Compliance Blog

Written by Steve Van Beek

Yesterday, I mentioned the January issue of the NCUA Report.  Today, I wanted to highlight a few items from the Exam Focus article (starts on Page 1 and continued on Page 5).

The article indicates that NCUA's objective in the 2013 examination process is "to improve the capacity of credit unions and of NCUA itself, while providing better clarity and consistency for both examiners and credit union staff."

The three c's are then explained in more detail.

Capacity.  The article discusses both capacity of NCUA - with regard to their resource allocation and adjustments to their examination offices.  The capacity of credit unions will examine:

• Adoption of New Technology - Examiners will review how well credit unions put risk management controls in place when expanding the use of technology, such as online banking and social media.
• Balance Sheet Management - Examiners will explore whether credit unions are appropriately managing earnings and capital without adding undue levels of interest rate, liquidity and credit risk.
• Operational Risk - Examiners will look into how capable are credit unions to control operational risk and maintain a sound system of internal controls.
• Other Assets - Examiners will review whether credit unions are actively managing the unique risks associated with unconventional products, such as investments in credit union-funded benefit plans or private student loan programs.

Clarity & Consistency (my two favorite c's).  NCUA is working on improving by:

• Expanded Use of Guidance - NCUA will continue to use supervisory letters to clarify regulatory requirements and provide clear supervision expectations.  For 2013, examples include forthcoming guidance on: member business loan waivers and personal guarantees, loan workouts/troubled debt restructured loans, and the use of credit ratings. (emphasis added).
• Examination Program Enhancements - NCUA is developing better training and guidance in several areas, such as the development and use of Documents of Resolution.  The pre-exam letter is also being modified to communicate additional information about the examination process.  Additionally, the exam report cover letter is being enhanced to better describe all examination appeal options - both formal and informal - available to credit unions. (emphasis added).

The article also mentions the National Supervision Policy Manual - which NAFCU continually requested - and how this manual should help improve consistency throughout regions.

NCUA will also follow-up with a Letter to Credit Unions highlighting their Exam Focus for 2013.  You can see their focus for 2012 here. 

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NAFCU Letter.  NAFCU's letter to NCUA on their budget - which we mentioned yesterday last week - also included this on exams:

"NAFCU also encourages the agency to pull back on its increased spending related to examinations.   The NCUA has made no secret of the fact that it has invested heavily on examinations in recent years.  However, as the agency has emphasized in recent months, the state of the industry has improved steadily over the past year and fewer credit unions pose safety and soundness concerns.  Despite this fact, however, the 2013 budget does not decrease expenses related to examinations in proportion to the improvements the agency has seen.  Rather than reducing the agency’s costs associated with examinations, the agency is currently reallocating resources as it opens its new Office of National Examinations and Supervision.

Further, our members continue to find that examinations are far too onerous and costly, and that regulations continue to be inconsistently applied.  Specifically, we continue to hear from our members that examiners are still misusing examination tools, such as Document of Resolutions (DORs), in situations where an examiner’s findings are more appropriate.  NAFCU strongly believes that NCUA examiners should only use DORs and similar formal actions in limited and prescribed circumstances.  Further, examinations should not be a “gotcha” exercise; credit unions should reasonably expect the results from an examination based on the process. Simply put, as the NCUA and other regulators pile on the regulations, it is crucial that NCUA find ways to make examinations less burdensome."  (emphasis added).

The full letter is here.  

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NCUA/CFPB Webinar.  NCUA will be hosting a town hall webinar on February 5th at 3:00 p.m. EST.  The webinar will feature both NCUA Chairman Debbie Matz and CFPB Director Richard Cordray.  I strongly encourage you to watch, if you can.  I also encourage you to ask questions (both during the event and prior to).  You can submit questions or concerns by sending an email to webinarquestions@ncua.gov with the subject line "NCUA-CFPB Town Hall."   

You can register here.  Remember, February 5th at 3:00 p.m. EST.