This December, the National Credit Union Administration (NCUA) released a letter to credit unions detailing its primary areas of supervisory focus for 2018. The NCUA intends for credit unions to rely on the letter to better prepare for their examinations by the NCUA throughout 2018. The seven areas of focus listed by the NCUA in its letter are outlined in detail below.
One 2018 supervisory focus for the NCUA is cybersecurity. In 2018, the NCUA will be relying on and gradually refining a standardized cybersecurity assessment method known as the Automated Cybersecurity Examination Tool (ACET)—which will provide the NCUA with a “repeatable, measurable and transparent process for assessing the level of cyber preparedness across federally insured institutions.” Because their standards align, credit unions can rely on the self-assessment cybersecurity guide developed by the Federal Financial Institutions Examination Council to gauge preparedness for examination by the ACET.
Bank Secrecy Act Compliance
Consistent with federal regulations requiring as much, the NCUA will continue to monitor credit union compliance with the Bank Secrecy Act (BSA)—which requires financial institutions to, inter alia, maintain policies and procedures designed to prevent money laundering activities—during all examinations. Credit union management can rely on the NCUA’s self-assessment guide to ensure the proper degree of compliance with the BSA.
Internal Controls and Fraud Prevention
Another 2018 supervisory focus for the NCUA is fraud prevention. The NCUA will prioritize evaluating credit union internal controls and efforts at preventing and identifying fraud throughout 2018 examinations.
Interest Rate and Liquidity Risk
Interest rate risk (IRR) remains a primary supervisory focus for the NCUA in 2018. According to guidance published by the NCUA, IRR “refers to the current and prospective risk to a credit union’s capital and earnings arising from movements in interest rates.” To evaluate interest rate risk, the NCUA will continue to rely on its recently-implemented standardized examination tool. Credit unions can rely on the NCUA’s published guidance to ensure appropriate policies and procedures are in place to manage IRR—including methods of internally evaluating and reporting IRR exposure.
In 2018, the NCUA plans to apply additional scrutiny to credit unions that have concentration risk exposure related to certain automobile loans. Concentration risk is important for credit union management to remain apprised of and refers to the potential exposure of credit unions to losses that may threaten their financial health.
In 2018, the NCUA will continue to prioritize evaluating credit union commercial lending policies, procedures, and risk management processes. According to the NCUA’s published guidance on commercial lending, such policies must address, inter alia, the types of commercial loans permitted, portfolio concentration limits, and qualification requirements for lending staff. Credit unions can rely on the NCUA’s guidance to ensure appropriate commercial lending risk management processes are in place.
In 2018, the NCUA will prioritize evaluating credit union overdraft policies and procedures and compliance with the Military Lending Act and the Home Mortgage Disclosure Act (HMDA). 2018 reviews of compliance with HMDA requirements are planned to be diagnostic in nature and will be “designed to help credit unions identify compliance weaknesses.” The NCUA will credit good faith efforts to comply with HMDA requirements and does not plan to cite violations or assess penalties related to HMDA shortcomings.