In January 2017, the NCUA released its supervisory priorities for 2017. Many should look familiar, as the areas where credit unions face the most significant internal and external risks remain largely the same. These key areas are listed and described in more detail below.
- Cybersecurity assessment
Cybersecurity remains a key supervisory focus. NCUA will continue to carefully evaluate credit unions’ cybersecurity risk management practices. They encourage credit unions to use the Vendor Risk Analysis Tool to bolster their security and risk management processes. This tool was issued jointly with the other member agencies of the FFIEC.
- Bank Secrecy Act compliance
NCUA remains vigilant in ensuring the credit union system is not used to launder money or finance criminal or terrorist activity. All federally insured credit unions must perform certain recordkeeping and meet reporting requirements to detect this type of activity as required by the Bank Secrecy Act.
NCUA field staff are required to review credit unions’ compliance with the Bank Secrecy Act and to complete the related examination questionnaire at every examination. In 2017, NCUA field staff will focus on credit unions’ relationships with money services businesses, also known as MSBs.
Credit unions can provide services to an MSB while meeting BSA requirements, but should be aware of the unique risk exposure MSBs can present, and the corresponding need for commensurate expertise and monitoring systems.
If your credit union provides services to an MSB, field staff will verify that you meet the following minimum expectations established by NCUA and federal banking agencies:
- Perform customer identification program procedures.
- Ensure each MSB is registered with the Financial Crimes Enforcement Network (FinCEN) and is in compliance with state and local licensing requirements.
- Conduct a BSA/anti-money laundering risk assessment to document the level of risk associated with each MSB account and determine whether greater due diligence is necessary.
- Internal controls and fraud prevention
Credit unions with limited staff may be more susceptible to insider fraud as a result of inherent challenges maintaining adequate separation of duties. NCUA field staff will continue to evaluate the adequacy of credit union internal controls,as well as overall efforts to prevent and control fraud.
- Interest rate and liquidity risk
On Jan. 1, 2017, NCUA field staff will begin using a revised interest rate risk supervisory tool and new examination procedures to assess interest rate risk management practices in credit unions. These procedures will improve the efficiency of reviews by focusing agency resources on credit unions that have elevated levels of interest rate risk and by streamlining related exam procedures. For more information about these supervisory changes, see NCUA Letter to Credit Unions 16-CU-08, Revised Interest Rate Risk Supervision. Field staff will also focus on the relationship between interest rate risk and liquidity risk.
- Commercial lending
NCUA’s revised Part 723, Member Business Loans; Commercial Lending, is effective Jan. 1, 2017. NCUA field staff will evaluate a credit union’s commercial loan policies and procedures and assess the risk management processes associated with managing a commercial loan portfolio. Credit union officials should be prepared to provide documentation to support management’s ability to effectively monitor and manage its commercial loan portfolio.
NCUA’s online Examiner’s Guide provides guidance on the principles of sound commercial lending and NCUA’s supervisory expectations for sound risk-management practices. For more information, see NCUA Letter to Credit Unions,16-CU-11, Member Business Loans Guidance Added to Examiner’s Guide.
- Consumer compliance
Given changes to the Military Lending Act that have gone into effect recently, as well as additional changes that will go into effect in October 2017, NCUA field staff will evaluate credit unions’ compliance with the act. For more information on the Military Lending Act, see NCUA Letter to Credit Unions 16-CU-07, Military Lending Act Examination Approach.