In an opinion piece appearing in CU Today, National Credit Union Administration (NCUA) Board Member Todd Harper wrote that customers of a bank acquired by a credit union will not have the same level of consumer financial protection oversight in their new credit union.
He pointed out in the column that the Federal Deposit Insurance Corporation (FDIC) has a more robust consumer compliance program than NCUA.
He noted that FDIC regularly conducts dedicated consumer compliance reviews that are separate and apart from safety and soundness exams, while NCUA with the exception of fair lending exams combines consumer compliance exams as part of the agency's safety and soundness exams performed NCUA's regional offices.
The agency has only budgeted for 30 fair lending examines in 2020. Also, the consumer compliance exams conducted by NCUA's regional offices will only cover some of the many consumer financial protection laws on the books.
He further stated that the agency has only 15 or so regional examiners, who are consumer compliance subject matter experts. In comparison, the FDIC has hundreds of examiners committed to performing these exams.
Despite his reservations about the agency's consumer compliance oversight gap, he still supports the agency's proposed rule on combination transactions.
Read the opinion piece.
Showing posts with label Examinations. Show all posts
Showing posts with label Examinations. Show all posts
Monday, February 17, 2020
Sunday, February 16, 2020
Washington CU Regulator Releases 2020 Examination Focus
The Washington Division of Credit Unions released its examination focus for 2020.
The state credit union regulator dropped the following areas from its 2019 examination focus -- Internal Controls & Fraud Prevention and Interest Rate Risk.
The state regulator added Business Continuity/Disaster Recovery Testing to its 2020 focus.
Other areas that the state credit union regulatory will target include Cybersecurity, Compliance with Consumer Protection Laws, and Liquidity.
Under Compliance with Consumer Protection Laws, the state regulator will examine consumer complaint processing, Bank Secrecy Act, Regulation E (Electronic Funds Transfer Act), Regulation CC, and Equal Credit Opportunity Act.
Read the Bulletin.
The state credit union regulator dropped the following areas from its 2019 examination focus -- Internal Controls & Fraud Prevention and Interest Rate Risk.
The state regulator added Business Continuity/Disaster Recovery Testing to its 2020 focus.
Other areas that the state credit union regulatory will target include Cybersecurity, Compliance with Consumer Protection Laws, and Liquidity.
Under Compliance with Consumer Protection Laws, the state regulator will examine consumer complaint processing, Bank Secrecy Act, Regulation E (Electronic Funds Transfer Act), Regulation CC, and Equal Credit Opportunity Act.
Read the Bulletin.
Thursday, January 9, 2020
NCUA Supervisory Priorities for 2020
The National Credit Union Administration (NCUA) released a letter on its supervisory priorities for 2020.
The primary areas of supervisory focus are:
The focus on credit risk will place an emphasis on reviewing credit union’s loan underwriting standards and procedures, especially on the ability of borrowers to meet debt service requirements without undue reliance on the value of any collateral. Also, NCUA examiners will closely review credit unions with very high concentrations in specific type of loans.
NCUA further stated it will assess credit unions' exposure to LIBOR and planning related to the discontinuance of LIBOR.
Read more.
The primary areas of supervisory focus are:
- Bank Secrecy Act (BSA)/Anti-Money Laundering (AML);
- Consumer Financial Protection;
- Credit Risk Management;
- Preparation for Implementing Current Expected Credit Losses;
- Cybersecurity;
- LIBOR Cessation Planning; and
- Liquidity Risk
The focus on credit risk will place an emphasis on reviewing credit union’s loan underwriting standards and procedures, especially on the ability of borrowers to meet debt service requirements without undue reliance on the value of any collateral. Also, NCUA examiners will closely review credit unions with very high concentrations in specific type of loans.
NCUA further stated it will assess credit unions' exposure to LIBOR and planning related to the discontinuance of LIBOR.
Read more.
Thursday, December 26, 2019
OIG Examines Joint Examination Process with State CU Regulators
The National Credit Union Administration (NCUA) Office of Inspector General (OIG) conducted an audit to assess the NCUA’s joint examination process with state supervisory authorities (SSAs).
The report found NCUA provides shared oversight of federally insured state-chartered credit unions (FISCUs) and that the NCUA effectively monitors FISCUs using off-site monitoring tools. However, the OIG determined there are aspects of the joint examination process with the SSAs that need improvement.
The OIG found that NCUA’s regional offices did not have updated operating agreements with each individual SSA that defined roles and responsibilities for joint on-site examinations of FISCUs. The OIG determined that NCUA had 18 signed operating agreements on file and 11 unsigned operating agreements on file. There were no operating agreement on file with 16 SSAs. Five state do not have FISCUs. The OIC concludes that because NCUA did not having updated and useable operating agreements with each SSA, there could be confusion regarding roles and responsibilities during joint on-site examinations. The OIG concluded that having an executed operating agreement in place would help bring consistency to the working relationship and across the joint examination process.
The OIG also determined supervisory examiners did not consistently document their decisions on follow-up actions recommended by examiners after completing WCC 26 reviews. OIG believed that it is a prudent and sound practice to consistently document supervisory examiner decisions regarding examiner recommendations. Doing so would ensure that examiners’ supervisory concerns would be consistently communicated and addressed.
The OIG recommended that NCUA management create a formal process to capture supervisory examiner decisions regarding recommended follow-up actions taken or not taken from work classification code 26 reviews to ensure concerns identified by examiners are properly documented. NCUA management agreed with the recommendation and indicated they will implement a formal process that addresses the recommendation by December 31, 2020.
Read more.
The report found NCUA provides shared oversight of federally insured state-chartered credit unions (FISCUs) and that the NCUA effectively monitors FISCUs using off-site monitoring tools. However, the OIG determined there are aspects of the joint examination process with the SSAs that need improvement.
The OIG found that NCUA’s regional offices did not have updated operating agreements with each individual SSA that defined roles and responsibilities for joint on-site examinations of FISCUs. The OIG determined that NCUA had 18 signed operating agreements on file and 11 unsigned operating agreements on file. There were no operating agreement on file with 16 SSAs. Five state do not have FISCUs. The OIC concludes that because NCUA did not having updated and useable operating agreements with each SSA, there could be confusion regarding roles and responsibilities during joint on-site examinations. The OIG concluded that having an executed operating agreement in place would help bring consistency to the working relationship and across the joint examination process.
The OIG also determined supervisory examiners did not consistently document their decisions on follow-up actions recommended by examiners after completing WCC 26 reviews. OIG believed that it is a prudent and sound practice to consistently document supervisory examiner decisions regarding examiner recommendations. Doing so would ensure that examiners’ supervisory concerns would be consistently communicated and addressed.
The OIG recommended that NCUA management create a formal process to capture supervisory examiner decisions regarding recommended follow-up actions taken or not taken from work classification code 26 reviews to ensure concerns identified by examiners are properly documented. NCUA management agreed with the recommendation and indicated they will implement a formal process that addresses the recommendation by December 31, 2020.
Read more.
Monday, November 18, 2019
NCUA Should Seek Feedback on CAMEL Ratings
The National Credit Union Administration (NCUA) should seek feedback from credit unions and other stakeholders concerning the current use of CAMEL ratings by the agency.
The Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System are currently seeking feedback on how the agencies use their CAMELS ratings in enforcement action and application processes.
The two banking agencies stated that this effort is consistent with the agencies' commitment to increase transparency, improve efficiency, support innovation, and provide opportunities for public feedback.
For example, the two banking regulators are looking for input on the extent that they appropriately communicate and support each rating after an on-site examination or at the end of an examination cycle, including communicating the effect of each rating or finding on the composite rating.
The bank regulators are also interested in how the CAMELS rating system vary from one examination, or examination cycle, to the next.
Bank regulators want to know whether the CAMELS rating system is sufficiently flexible to reflect differences between financial institutions such as size, business models, risks, and internal and external operating environments.
Another area that bank regulators want input on is steps, if any, the agencies should take to promote the consistent use of CAMELS ratings in applications and enforcement matters.
These are just some of the topics that the bank regulators are seeking feedback on.
NCUA would benefit from receiving this feedback from stakeholders on its use of CAMEL ratings.
Read the Federal Register notice.
The Federal Deposit Insurance Corporation and the Board of Governors of the Federal Reserve System are currently seeking feedback on how the agencies use their CAMELS ratings in enforcement action and application processes.
The two banking agencies stated that this effort is consistent with the agencies' commitment to increase transparency, improve efficiency, support innovation, and provide opportunities for public feedback.
For example, the two banking regulators are looking for input on the extent that they appropriately communicate and support each rating after an on-site examination or at the end of an examination cycle, including communicating the effect of each rating or finding on the composite rating.
The bank regulators are also interested in how the CAMELS rating system vary from one examination, or examination cycle, to the next.
Bank regulators want to know whether the CAMELS rating system is sufficiently flexible to reflect differences between financial institutions such as size, business models, risks, and internal and external operating environments.
Another area that bank regulators want input on is steps, if any, the agencies should take to promote the consistent use of CAMELS ratings in applications and enforcement matters.
These are just some of the topics that the bank regulators are seeking feedback on.
NCUA would benefit from receiving this feedback from stakeholders on its use of CAMEL ratings.
Read the Federal Register notice.
Thursday, October 31, 2019
NCUA Board Member Harper Calls for Dedicated Consumer Compliance Exam for Large, Complex CUs
National Credit Union Administration (NCUA) Board Member Todd M. Harper on October 30 is requesting public comment on his proposal to create a dedicated consumer compliance exam program for large, complex credit unions.
The NCUA’s current compliance examinations covering consumer financial protection laws in credit unions with total assets of $10 billion or less differs from other financial institutions regulators. Other regulators complete regularly scheduled, risk-focused consumer compliance reviews and assign a separate consumer compliance rating outside of the CAMEL process for institutions under their jurisdiction.
Harper noted the NCUA’s approach to consumer financial protection reviews also runs counter to the congressionally mandated mission of the Federal Financial Institutions Examination Council, which works to develop uniform standards and processes across all financial institution regulators.
Harper would like to add three new full-time employees in the NCUA’s Office of Consumer Financial Protection in 2020, who would develop and later launch a dedicated consumer compliance examination program for large, complex credit unions.
Read the press.
The NCUA’s current compliance examinations covering consumer financial protection laws in credit unions with total assets of $10 billion or less differs from other financial institutions regulators. Other regulators complete regularly scheduled, risk-focused consumer compliance reviews and assign a separate consumer compliance rating outside of the CAMEL process for institutions under their jurisdiction.
Harper noted the NCUA’s approach to consumer financial protection reviews also runs counter to the congressionally mandated mission of the Federal Financial Institutions Examination Council, which works to develop uniform standards and processes across all financial institution regulators.
Harper would like to add three new full-time employees in the NCUA’s Office of Consumer Financial Protection in 2020, who would develop and later launch a dedicated consumer compliance examination program for large, complex credit unions.
Read the press.
Thursday, October 10, 2019
Illinois CU Fined for Failure to Take Timely Remedial Actions
The Illinois Department of Financial and Professional Regulation, Division of Financial Institutions assessed a civil money penalty against SmartChoice Credit Union (Spring Valley, IL) for its failure to take timely remedial action with respect to specific violations.
During a December 31, 2014 exam, a Document of Resolution (DOR) was issued noting that required Financial Crimes Enforcement Network (FinCEN) searches had not been completed.
A follow up contact was completed on April 30, 2015, the issue had not be resolved and another DOR was issued.
During another full exam at the end of 2015, the issue was unresolved.
A 2017 contact with the credit union further noted the issue had not been addressed. Also, the Examiner in Charge obtained evidence from a 2018 FinCEN report that the credit union had not downloaded the reports from FinCEN to complete a search.
The state regulator fined the credit union $1,000 -- the maximum amount permissible for credit unions with less than $10 million in assets.
Read the enforcement order.
During a December 31, 2014 exam, a Document of Resolution (DOR) was issued noting that required Financial Crimes Enforcement Network (FinCEN) searches had not been completed.
A follow up contact was completed on April 30, 2015, the issue had not be resolved and another DOR was issued.
During another full exam at the end of 2015, the issue was unresolved.
A 2017 contact with the credit union further noted the issue had not been addressed. Also, the Examiner in Charge obtained evidence from a 2018 FinCEN report that the credit union had not downloaded the reports from FinCEN to complete a search.
The state regulator fined the credit union $1,000 -- the maximum amount permissible for credit unions with less than $10 million in assets.
Read the enforcement order.
Wednesday, October 2, 2019
GAO Reports on Information Sharing Between Regulators and FinCEN
The Government Accountability Office (GAO) recently released a report on the Bank Secrecy Act (BSA).
The report examined, among other objectives, how the Financial Crimes Enforcement Network (FinCEN) and supervisory and law enforcement agencies (1) collaborate and (2) provide metrics and feedback on the usefulness of BSA reporting.
However, GAO found that FinCEN did not consistently communicate available metrics and when FinCEN did so, it did it on an ad-hoc basis.
Below is information specific to credit unions from the report.
According to the report, each federal credit union must receive a BSA examination each examination cycle — although the frequency and scope of these examinations may vary based on the credit union’s size and other risk factors. National Credit Union Administration (NCUA) officials noted that certain small credit unions with limited separation of duties may be examined more frequently.
According to the report, NCUA made 50 referrals for potential BSA violations to FinCEN between fiscal year 2015 and 2018 (see Table 3).
Appendix II has statistics on the number of BSA examinations and violations.
The most common BSA violations cited by the federal banking regulators were violations of requirements to report suspicious activities, 314(a) information-sharing requirements, rules for filing of reports, BSA training, and a system of internal controls.
NCUA accounted for the majority of 314(a) information-sharing violations, which include a financial institution failing to expeditiously search its records after receiving an information request from FinCEN based on credible evidence concerning money laundering.
Between fiscal year 2015 and the first half of fiscal year 2018, NCUA did 14,575 BSA examinations. During that time period, NCUA found 8,477 BSA violations, which resulted in 4,588 informal enforcement actions. NCUA counts each BSA violation in a Document of Resolution as an informal action.
However, NCUA did not issue any formal enforcement action against a credit union during that time period.
The report examined, among other objectives, how the Financial Crimes Enforcement Network (FinCEN) and supervisory and law enforcement agencies (1) collaborate and (2) provide metrics and feedback on the usefulness of BSA reporting.
However, GAO found that FinCEN did not consistently communicate available metrics and when FinCEN did so, it did it on an ad-hoc basis.
Below is information specific to credit unions from the report.
According to the report, each federal credit union must receive a BSA examination each examination cycle — although the frequency and scope of these examinations may vary based on the credit union’s size and other risk factors. National Credit Union Administration (NCUA) officials noted that certain small credit unions with limited separation of duties may be examined more frequently.
According to the report, NCUA made 50 referrals for potential BSA violations to FinCEN between fiscal year 2015 and 2018 (see Table 3).
Appendix II has statistics on the number of BSA examinations and violations.
The most common BSA violations cited by the federal banking regulators were violations of requirements to report suspicious activities, 314(a) information-sharing requirements, rules for filing of reports, BSA training, and a system of internal controls.
NCUA accounted for the majority of 314(a) information-sharing violations, which include a financial institution failing to expeditiously search its records after receiving an information request from FinCEN based on credible evidence concerning money laundering.
Between fiscal year 2015 and the first half of fiscal year 2018, NCUA did 14,575 BSA examinations. During that time period, NCUA found 8,477 BSA violations, which resulted in 4,588 informal enforcement actions. NCUA counts each BSA violation in a Document of Resolution as an informal action.
However, NCUA did not issue any formal enforcement action against a credit union during that time period.
Monday, September 16, 2019
NCUA's Harper Says the Agency Lacks Rigor on Consumer Compliance
The National Credit Union Administration’s current method of examining and enforcing consumer protection laws and regulations for institutions with less than $10 billion in assets is “not comparable to our sister agencies,” NCUA Board Member Todd Harper said in a Washington speech on September 10. He noted that bank regulators conduct regular risk-focused consumer compliance exams and assign separate consumer compliance ratings.
“Decades ago, the NCUA conducted full consumer financial protection compliance reviews as part of its examination program, but the agency has increasingly focused on safety and soundness over time,” Harper said. “NCUA’s different approach to consumer financial protection reviews runs counter to the congressionally mandated mission of the Federal Financial Institutions Examination Council.”
Harper noted that more rigorous examination and enforcement of consumer compliance regulations could potentially address principal-agent issues at credit unions by aligning management’s actions with the best interests of members.
Harper also criticized the NCUA board’s recent vote to delay its 2015 risk-based capital rule, cautioning that without it, a potential economic downturn could amplify losses to the National Credit Union Share Insurance Fund. He added that he is concerned about the liquidity of federally insured credit unions.
Read the speech.
“Decades ago, the NCUA conducted full consumer financial protection compliance reviews as part of its examination program, but the agency has increasingly focused on safety and soundness over time,” Harper said. “NCUA’s different approach to consumer financial protection reviews runs counter to the congressionally mandated mission of the Federal Financial Institutions Examination Council.”
Harper noted that more rigorous examination and enforcement of consumer compliance regulations could potentially address principal-agent issues at credit unions by aligning management’s actions with the best interests of members.
Harper also criticized the NCUA board’s recent vote to delay its 2015 risk-based capital rule, cautioning that without it, a potential economic downturn could amplify losses to the National Credit Union Share Insurance Fund. He added that he is concerned about the liquidity of federally insured credit unions.
Read the speech.
Monday, August 19, 2019
NCUA's ONES Providing Adequate Oversight of CU Cybersecurity Programs
The Office of the Inspector General of the National Credit Union Administration (NCUA) concluded that NCUA's Office of National Examinations and Supervision (ONES) has provided adequate oversight of cybersecurity programs of credit unions.
ONES is responsible for supervising federal credit unions and state chartered credit unions with at least $10 billion in assets and corporate credit unions.
The audit assessed whether credit unions were taking sufficient and appropriate steps to protect the confidentiality, availability, and integrity of credit union assets and sensitive credit union data against cyber-attacks.
Read the report.
ONES is responsible for supervising federal credit unions and state chartered credit unions with at least $10 billion in assets and corporate credit unions.
The audit assessed whether credit unions were taking sufficient and appropriate steps to protect the confidentiality, availability, and integrity of credit union assets and sensitive credit union data against cyber-attacks.
Read the report.
Tuesday, May 7, 2019
Bank Groups Write CFPB to Not Cede Supervisory Authority of Large CUs to NCUA
The American Bankers Association and the Consumer Bankers Association on May 3 wrote to the Consumer Financial Protection Bureau (CFPB) director expressing strong opposition to a recent request for the bureau to cede its supervisory authority for the nation’s largest credit unions to the National Credit Union Association (NCUA).
The letter was in response to a years-long campaign waged by credit unions, their trade associations, and, remarkably, their federal prudential regulator, seeking special treatment from the CFPB for the credit union industry.
The associations pointed out that the Dodd-Frank Act clearly communicates Congress’ intention that the credit unions be held to the same supervisory standards as other large depository institutions. Granting the request for special treatment to credit unions with at least $10 billion in assets would be in direct conflict with congressional intent and would contribute to an unlevel regulatory playing field between banks and credit unions, they said.
“While we believe that the bureau should take every opportunity to reduce the regulatory burden for all financial institutions and eliminate duplicative supervision, we strongly disagree with the premise that the consumer financial services offered by credit unions inherently differ from those offered by other financial institutions competing in the marketplace,” the groups wrote. “Policymakers have reason to seriously question the appropriateness of the special treatment being sought by credit unions and their federal prudential regulatory authority, the National Credit Union Administration.”
Read the letter.
The letter was in response to a years-long campaign waged by credit unions, their trade associations, and, remarkably, their federal prudential regulator, seeking special treatment from the CFPB for the credit union industry.
The associations pointed out that the Dodd-Frank Act clearly communicates Congress’ intention that the credit unions be held to the same supervisory standards as other large depository institutions. Granting the request for special treatment to credit unions with at least $10 billion in assets would be in direct conflict with congressional intent and would contribute to an unlevel regulatory playing field between banks and credit unions, they said.
“While we believe that the bureau should take every opportunity to reduce the regulatory burden for all financial institutions and eliminate duplicative supervision, we strongly disagree with the premise that the consumer financial services offered by credit unions inherently differ from those offered by other financial institutions competing in the marketplace,” the groups wrote. “Policymakers have reason to seriously question the appropriateness of the special treatment being sought by credit unions and their federal prudential regulatory authority, the National Credit Union Administration.”
Read the letter.
Friday, March 8, 2019
FFIEC Issues Policy Statement on Examination Reports
As part of its ongoing exam modernization initiative, the Federal Financial Institutions Examination Council om March 6 issued a policy statement aimed at promoting clarity and consistency of examination reports. The policy statement, which is intended to reduce regulatory burden for community banks and credit unions, includes principles that “set forth minimum expectations of what should be included in all reports of examination.”
Among other things, the principles establish that all reports on examinations should present conclusions and issues in order of importance; document the condition and risk profile of the institution; discuss the adequacy of the institution’s risk management practices; and document issues of supervisory concern or warranting prompt corrective action.
Concurrently, the agencies are rescinding their 1993 Interagency Policy Statement on the Uniform Core Report of Examination.
Read the policy statement.
Among other things, the principles establish that all reports on examinations should present conclusions and issues in order of importance; document the condition and risk profile of the institution; discuss the adequacy of the institution’s risk management practices; and document issues of supervisory concern or warranting prompt corrective action.
Concurrently, the agencies are rescinding their 1993 Interagency Policy Statement on the Uniform Core Report of Examination.
Read the policy statement.
Wednesday, January 9, 2019
NCUA Releases Supervisory Priorities for 2019
The National Credit Union Administration (NCUA) on January 8 announced the agency's supervisory priorities for 2019.
The following areas will be the primary supervisory focus of NCUA for 2019.
The following areas will be the primary supervisory focus of NCUA for 2019.
- Bank Secrecy Act Compliance
- Concentrations of Credit
- Consumer Compliance
- Current Expected Credit Losses (CECL)
- Information Systems and Assurance
- Liquidity and Interest Rate Risks
Wednesday, January 2, 2019
Wisconsin CUs Need to Proactively Manage Liquidity Risk, Says Regulator
The Wisconsin Office of Credit Unions wrote Wisconsin credit unions in December that it will heighten its analysis of credit unions' liquidity management.
The state regulator noted that the loan-to-share (deposit) ratio for Wisconsin credit unions was 97.16 percent at the end of the third quarter of 2018.
The letter stated that the increase in loans has stressed liquidity for many credit unions.
Credit unions were advised that examiners will expand their analysis of credit unions with low levels of liquidity. This analysis will include looking at how a credit union measures, monitors, and manages liquidity and liquidity risk.
Things examiners will look at include balance sheet composition, funding sources and the reliance on borrowed money and nonmember deposits, projections on asset and loan growth for 2019, liquidity policy and contingent funding, and communication of liquidity events to senior management and directors.
While the state regulator acknowledges that there is not a one-size fits all approach to managing liquidity risk, it expected that credit unions to document their practices to ensure that liquidity levels are within established limits and that management and staff are proactively managing liquidity.
Read the letter.
The state regulator noted that the loan-to-share (deposit) ratio for Wisconsin credit unions was 97.16 percent at the end of the third quarter of 2018.
The letter stated that the increase in loans has stressed liquidity for many credit unions.
Credit unions were advised that examiners will expand their analysis of credit unions with low levels of liquidity. This analysis will include looking at how a credit union measures, monitors, and manages liquidity and liquidity risk.
Things examiners will look at include balance sheet composition, funding sources and the reliance on borrowed money and nonmember deposits, projections on asset and loan growth for 2019, liquidity policy and contingent funding, and communication of liquidity events to senior management and directors.
While the state regulator acknowledges that there is not a one-size fits all approach to managing liquidity risk, it expected that credit unions to document their practices to ensure that liquidity levels are within established limits and that management and staff are proactively managing liquidity.
Read the letter.
Thursday, November 29, 2018
Agencies Issue Update on Examination Modernization Project
The Federal Financial Institutions Examination Council (FFIEC) issued a second update on progress made to its Examination Modernization Project.
The update focuses on regulators’ work to tailor examinations based on the risk profiles of individual institutions.
After reviewing and comparing current principles and processes for tailoring community bank and credit union examinations based on risk profile, the agencies committed to issuing reinforcing and clarifying guidance where necessary. This guidance would help ensure that examiners consider the unique risk profile, complexity and business model when developing an examination plan; analyze existing information to identify areas of higher and lower risk; and appropriately tailor document requests based on risk profile, among other things.
Going forward, the issue is how well the regulators execute their plans to tailor examinations to the risk profiles of the individual institutions.
Read more.
The update focuses on regulators’ work to tailor examinations based on the risk profiles of individual institutions.
After reviewing and comparing current principles and processes for tailoring community bank and credit union examinations based on risk profile, the agencies committed to issuing reinforcing and clarifying guidance where necessary. This guidance would help ensure that examiners consider the unique risk profile, complexity and business model when developing an examination plan; analyze existing information to identify areas of higher and lower risk; and appropriately tailor document requests based on risk profile, among other things.
Going forward, the issue is how well the regulators execute their plans to tailor examinations to the risk profiles of the individual institutions.
Read more.
Friday, October 5, 2018
Tiny California Church-Based CU Hit with Enforcement Order
The California Department of Business Oversight issued a consent order against Jones Methodist Church Credit Union (San Francisco, CA).
The final order is based upon a December 31, 2017 Report of Examination, which detailed unsafe and unsound practices at the $590,634 credit union.
The final order requires the credit union to:
The final order is based upon a December 31, 2017 Report of Examination, which detailed unsafe and unsound practices at the $590,634 credit union.
The final order requires the credit union to:
- hold and document monthly board meetings;
- establish a comprehensive succession plan;
- develop a list of suitable merger partners;
- develop key ratio goals for net worth, return on average assets, operating expenses to gross income, total loans to total shares, and other metrics identified by the board;
- update 2018 budget with documented budget assumptions and what-if scenarios;
- develop and document contingency plans if budget projections are not met;
- post member and investment transactions on a weekly basis;
- complete OFAC audit and complete FinCEN 314(a) scrubs; and
- control share growth and manage the high concentration of shares in one member's account.
Tuesday, September 25, 2018
Greater Focus on Liquidity Risk Management
Washington State Division of Credit Unions earlier this month announced that its examiners will expand their liquidity analysis of credit unions.
The regulator noted that over the last eighteen months many Washington State chartered credit unions have shown a downward trend in cash and short-term investments.
This trend is not unique to Washington State credit unions. Nationally, the percent of credit union assets in cash and short-term investments has declined over recent years (see graph). As of June 2018, 12.19 percent of assets was in cash and short-term investments. This was below the 10-year average of 14.77 percent.
The Division of Credit Unions wrote that it will analyze credit unions with low liquidity levels to ensure that they have other sources of contingency liquidity to safely manage liquidity pressure.
The credit union regulator further commented that as a basic element of liquidity risk management, credit unions should keep an adequate cushion of highly liquid assets, including an adequate safeguard of cash and cash equivalents.
The Division's examiners will focus on liquidity policy and contingency funding plan, cash flow forecast, and liquidity testing and monitoring.
Read the Bulletin.
The regulator noted that over the last eighteen months many Washington State chartered credit unions have shown a downward trend in cash and short-term investments.
This trend is not unique to Washington State credit unions. Nationally, the percent of credit union assets in cash and short-term investments has declined over recent years (see graph). As of June 2018, 12.19 percent of assets was in cash and short-term investments. This was below the 10-year average of 14.77 percent.
The Division of Credit Unions wrote that it will analyze credit unions with low liquidity levels to ensure that they have other sources of contingency liquidity to safely manage liquidity pressure.
The credit union regulator further commented that as a basic element of liquidity risk management, credit unions should keep an adequate cushion of highly liquid assets, including an adequate safeguard of cash and cash equivalents.
The Division's examiners will focus on liquidity policy and contingency funding plan, cash flow forecast, and liquidity testing and monitoring.
Read the Bulletin.
Monday, January 22, 2018
Regulator: Third-Party Risk Management Is A Heightened Supervisory Focus
A bank regulator recently warned that managing third-party risk is a heightened supervisory focus.
The Office of the Comptroller of the Currency (OCC) in its Semiannual Risk Perspective report identified increasing use of third-party service providers and the concentration of critical operations among few service providers as operational concerns.
The report notes a growth in partnerships between banks (you can substitute the term credit unions) and third-party companies or vendors. Financial institutions are becoming more reliant upon third-party financial technology companies for new emerging products and services. This is driving third-party risk.
The report also noted that consolidation -- both among banks and among third-party service providers -- has “increased reliance on a smaller group of third parties providing critical applications and resulted in large numbers of banks, especially community banks, relying on a small number of service providers.”
The report found "instances of concentration of third-party service providers for specialized services, such as merchant card processing, denial-of-service mitigation, ... and other specific product or market service."
This concentration in a limited number of third-party service providers could result in systemic risk in the financial services sector.
The OCC advised that banks address third-party risk "through appropriate due diligence and ongoing oversight."
This should be the same advice to credit unions from the National Credit Union Administration (NCUA), as NCUA does not have the authority to examine third-party service providers, unlike other federal banking regulators.
The Office of the Comptroller of the Currency (OCC) in its Semiannual Risk Perspective report identified increasing use of third-party service providers and the concentration of critical operations among few service providers as operational concerns.
The report notes a growth in partnerships between banks (you can substitute the term credit unions) and third-party companies or vendors. Financial institutions are becoming more reliant upon third-party financial technology companies for new emerging products and services. This is driving third-party risk.
The report also noted that consolidation -- both among banks and among third-party service providers -- has “increased reliance on a smaller group of third parties providing critical applications and resulted in large numbers of banks, especially community banks, relying on a small number of service providers.”
The report found "instances of concentration of third-party service providers for specialized services, such as merchant card processing, denial-of-service mitigation, ... and other specific product or market service."
This concentration in a limited number of third-party service providers could result in systemic risk in the financial services sector.
The OCC advised that banks address third-party risk "through appropriate due diligence and ongoing oversight."
This should be the same advice to credit unions from the National Credit Union Administration (NCUA), as NCUA does not have the authority to examine third-party service providers, unlike other federal banking regulators.
Tuesday, December 26, 2017
NCUA Identifies Supervisory Priorities for 2018
The National Credit Union Administration (NCUA) in a letter to credit unions announced its supervisory priorities in 2018.
The agency identified the following seven areas for supervisory focus in 2018: cybersecurity assessment, Bank Secrecy Act compliance, internal controls and fraud prevention, interest rate and liquidity risk, automobile lending, commercial lending, and consumer compliance.
With respect to automobile lending, NCUA will focus on portfolios with the following concentrations -- extended loan maturities of over 7 years, high loan-to-value ratios, near-prime and subprime, and indirect lending programs.
With regard to consumer compliance, NCUA examiners will focus on three areas -- federal credit unions’ good faith efforts to comply with the Consumer Financial Protection Bureau’s amendments to the regulations implementing the Home Mortgaage Disclsoure Act (HMDA), credit unions' effort to comply with the Military Lending Act, and credit unions' overdraft policies and procedures for compliance with Regulation E.
Read the letter.
The agency identified the following seven areas for supervisory focus in 2018: cybersecurity assessment, Bank Secrecy Act compliance, internal controls and fraud prevention, interest rate and liquidity risk, automobile lending, commercial lending, and consumer compliance.
With respect to automobile lending, NCUA will focus on portfolios with the following concentrations -- extended loan maturities of over 7 years, high loan-to-value ratios, near-prime and subprime, and indirect lending programs.
With regard to consumer compliance, NCUA examiners will focus on three areas -- federal credit unions’ good faith efforts to comply with the Consumer Financial Protection Bureau’s amendments to the regulations implementing the Home Mortgaage Disclsoure Act (HMDA), credit unions' effort to comply with the Military Lending Act, and credit unions' overdraft policies and procedures for compliance with Regulation E.
Read the letter.
Monday, December 18, 2017
Federal Bank and CU Regulators Issue Supervisory Guidance for Institutions Affected by Natural Disasters
In the wake of record-setting hurricane and wildfire seasons, the federal banking agencies on Friday issued new guidance on how examiners will approach financial institutions affected by major natural disasters.
The guidance was jointly issued with the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, and the National Credit Union Administration and in consultation with the Conference of State Bank Supervisors.
The agencies noted that when evaluating composite ratings for institutions, examiners should review management’s overall response and recovery planning. The agencies also said they would work with institutions to determine needs, reschedule exams and extend deadlines as needed.
“The examiner’s assessment may result in assigning a lower component or composite rating for some affected institutions,” the agencies said. “However, in considering the supervisory response for institutions accorded a lower rating, examiners should give appropriate recognition to the extent to which weaknesses are caused by external problems related to the major disaster and its aftermath.” The agencies also noted that formal actions normally taken for lower-rated banks “may not be necessary,” provided the bank has planned appropriately and is on track for recovery.
The guidance includes instructions for examiners on how to assess component ratings for CAMELS or ROCA, focusing on losses associated with the disaster, identification of credits affected, prudent planning by management, disaster-related effects on earnings and fluctuations in liquidity associated with customer cashflow needs.
Read the guidance.
The guidance was jointly issued with the Board of Governors of the Federal Reserve System, the Office of the Comptroller of the Currency, Federal Deposit Insurance Corporation, and the National Credit Union Administration and in consultation with the Conference of State Bank Supervisors.
The agencies noted that when evaluating composite ratings for institutions, examiners should review management’s overall response and recovery planning. The agencies also said they would work with institutions to determine needs, reschedule exams and extend deadlines as needed.
“The examiner’s assessment may result in assigning a lower component or composite rating for some affected institutions,” the agencies said. “However, in considering the supervisory response for institutions accorded a lower rating, examiners should give appropriate recognition to the extent to which weaknesses are caused by external problems related to the major disaster and its aftermath.” The agencies also noted that formal actions normally taken for lower-rated banks “may not be necessary,” provided the bank has planned appropriately and is on track for recovery.
The guidance includes instructions for examiners on how to assess component ratings for CAMELS or ROCA, focusing on losses associated with the disaster, identification of credits affected, prudent planning by management, disaster-related effects on earnings and fluctuations in liquidity associated with customer cashflow needs.
Read the guidance.
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