up?

Identifying risks can be very tricky. For example, which do you think is deadlier?

  1. Sharks
  2. A ballpoint pen

Was your first thought to immediately identify sharks as more deadly than a ballpoint pen? In fact, ballpoint pens were responsible for 100 choking deaths in 2017, whereas sharks were responsible for only five fatalities. Risks can be misperceived and incorrectly classified.

Credit unions are in the business of measuring and monitoring risk. The risks credit unions face evolve over time. Managing risks in your credit union may seem like a game of Whac-A-Mole. The moment you feel like you have gotten one risk taken care of another might pop up. In order to effectively manage risk, your risk management team needs to define risk.

In order to give credit unions a starting point to monitor and measure risks, NCUA has created seven categories of risks – Credit, Interest Rate, Liquidity, Transaction, Reputation, Compliance and Strategic. These risks can be present in any of the products and services your credit union provides.  In order to determine the effectiveness of your risk management program, NCUA utilizes a Risk Focused Examination (RFE) program. Over time, the RFE program has evolved to address new and emerging risks in the industry and respond to NCUA’s annual supervisory priorities.

Is your credit union at risk? Here are some red flags to watch out for across all seven of NCUA’s defined risks:

  1. Are you seeing an increase in defaults in your auto loan portfolio?

Credit Risk– If you are seeing an increase in defaults in your auto loan portfolio, your institution may have a credit risk issue bubbling.

  1. Have you implemented the NCUA’s new IRR changes that became effective on January 1, 2017?

Interest Rate Risk– If you have not implemented the NCUA’s new IRR guidelines, you could be at risk when the NCUA is looking at your policies and testing procedures.

  1. Are you experiencing rapid loan growth in one area of your portfolio?

Liquidity Risk– If you are experiencing rapid loan growth in one area of your portfolio, this is a key red flag for a potential liquidity issue.

  1. Are you staying current with the news about data breaches?

Transaction Risk- If you do need keep up on the current, seemingly daily data breaches, you could be exposing your credit union to potential fraud.

  1. Do you have an audit in place to show compliance that you are aware of the latest compliance rules?

Compliance Risk- If you are not implementing the new compliance rules that have gone into effect over the past 18 months, you could be facing a compliance risk.

  1. Is your credit union growing new members across all age demographics?

Strategic Risk- If you are not seeing new members join your credit union, this can be a red flag that your credit union is not offering new products and services the industry is demanding.

  1. Does your credit union have a social media policy? Can anyone in your organization tag your institution and post photos?

Reputation Risk– The credit union industry has seen the swift social media backlash of credit unions with ineffective social media policies.

We hope that you will join us and your risk management peers at NAFCU’s 2018 Risk Management Seminar to learn about the latest threats and mitigation techniques. New to this year’s conference will be a full day dedicated to red flags to watch out for across all seven of NCUA’s defined risks.

The goal of our conference is to provide you with the best practical risk identification and mitigation tools available because the best way to mitigate risks is to properly identify them.

We hope to see you in Denver. Stay vigilant!

Devon Lyon

Devon Lyon

Devon Lyon, a NAFCU Certified Compliance Officer (NCCO), was named director of education in August 2015. In this newly created position, Lyon oversees the development and administration of content for ... Web: www.nafcu.org Details

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