(Jan. 22, 2021) Focusing on challenges to credit unions posed by the ongoing coronavirus pandemic and steps to enhance the agency’s offsite monitoring of credit unions’ condition are key priorities for 2021 laid out by NCUA in a letter to credit unions issued late last week.
Also in the letter to all federally insured credit unions (21-CU-02), the agency stated that examiners will not be assessing credit unions’ efforts to transition to the current-expected-credit-losses (CECL) standard “until further notice.”
Regarding the coronavirus crisis, the agency said it planned to continue to focus examination activities on areas posing the highest risk to the credit union industry and that it will continue with its extended examination cycle, with qualifying credit unions to be scheduled “accordingly” in 2021.
The targeted exam procedures in the agency’s Small Credit Union Exam Program, NCUA wrote, remain in place for most federal credit unions with assets under $50 million. “For all other credit unions, NCUA examiners will conduct risk-focused examinations, which concentrate on areas of highest risk, new products and services, and compliance with applicable laws and regulations.”
Along that line, the agency said it is incorporating an exam planning questionnaire into the exam planning process. It said examiners will provide the questionnaire – which will collect information on certain products and services, significant events, insider activities, and fraud awareness – to credit unions in advance of their scheduled exams. Responses will be used to refine the exam scope, increase offsite-monitoring capabilities, and incorporate efficiencies to the exam. (More information on this questionnaire will be “forthcoming,” it said.)
Meanwhile, the agency noted that it will continue to pilot its new examination tool, the Modern Examination and Risk Identification Tool (MERIT), until the broader rollout in the second half of this year.
Regarding CECL, the agency said examiners would not assess credit unions’ efforts to transition to the CECL standard until further notice, given the ongoing economic impact of the pandemic and the Financial Accounting Standards Board’s (FASB) decision to delay its requirement to comply with the current expected credit losses (CECL) standard until January 2023. The agency said it does, however, encourage credit unions to continue to assess their needs and evaluate methodologies for the eventual implementation of the CECL standard.
Other priorities listed by the agency include continuing to:
- Conduct BSA/AML reviews during every examination and take appropriate action when necessary to ensure credit unions meet their regulatory obligations.
- Review compliance with provisions of the last year’s CARES Act and Consolidated Appropriations Act of 2021, including a provision that suspended the requirement to categorize certain loan modifications as troubled debt restructurings (TDRs), which was extended through Jan. 1, 2022; and requirements for financial institutions related to the administrative provisions for the additional 2020 recovery rebates for individuals.
- Examine for compliance with applicable consumer financial protection regulations during every federal credit union examination. The scope of each examination’s consumer compliance reviews, the agency said, is largely risk-focused and based on the credit union’s compliance record, products and services provided, and any new or emerging concerns. Examiners will assess a credit union’s Fair Lending Compliance Management System, the agency added.
- Not criticize credit unions’ efforts to provide prudent relief for borrowers, when such efforts are conducted in a reasonable manner with proper controls and management oversight. The agency said examiners will emphasize review of policies and practices related to helping borrowers affected by COVID-19 and will verify that credit unions evaluated the potential impact their COVID-19 response and relief efforts will have on their capital position and financial stability.
Also mentioned in its priority list were: cybersecurity; the transition away from the London Interbank Offered Rate (LIBOR) as a benchmark in transactions and contracts; liquidity risk (including, for example, that posed by “sudden and significant” share outflows); and serving hemp-related businesses.