ORLANDO—Credit unions have been offered a peek into what might lie ahead when it comes to regulator examinations of CUSOs.
During a session on “Developing CUSO Review Standards” during the NACUSO annual conference here, Lisa Dolin, program officer with NCUA’s Office of Examination and Insurance, said the agency “appreciates the fact there is value added to the system through the use of CUSOs. I can’t stress that enough. And we want to make sure we send that message through our materials. But we also want to make sure we are addressing risk, and we are looking for feedback.”
NCUA currently has a working group on CUSOs that is formulating examiner guidance.
From left, Bob Frizzle, Lisa Dolan and JoAnn Johnson at NACUSO meeting.
Dolin was joined as part of the panel discussion by JoAnn Johnson, the former NCUA chairman who is now superintendent of the Iowa Division of Credit Unions, and Bob Frizzle, the CFO with CU*Answers.
“One of the tasks of the working group has been to look at our CUSO review process and bring some standardization to it,” said Dolin. “We have sought to bring consistency, competency and a better line of communication.”
Among the areas where NCUA is focused, according to Dolin: Updated guidance on the AIRES CUSO checklist, examiners guide materials, developing workbooks with scoping checklists that are out for regional testing (goal to be done by year-end); update the National Supervision Policy Manual with a new report format with more standardization); training for examiners, including at Exam Issues Forum in July and September of 2015.
“Given the fact that we know a CUSO offering IT services will look different from a CUSO providing HR services, there is variance in the report for the examiner to use his or her judgment,” said Dolin.
Offering a state perspective, Johnson said that Iowa has CUSO exam authority.
“We use (that authority) for a CUSO review now and NCUA usually joins us. I think were looking for consistency from not only credit unions and CUSOs, but from the regions. That’s one of the biggest complaints I hear on the credit union exam program, that there is so much variation between regions. I think we have the same thing with CUSO reviews. I think this process to get to more consistency is only for the positive. We’re looking to find ways to make it more efficient, and I think we’re already starting to get more feedback. In the exam process we’re looking to do more offsite work, and we’re looking to parlay that in the CUSO review process, too.”
'An Opportunity for Reform'
Frizzle, who holds a CFO role in six different CUSOs, said CU*Answers has never been opposed to reporting requirements.
“We are a transparent organization,” he said. “What we’re really opposed to is this becomes just like credit union reporting. We think this is an opportunity to do some reform and I bet if we do a really good job at it it will bleed over into the credit union process. I think as we’re building this from the ground up that we need to provide some really good input into this.”
Frizzle said that as an industry it’s important for credit unions that CUSOs be able to demonstrate their value statements in an easy format.
“What do I think this new template would look like for exams? I think we need automated data points that show it’s a going concern that is not a risk to the insurance fund. I don’t think it needs to get to the point are you following a particular procedure or process. As a CUSO, we’ve had 30 external audits and 40 internal audits in last five years. So if I have an SSA 16 and a Network Security Agreement, does the regulator really need to send in a team to do a network security review? No, they should be able to use the audits I’ve already done.”
Frizzle added the ideal situation would be a mechanism for more remote, electronic visits.
“I think we can inspire our credit union owners to join in this and help to modernize parts of their process,” said Frizzle. “And we can prove to credit unions we are a different kind of vendor and take advantage of this as a competitive advantage.”
Q&A With Panel
Below are some of the questions and responses that were part of a Q&A with the panel.
Q: What will on the scoping checklist?
Dolin: Website hosting, interactive website, types of data processing, lending related issues. We have not created scoping checklists for things like marketing and insurance agencies, because they don’t go to the core of the credit union’s businesses.
Q: How much power do you really have over regions? Set national policy?
Dolin: I think this is a cooperative effort. The regions are looking for the structure and the guidance, because it makes their job easier. From what I hear this is a welcome change. Regions will still have the ability to make judgment calls if they need to. When reports are prepared they now come into E&I. In previous years, they did not. We can see if they are meeting the standards and goals we set. It’s give and take, but I think we’re all trying to hit the same mark.
Q: I went through the NCUA CUSO exam, and it was a fishing expedition. There was no clear intent when they came in. It was a credit union exam and it would be beneficial if there was a clear upfront statement of intent. So I guess I’d like to know more about what it is you’re trying to get out of a CUSO exam? In our case the dollar amount of investment by our credit union owners is so small that even if we went out of business, be de minimus.
Dolin: I think it is important for our examiners to set forth their expectations and timeline, so you can understand what our goal is and how long it’s going to take. We are more concerned about operational risk than investment risk. The 1% limit is a small amount, but there can be significant affect in reputation risk, lending, other issues, etc. It’s the downstream risk where we have seen the impact, particularly in lending and whether or not they survive.