NCUA Board Letter Offers Details About Exam Updates

The National Credit Union Administration (NCUA) recently released a letter detailing its efforts to modernize methods for supervising and performing examinations of credit unions. The NCUA letter gives details in three areas: (1) supervisory priorities, (2) modernization updates, and (3) statutory and regulatory updates. Read on for a quick overview of the items discussed.

Supervisory Priorities

• Bank Secrecy Act (BSA) Compliance / Anti-Money Laundering (AML) - A BSA/AML review is a part of every NCUA examination. Over the last few years, the NCUA has worked with a number of departments in order to improve BSA/AML efficiency and effectiveness.

• Consumer Financial Protection (CFP) - The CFP of NCUA exams is primarily risk-focused. For 2020, minimum requirements in this area include examining compliance with the following:

  • Electronic Fund Transfer Act (Regulation E)

  • Fair Credit Reporting Act (FCRA)

  • Gramm-Leach-Bliley (Privacy Act)

  • Small-dollar lending (including Payday Alternative Lending)

  • Truth in Lending Act (Regulation Z)

  • Military Lending Act (MLA) and Servicemembers Civil Relief Act (SCRA)

• Credit Risk - This is a key area of NCUA supervision. For 2020, the administration will pay particular attention to a credit union’s standards and procedures for loan underwriting.

• Current Expected Credit Losses (CECL) - Though this is not a standard that credit unions are expected to comply with until January 2023, the NCUA regularly reminds institutions that they will need a plan in place to implement CECL in the future.

• Information Systems and Assurance (Cybersecurity) - This standard was introduced in 2018 in response to the growing threat of cyber-attacks. The NCUA’s Automated Cybersecurity Examination Tool (ACET) allows the administration to accurately assess credit unions for cybersecurity maturity.

• LIBOR Cessation Planning - LIBOR, a reference rate used for interest rate setting, is made available by the United Kingdom’s Financial Conduct Authority. The organization has announced that it cannot guarantee the availability of LIBOR beyond December 2021. Therefore, credit unions need to adjust any LIBOR-based products and contracts accordingly.

• Liquidity Risk - The NCUA examiners will focus particularly on credit union liquidity management and planning in 2020.

Modernization Updates

• NCUA Connect - This is a secure, online user portal that allows users to access NCUA applications. In 2020, it will become available to all credit unions and state regulators.

• Modern Examination and Risk Identification Tool (MERIT) - MERIT is the NCUA’s new examination platform. It is expected to be available in the second half of 2020.

• Other - Additional initiatives for 2020 include different strategies for modernizing and improving current systems. The goal is to increase quality and decrease the need for onsite presence.

Statutory and Regulatory Updates

• Commercial Real Estate Appraisal Rule - As of October 22, 2019, commercial real estate transactions that do not exceed $1 million no longer require appraisals conducted by certified appraisers. This means that credit unions can opt to conduct a written estimate or obtain an appraisal.

• Private Flood Insurance Rule - Finalized in February 2019, this rule states that credit unions are required to accept particular private flood insurance policies under Part 760. Credit unions are allowed to accept other private provider policies granted they meet certain criteria.

• Public Unit and Nonmember Shares Rule - As of January 29, 2020, credit unions that are federally insured may accept the public unit and nonmember shares, under certain circumstances.

• Serving Hemp Businesses - Per the Agriculture Improvement Act of 2018, hemp is longer a controlled substance, federally. This means that credit unions may now provide customary services to hemp-related businesses.

• Supervisory Committee Audits Rule - As of January 6, 2020, an amendment to part 715 is in effect. The goal of the amendment was to make financial statement audits for federally insured credit unions more flexible.

For more details, check out the entire text of the NCUA letter.