WASHINGTON–Is the day coming when credit unions never see an examiner again in their offices?
Yes, according to NCUA, but not for another five or 10 years.
In the meantime, however, the agency said it is taking other steps as part of its Exam Flexibility Initiative to improve the examination process—including less-frequent exams.
In remarks to CUNA”s GAC here, Larry Fazio, the director of the Office of Examination and Insurance, outlined that effort and said the overall intent is to have more flexibility to address riskier institutions and more responsiveness to merging issues; improve coordination with state supervisors; increase efficiency and effectiveness through enhanced exam planning and data sharing, and provide a better exam experience for credit unions, as well as less-frequent exams for healthy, well-run credit unions.
The Exam Flexibility Initiative began rolling out on Jan. 1, for FCUs of less than $1 billion in assets. But those credit unions must also meet other criteria, including having a CAMEL 1 or 2 composite and management rating; being well-capitalized per PCA; having no DORs related to recordkeeping, and having no formal or informal enforcement actions.
Fazio said approximately 60% of FCUs qualify for an extended exam, and 82% of CUs with assets between $100 million to $1 billion qualify. All the qualified credit unions will see an exam between 14 and 20 months from the time of their previous exam.
Fazio added that some small credit unions with limited segregation of duties that are otherwise eligible for an extended exam cycle may receive more frequent examinations on a random sample basis.
It will take two years for full rollout of the reg flex initiative in order to smooth out the schedule of exams and avoid a bubble being created in 2018, said Fazio.
For federally insured, state-chartered credit unions, they will receive an NCUA exam based on risk, but no less frequently than once every five years. Fazio said the agency already makes every effort to conduct exams for FISCUs jointly with the appropriate state supervisory authority.
Fazio said NCUA is working to focus on ongoing, offsite analysis and supervision, and further working to provide examiners with specific time to plan and scope the examination. It is also providing credit unions with at least four weeks advanced notice (providing there is not an issue that requires immediate attention), he added.
“We continue to emphasize the importance of ongoing communication between examiners and credit union management and officials,” Fazio told the meeting.
A long time sore point for credit unions, he said the agency is also working to emphasize the need for a consistent application of examination standards across its more than 600-member examiner field force.
NCUA’s Region IV Office is currently piloting a program called Flex that is working to accomplish more of the exam off-site, using secure technology as part of that process.
The longer-term goal, said Fazio, is a “virtual exam” for credit unions. “That’s a futuristic aspiration we have. We’ve been in some interesting discussions with CUNA and so forth on advancing that concept, so stay tuned.”
Fazio said the virtual exams have a five to 10-year timetable.