ALEXANDRIA, Va.–In a new letter to credit unions, NCUA said it has updated its 2020 supervisory priorities, noting it will be shifting its emphasis to a review of actions taken in response to the pandemic to assist borrowers, reviewing the adequacy of loan workout strategies and the effects on capital. It said it will not be assessing efforts to transition to the CECL standard “until further notice.”
The agency said the shifts “reflect economic conditions that emerged in response to the COVID-19 pandemic, as well as various statutory and regulatory changes that have occurred since March 2020.”
With the revised priorities, the agency said it is focusing its examination activities on areas that pose elevated risk to the credit union industry and the National Credit Union Share Insurance Fund.
NCUA said it will be updating the Examiner’s Guide to include additional guidance for examiners, including review procedures for assessing the safety and soundness of credit unions. The agency noted additional information on its response to the pandemic is available on the agency’s Coronavirus (COVID-19): Information for Federally Insured Credit Unions and Members webpage.
“Examinations for those credit unions qualifying for the agency’s extended examination cycle will continue to be scheduled in accordance with the exam flexibility initiative,” the letter states.
SCUEP Procedures to be Used
NCUA said its Small Credit Union Exam Program (SCUEP) procedures will be used to examine most federal credit unions with assets under $50 million.
“For all other credit unions, examiners will conduct risk-focused examinations, concentrating on areas of highest risk, new products and services, and compliance with applicable laws and regulations,” the letter says. “Credit unions experiencing elevated sensitivity and exposure to economic stressors should expect a commensurate increase in the NCUA’s supervisory activity. When scheduling examinations, the NCUA will continue to take into account any challenges a credit union is facing, such as operational challenges associated with responding to the COVID-19 pandemic or availability of key staff.”
Specific Issues
Among the specific issues addressed in the letter:
- Bank Secrecy Act Compliance. The agency said it will continue to conduct BSA/AML reviews and will take appropriate action when necessary to ensure credit unions meet their regulatory obligations. Member due diligence and beneficial ownership requirements that became effective May 11, 2018 will continue to be emphasized.
- Coronavirus Aid, Relief and Economic Security Act (CARES Act). NCUA said it will review credit unions’ good faith efforts to comply with the CARES Act to ensure obligations are being met, including provisions related to liquidity, loan modifications, Paycheck Protection Program compliance, foreclosure prohibitions, and loan forbearances.
- Consumer Financial Protections. The agency said it will continue to examine for compliance with applicable consumer financial protection regulations. These areas include Electronic Funds Transfer Act (Reg E), Fair Credit Reporting Act, Gramm-Leach-Bliley (Privacy Act), small dollar lending, Truth in Lending Act (Reg Z), and the Military Lending Act (MLA).
- Credit Union Management and Allowance for Loan and Lease Losses. According to the agency it is shifting its emphasis to reviewing actions taken by credit unions to assist borrowers facing financial hardship due to the coronavirus. As part of that shift, NCUA said it will also review the adequacy of loan and lease losses accounts “to address the pro-cyclical effects of economic downturns.” The Letter notes examiners will review policies and the use of loan workout strategies, risk management practices and “new strategies implemented to assist borrowers impacted by the COVID-19 pandemic,” including evaluating the impact of decisions on capital position and financial strategy. The agency said it will not be assessing efforts to transition to the CECL standard “until further notice” (CECL implementation had been delayed until January 2023). Instead, adequacy of reserves will focus on policies and procedures, documentation of methodology and modeling, adherence to GAAP and independent review of reserving methodology and practice by Supervisory Committee or internal or external auditor, the letter states.
- Information Systems and Assurance (Cybersecurity). NCUA said it will continue their reviews of credit union information systems and assurance programs as a supervisory priority. Included are advances in financial technology, increase in remote workforce, increased use of mobile technology and what credit unions are doing to face increased cybersecurity threats.
- LIBOR Transition Planning. With LIBOR essentially disappearing as a standard at the end of 2021, the agency said any credit unions retaining any LIBOR-related holdings will need to demonstrate how it is planning to transition out of these holdings.
- Liquidity Risk. NCUA said liquidity risk management will continue to be a top supervisory priority. NCUA will assess impacts from changes in market rates, liquidity and cash flow risk scenario modeling. Examiners will also place emphasis on how CUs are evaluating various contingencies’ impact on liquidity profiles, the agency said.
The full letter can be found here.