Mid-Year Check in on NCUA Supervisory Priorities

June 1, 2021

By Jovilyn Herrick, Director, Client Solutions

Each year, the credit union industry’s examiners indicate where they will direct most of their attention. No doubt the NCUA and other financial regulators’ decisions on where to focus in 2021 were even more fraught than usual when it came to choosing – and naming – priorities.

COVID-19, social responsibility, economic policy, record low interest rates – the charged environment presented a mixed bag of pressure points on which to focus. Yet, the NCUA did successfully declare its list of supervisory priorities, and midway through the year, we are now seeing how those priorities are living out within exams.

Out of the nine different focus areas named by the NCUA as priorities, the majority of credit union activity and attention so far has been concentrated on four in particular: Coronavirus Aid, Relief and Economic Security Act, Consumer Financial Protection / Fair Lending, Cybersecurity and Liquidity Risk.

Coronavirus Aid, Relief and Economic Security Act

Examiners are mainly focused on ensuring credit unions’ documentation, policies and procedures are tidied up based on what the cooperatives modified to help members and employees navigate COVID-19. They also want to see member-facing forms and agreements, particularly those associated with COVID-related solutions like loan forbearance and skip-a-pay, are in accordance with regulations.

Action Step: Audit your forms, policies and procedures, prioritizing those that may have been created “on the fly” to help members navigate the pandemic’s economic uncertainties. Make sure all appropriate language around deferred payments and timeline-based rules are reflected in loan agreements. Double check that policies have been updated to allow for pandemic-related adjustments and that new or modified procedures are an accurate reflection of how the credit union operates.

Consumer Financial Protection / Fair Lending

How lenders determine exceptions and modifications is a keen area of interest for examiners, especially in light of societal calls for greater transparency, accountability and recognition of bias. Documentation of how these decisions are made and the criteria used to judge them is something examiners are increasingly asking to review during exams.

Action Step: Review all exceptions your credit union made since COVID-19 lockdowns began. If they run afoul of your policies and procedures, gather the team together and make an historical record of what occurred, whether and how it was addressed and steps the credit union is taking to resolve any outstanding issues. Collaboration tools, such as the ViClarity GRC Management Solution, can be incredibly helpful in this process, particularly if there are multiple leaders who need to weigh in on a particular case. (Not sure if such a tool is right for you? Try this Time Savings Calculator to find out.)

Cybersecurity

Work-from-home circumstances, COVID scams and fraud, not to mention the continually increasing incidents of data breaches, malware and other cyber attacks has mounted additional pressure onto the shoulders of credit union leaders. Especially for staff with access to member information, taking steps to ensure privacy and security within their systems is of the utmost importance. Examiners want to see documentation around ensuring potential areas of vulnerability have been and continue to be locked down.

Action Step: Check in with your IT and security folks to see if the pandemic exposed any additional areas of concern. Put a plan in place for addressing those issues and be sure to document your progress.

Liquidity Risk

While there is certainly a strong appetite, and plenty of cash on hand, to support a strong lending program within a credit union, competition for borrower business has been tough. Credit union share-to-loan ratios are universally off kilter, and examiners expect to see a plan for those cooperatives falling below appropriate thresholds to turn things around.

Action Step: Review your ratios year-over-year to see if you can spot trends both related and potentially not related to the pandemic. Sit down with senior management team to document the department’s plan of attack for rebounding from any stressors the credit union may be experiencing as they relate to liquidity risk. If you are post-exam and working to address findings, consider an automation tool that will centralize communication and move the credit union away from manual compliance management processes.

The above set of four areas is by no means permission to let compliance with the other five NCUA supervisory priorities (BSA in particular) drop. Examiners are, indeed, focused on ensuring credit union adherence with the rules in each of the stated areas. These four seem to be rising to the top of the pile as requiring the most time and attention to get into shape, so you may want to check in with our teams to double check everything is buttoned up and ready for a bright post-pandemic future for your cooperative and its members.

Services performed by ViClarity are compliance and not legal in nature, and do not form an attorney-client relationship or any of the protections attendant to the attorney-client relationship.