WASHINGTON—CUNA and NAFCU have each written to the Federal Reserve with concerns over the Fed’s proposed guidelines for evaluating account and services requests.
NAFCU is asking the Federal Reserve to clarify risk assessments for Tier 3 institutions and establish minimum safety and soundness standards.
The proposed guidelines are intended to create a uniform and transparent framework for evaluating access requests for Federal Reserve Bank services centered on a foundation of risk management and mitigation. But while those guidelines are similar to the original 2021 notice, this iteration includes the addition of a tiering framework, NAFCU noted.
In the trade group’s letter to the Fed, Senior Counsel for Research and Policy Andrew Morris stated that in this tiering framework, federally-insured credit unions are included in the lowest risk category as Tier 1 institutions, whereas non-federally insured entities not subject to federal prudential supervision would be classified as Tier 3 institutions. Morris that the risk assessments for Tier 3 institutions be clarified further and that the Fed establish minimum safety and soundness standards that are at least equivalent to the prudential frameworks governing federally-insured institutions.
2 Main Criteria
Morris further emphasized two main forms of criteria for the guidelines, including:
- That the guidelines not entail additional burdens for FICUs seeking or currently accessing Reserve Bank accounts or services
- That non-federally insured entities be subject to an appropriately higher level of due diligence and monitoring to account for unique risks and differences in prudential oversight.
“As federally insured institutions, FICUs are already subject to comprehensive prudential supervision and have demonstrated that they are responsible users of Federal Reserve accounts and services,” concluded Morris.
CUNA’S Comment
Meanwhile, CUNA said it is concerned the Federal Reserve Bank is broadening access to accounts without consistent guidelines and could introduce unnecessary risks to the payment system.
CUNA said that while it continues to support the Fed’s efforts to establish clear and consistent guidelines to evaluate requests, the new proposed guidelines do not address how the Reserve Banks would ensure that new applicants for accounts and services that are not subject to the rigorous regulations and supervision would demonstrate adequate standards for ensuring the safe operation of the payments system.
In addition, according to CUNA, while the current system for determining account access eligibility has worked well, the Board’s guidelines need to implement proper safeguards for novel business model entities that are not subject to the stringent regulations and examinations of banks and credit unions, the letter notes. CUNA said its concern is that the Reserve Banks could apply the guidelines inconsistently from entity to entity, which could lead to different outcomes for applications and possibly differences in how entities are supervised for ongoing compliance.
Additional Suggestions
The letter further suggests that the Board and the Reserve Banks should create a uniform evaluation policy and procedures so that the guidelines are consistent.
“For eligible entities, access would be conditioned on meeting the requirements in the Guidelines, which allows the Board and Reserve Banks to ensure entities given Federal Reserve accounts do not add risk to the payments system,” the letter reads. “The Board’s goal should be to apply a similar level of requirements with processes to ensure compliance, as is in place for a federal or state regulated credit union or bank. Any entity not meeting these requirements should be denied access to the payments system.”
‘Should be Foundation’
CUNA added that it recognizes the proposed guidelines appear to be developed from the regulatory framework for depository institutions and also agrees that this framework should be the foundation of the guidelines.
These guidelines also adequately address risk by credit unions, CUNA said. But it also suggested that when it comes monitoring compliance, the Fed should develop a process to monitor entities granted Reserve Bank access on an ongoing basis and include an assessment for cybersecurity risks.
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