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Mar 19, 2010

Wachovia...Bam!; NCUA Board Meeting - RegFlex

Posted by Anthony Demangone

People love to ask me this question.  If we do not comply with Regulation (insert whatever reg you wish), how big can the fine be.  Well, there's some data out there now that says...$160 million!!!

That is the dollar amount that Wachovia, now part of Wells Fargo, must pay to settle allegations of BSA violations.  And here's FinCEN's order. Now, I don't want to infer that NCUA will hit your credit union with a $160 million civil money penalty for missing a CTR.  But this latest enforcement action does underscore the fact that BSA is still a major issue for regulators.

I recommend that you read the agreement in reverse.  By that, I mean you should see where Wachovia "failed to do something" and reverse that into "Wachovia should have" done something.  By doing that, the agreement can provide some useful guidance. It looks like "casas de cambio" and remotely created checks got them into hot water, but I urge you to read this for yourself.  On page 4 of FinCEN's order, for example, I saw this:

The number of alerts or events generated by the Bank's automated transaction systems was capped to accommodate the number of available compliance personnel. Each alert or event on an international correspondent bank generated by the Bank's automated transaction monitoring system was comprised of as many as 30,000 individual transactions (with an average of 1,400 transactions per alert), which rendered the monitoring system practically unmanageable. The monitoring system was routinely tuned so that the number of alerts generated by the system with respect to international correspondent banks remained constant at around 300 each month.

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Yesterday, the NCUA Board conducted its monthly meeting.   Here's a recap concerning proposed changes to NCUA's RegFlex program. 
By a vote of 2-1, the NCUA Board approved a proposal
 to revise the Regulatory Flexibility (RegFlex) program to eliminate certain activities from the program to better enhance safety and soundness.  Specifically, the proposal would impact the portions of the RegFlex program pertaining to fixed assets, members business loans (MBL), stress testing of investments and discretionary control of investments.  

Fixed Assets.  Current regulations prohibit a credit union with $1 million or more in assets from investing more than five percent of their shares and retained earnings in fixed assets.  RegFlex credit unions are exempt from the limit.  The proposal would abolish this exemption.

MBL.  Currently, RegFlex credit unions are exempt from the regulatory requirement to obtain the personal guarantee of the borrower’s principals for member business loans.  The proposal would extinguish this exemption.

Stress Testing Assets.  The NCUA’s regulations require credit unions to monitor all securities and prepare monthly reports on the value of the securities portfolio.  Additional quarterly reporting requirements exist for fixed and variable rate securities.  Based on the results of the quarterly reports, the credit union may be required to stress test its portfolio to determine whether the credit union could weather severe market turmoil.  Again, RegFlex credit unions are exempt from the stress testing requirement.  The proposal would end that exemption.

Discretionary Control of Investments.  Current regulations authorize credit unions to delegate discretionary control of investment authority of up to 100 percent of the FCU’s net worth to an investment advisor registered with the Securities and Exchange Commission.  The RegFlex rule exempts qualified credit unions from the 100 percent net worth limit.  The proposal would eliminate that exemption. 

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Have a great weekend, everyone.

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