ALEXANDRIA, Va.—In response to the NCUA's request for information on future exam modernization efforts, both CUNA and NAFCU have expressed support for certain reform initiatives, while raising a host of other issues they want the agency to address.
In its letter, NAFCU expressed support for certain reform initiatives while saying it is also seeking more information on a streamlined, independent appeals process for supervisory determinations.
NCUA said it is currently seeking ways to leverage new technology, analytics, and other capabilities to transition to a mostly virtual exam format.
"The NCUA should fervently continue to pursue its exam modernization efforts in a transparent fashion that allows credit unions to consistently provide feedback," wrote Director of Regulatory Affairs Ann Kossachev. "Transparency is essential in the examination process as well as during the NCUA’s information-gathering process on how to structure its future approach to supervision and examinations."
In the letter, Kossachev stressed the need for virtual exams to prioritize reducing exam burden and duration, highlighting that many credit unions are still not seeing a meaningful reduction in exam duration, with some seeing a significant increase in the time allotted to exams.
A ’Direct Correlation’
"Duration of an exam has a direct correlation to the time and resources credit union staff can devote to serving members," said Kossachev. "Shorter, more efficient exams would allow credit unions to better serve their members, particularly during an unanticipated disruption, like the COVID-19 pandemic."
Kossachev also shared credit union feedback, noting NAFCU members continue to share concerns regarding exam consistency, including this year's shift to virtual due to the coronavirus pandemic. To help remedy this, Kossachev shared NAFCU's recommendation that the agency continue its recent trend of providing more guidance on a "go-forward" basis beyond the pandemic.
"Inconsistent examinations may lead to some credit unions being dissatisfied with their examination results," highlighted Kossachev. "Those credit unions may then seek to appeal their examination results and should be able to do so without fear of retribution.
No Appeals
"Unfortunately, the NCUA has yet to provide credit unions with a streamlined, independent appeals process for supervisory determinations," she added.
Additionally, Kossachev discussed the need for clear virtual examination procedures, flexibility on record digitization, and the incorporation of strong data protection requirements. Kossachev also urged the NCUA to adopt extended exam cycles for all low-risk, well-run credit unions.
CUNA Response to NCUA
Separately, CUNA has sent a long letter if its own to NCUA in response to its request for information (RFI) on alternative exam procedures.
Officially titled by NCUA “Strategies for Future Examination and Supervision Utilizing Digital Technology,” CUNA has provided responses to 36 different questions posed by NCUA as part of the RFI as the agency said it is seeking ways to reduce burden on credit unions and increase agency efficiency by reducing onsite examination time and to improve offsite supervision capabilities, among other things.
A sample of some of the feedback CUNA provided to NCUA’s questions includes:
Q: What capabilities can credit unions adopt tofacilitate the NCUA’s transition toward more offsite exam work?
CUNA: Credit unions should provide the capabilities necessary for data security and encryption so that data transfers can be made without risk of compromise by outside parties. Credit unions should take necessary stepsto inform their vendors of the need to maintain and follow the security requirements and controls established for them. Some credit unions will need to develop or acquire the ability through an imaging system to scan and image normal working day-to-day operating documents (e.g., loans, memberships, and applications) for future usage,storage, and retrieval. The imaging system must have theability to transfer these images in bulk files for use by theexaminers.
What capabilities do you recommend the NCUA adopt tobe able to conduct more examination work offsite?
CUNA: The NCUA should develop secure portals that have the capability to accept large data files efficiently. The portals should utilize easy access and controls so that bulk data can be transmitted, and the examination processes can be automated using techniques that do not require amassive reorganization of credit union data to complete data requests.
The NCUA should provide predetermined report formats and record layouts for information that will be used routinely for the examination so credit unions can ensure that required data is captured through ongoing operations without the need to go through special handling.
Do you think the NCUA can do significantly more offsite work without compromising its safety and soundnessresponsibilities?
CUNA: Yes. NCUA can do significantly more work offsitewithout compromising its safety and soundness responsibilities. However, improved management andoperations questionnaires will have to be developed andused by the examiners that focus on key business driversand root causes for credit union shortcomings and failuresas well as successes. Also, basic compliance withestablished regulations will need to be measured with a thorough understanding of the balance between the regulation and its application in an operationalenvironment.
Extended Examination Cycle
On the subject of examinations, CUNA said it would like torecognize that recent efforts by the agency to extend the examination cycle for certain credit unions have been positive, particularly for credit unions for which a 12-month cycle was clearly unnecessary.
The full letter, signed by Luke Martone, senior director of advocacy & counsel, can be found here.