NCUA Sets Supervisory Priorities, Expects Full MERIT Implementation in 2020

The NCUA’s Modern Examination and Risk Identification Tool (MERIT) will be released to all examination staff during the second half of 2020, agency board Chairman Rodney Hood told credit unions Tuesday.

In the agency’s annual letter outlining the NCUA’s supervisory priorities, Hood also said that NCUA Connect, a common entry point for authorized users to gain access to NCUA applications, also will be made available this year.

The NCUA has conducted a limited launch of the MERIT system.

Hood said that unlike the current examination process, known as AIRES, credit unions will be able to use MERIT for several activities, including the secure transferring of documents, providing status updates, requesting due date changes on corrective actions and securely accessing completed examinations.

In his letter, Hood provided details of the agency’s supervisory priorities for the year:

Bank Secrecy Act & Anti-Money Laundering

Hood said the agency will continue to emphasize the need for credit unions to comply with customer due diligence and beneficial ownership rules that went into effect in May 2018.

The agency also will work with other banking regulators on such issues as updates to the BSA/AML examination manual, providing clarification and ways to improve required filings on transactions and ensuring that they are filed in a timely fashion.

The NCUA also will work with other regulators on issuing guidance on “politically exposed persons.”

A politically exposed person is defined as someone who has been entrusted with a high-profile political function and who may be more exposed to bribery as a result of the position her or she may hold.

Consumer Financial Protection

The scope of consumer financial protection reviews is largely risk-focused and are based on a credit union’s compliance record, products or services and any new or emerging concerns, Hood said.

He added that each year, the NCUA selects specific consumer financial protection rules on which to focus during exams.

In 2020, the agency intends to focus on compliance with the Electronic Fund Transfer Act, fair credit reporting, the Gramm-Leach-Bliley Act requirements for the handling of non-public information about consumers, and percentage rate and late charge issues in the Truth in Lending Act.

The agency also will test for compliance with small dollar lending rules, including those associated with the Payday Alternative Loan model. NCUA examiners also will determine whether short-term, small-dollar loans that are not modeled on the PAL program comply with federal rules.

NCUA board member Todd Harper has called for the agency to implement a separate consumer protection examination and asked that three staff members be hired to develop that test.

The agency board last month adopted its 2020 budget without those additional staff members included, although board member J. Mark McWatters expressed some sympathy with Harper’s position.

Credit Risk

Agency examiners also will determine if credit unions analyze the ability of borrowers to meet debt service requirements without undue reliance on the value of collateral.

The agency also this year will implement enhanced examination procedures for credit unions with high concentrations of a specific loan type.

The NCUA has come under fire for its supervision of credit unions that held a high concentration of tax-medallion loans. The failure of two credit unions that held taxi medallions as collateral cost the Share Insurance Fund more than $700 million.

Cybersecurity

In 2018, the NCUA began using the Automated Cybersecurity Examination Tool, which is now being updated. Credit unions will be able to complete self-assessments through the updated tool this year.

The agency also will continue its cybersecurity assessments for credit unions with assets over $250 million and begin completing assessments with those with assets of more than $100 million.

Liquidity Risks

Examiners will review credit union liquidity management and planning this year, with a particular focus on credit unions with low levels of on-balance sheet liquidity.

Agency examiners also will assess the potential impact of changing interest rates and credit union contingency plans.

Other issues

The NCUA will assess the possible impact that LIBOR cessation may have on credit unions, as well as planning for the new Current Expected Credit Losses standard.

The agency also said it expects to update its guidance for credit unions that provide services to hemp-related businesses.