Interest Rate Risk, Cybersecurity and Consumer Compliance Among Concerns for NASCUS Members

A special message from Mary Martha Fortney, President and CEO
April 2014

March was a busy month for NASCUS and the credit union system. The Senate Banking Committee held a nomination hearing for NCUA Board nominee Mark McWatters on March 13, 2014. Both houses of Congress continue to labor on Housing Finance Reform proposals. Congress passed the Homeowner Flood Insurance Affordability legislation (H.R. 3370), which limits flood insurance premium increases to an average of 15 percent per year, with no individual policy increasing by more than 18 percent per year. The bill, which was signed into law by the president on March 21, 2014, also reinstated a grandfathering provision that would protect policyholders who complied with previous FEMA flood maps and authorizes a $25 surcharge on residential policies and a $250 surcharge on non-residential policies.

In addition, NASCUS has been actively pursuing our strategic plan initiatives, working to finalize the 2014 Summit program in Nashville, Tenn. (Sept. 10-12), and drafting a comment letter on the proposed risk-based capital legislation, which is due May 28, 2014.

NASCUS was also hard at work in March at the NCUA/NASCUS State Regulators’ Conference, which was held in Pittsburgh, Pa., March 11-12. During the conference, state and federal regulators discussed pressing regulatory concerns, including interest rate risk (IRR), cybersecurity and consumer compliance.

At the IRR breakout session held during the national meetings, regulators agreed that while not all credit unions are unprepared for rising rates, it is important that training be improved for examiners and credit union boards in order to adequately address the problem. State and federal regulators also discussed how to better collaborate.

Another area discussed was adding the “S” rating to account for Sensitivity to Market Risk in the CAMEL component. Several states have already implemented the “S” rating in their examinations. An informal poll was taken during the conference that demonstrated that a majority of attendees present believe the “S” component should be adopted.

It was agreed that examiners need training on how IRR should be taken into account and reflected across the different CAMEL components, including capital adequacy and management. Expertise in this area is required in order to properly educate credit unions and persuade them that they need to take action now to control their IRR.  After the conference,  state regulators from Region IV were invited to participate in NCUA’s capital markets subject matter expert (SME) training  in Chicago from April 8-10, which will focus on examining for IRR.  Additional training is needed for credit unions boards.

Another breakout session topic was cybersecurity. While no material losses have been noted related to credit union performance, the industry faces cybersecurity threats. Information technology risks are ever-changing, and there is no choice but to be reactive to the quickly changing environment. Attendees agreed that a framework is necessary to ensure that an appropriately responding supervision scheme exists.

The third breakout session focused on consumer compliance, during which several topics surrounding the issue were discussed: NCUA regulatory compliance, interagency efforts, NCUA enforcement authority, exam scope, examiner training, regulatory guidance to credit unions, and the NCUA consumer assistance center.

Is credit union consumer compliance satisfactory? Are there enough consumer compliance training opportunities for examiners? Should examinations that focus on consumer compliance be conducted on certain credit unions, either designated by size, product lines or some other metric? All of these topics were discussed during the meetings.

NASCUS, along with NCUA and the FDIC, offers a variety of educational offerings on consumer compliance. There is always room for improvement, however, and updates are being made to the training in order to keep up with changes in regulations.

I want to express my appreciation for NASCUS member support of our efforts on behalf of the state credit union system. Your support allows us to be successful with our legislative advocacy, regulatory analysis and educational programs for state regulators and state-chartered credit unions. I look forward to sharing with you all of the progress we are making and have made as we look toward the coming months.

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