NCUA Adjusts Supervisory Expectations Due to Coronavirus Crisis
As priorities shift for the NCUA, some issues are gaining more relevance than others for credit unions.
The NCUA’s supervisory efforts in 2021 will be adjusted to take into account the continuing coronavirus crisis, NCUA Chairman Rodney Hood said in a letter to credit unions.
“The NCUA remains committed to incorporating efficiencies into its examination and supervision program to address the effects of the COVID-19 pandemic on credit unions and their members,” Hood wrote.
Hood said the agency will maintain a commitment to its extended examination cycle. The targeted Small Credit Union Exam program will remain in place for most federal credit unions with assets under $50 million, he said. For all other credit unions, NCUA examiners will conduct risk-focused examinations — concentrating on the highest risks.
Hood went on to state the areas that examiners will focus on and areas that may be placed on the back burner.
Allowance for Loan and Lease Losses
Hood said as a result of the economic impact of the coronavirus and the decision by the Financial Accounting Standards Board until January 2023, NCUA examiners will delay assessing a credit union’s transition to the Current Expected Credit Losses standard.
Bank Secrecy Act/Anti-Money Laundering Compliance
The agency will continue to conduct BSA/AML reviews during every examination, focusing on the implementation of proper customer due diligence, beneficial ownership procedures and proper filing of reports, according to Hood.
Coronavirus Aid and Relief
Examiners will continue to review compliance with pandemic-related laws, Hood wrote. Examiners will continue to review modifications credit reporting, forbearances and foreclosure that were made as part of the economic relief legislation, the chairman wrote.
Consumer Financial Protection
The agency will continue examining compliance with consumer financial protection rules during every review, according to Hood. Those exams will be largely risk-focused and based on a credit union’s compliance record and products and services.
NCUA board member Todd Harper, who likely will become chairman of the NCUA board under President Biden, has said the agency must increase its focus on consumer protection.
This year, consumer protection exams will focus on fair lending and areas related to the pandemic, Hood said.
Credit Risk Management
Hood said NCUA examiners will not criticize credit union efforts to provide “prudent” relief for borrowers, as long as those efforts “are conducted in a reasonable manner with proper controls and management oversight.”
Examiners will place an emphasis on reviewing credit union loan underwriting and credit risk management procedures. Examiners also will verify that credit unions evaluate the potential impact their pandemic response will have on their capital position and financial stability, according to Hood.
Cybersecurity
The agency has moved away from the former the Automated Cybersecurity Evaluation Toolbox (ACET) cybersecurity maturity assessments, to piloting the Information Technology Risk Examination for Credit Unions. That new system establishes a consistent system with other community-based financial institutions, Hood wrote.
LIBOR Transition
Hood said the agency will continue to encourage credit unions to prepare for the expected discontinuation of the London Inter-bank Offered Rate (LIBOR). He said those credit unions that have LIBOR-based transactions should not delay their preparation for transitioning away from LIBOR because the transition can be a “significant and complex undertaking.”
Liquidity Risk
Hood warned that the economic impact of the pandemic may result in an increase in the volatility of share balances, loan demand and loan losses. The stress on credit union balance sheets could require an increased level of liquidity management throughout the year, he added.
Hemp
The NCUA will continue to encourage credit unions to consider whether they are able to serve hemp-related businesses within their fields of membership, Hood said.
“Credit unions that choose to serve hemp-related businesses need to understand the complexities and risks involved and secure the necessary expertise and resources to conduct this activity safely and soundly and in compliance with all applicable laws and regulations,” he said.