Jan. 11, 2019 NASCUS Report

BSA/AML top priority for NCUA in ‘19

Bank Secrecy Act and anti-money laundering (BSA/AML) compliance are at the top of supervisory priorities for NCUA in the New Year, the agency said this week in letter to credit unions. Among the other priorities: the evolution of the new accounting standard on current expected credit losses (CECL), concentrations of credit, home mortgage disclosure compliance, and liquidity and interest rate risks.

In its first letter to credit unions of 2019 (19-CU-01), NCUA Board Chairman J. Mark McWatters stated that examiners will take a close look at the three P’s (policies, procedures, and processes) of credit unions’ BSA/AML policies to weigh compliance with requirements for customer due diligence and for identifying and verifying beneficial ownership of legal entity members. “New Customer Due Diligence regulations for Financial Institutions (31 CFR 1010.230) became effective May 11, 2018,” McWatters’ pointed out. “Examiners began assessing credit unions’ efforts to comply with the new regulations during the second half of 2018.”

(NASCUS, anticipating the agency’s focus on BSA/AML and in keeping with the association’s on-going commitment to keeping the state system up-to-date on compliance, is hosting at least two education sessions in the coming year focusing on these topics. See the links below for more information.)

With regard to the new CECL accounting standard, the agency letter said examiners will ask about efforts a credit union has taken to prepare for the standard’s implementation and whether a credit union has performed analysis for how CECL would alter the Allowance for Loan and Lease Losses (ALLL) funding needs. The agency also acknowledged that the new standard “may continue to evolve in 2019.” The new standard takes effect for most credit unions after fiscal years beginning after Dec. 15, 2021, based on a decision made last fall by the Financial Accounting Standards Board (FASB)), which extended the effective date by one year.

NASCUS is also helping state credit unions prepare for the new accounting standard, planning at least two dedicated CECL symposiums during the year

The letter also restates the agency’s vow of a “fully implemented” extended exam cycle this year. “Consistent with 2018, agency examiners will continue using the streamlined small credit union exam program procedures for most credit unions that have assets under $50 million,” the letter states. “For all other credit unions, examiners will conduct risk-focused examinations, concentrating on the areas of highest risk, new products and services, and compliance with federal regulations.”


NCUA Letter to Credit Unions (19-CU-01)

NASCUS 2019 education agenda


NCUA’s letter outlining 2018 regulatory priorities also highlight:

  • Concentrations of credit: “Examiners will have a continued focus on large concentrations of loan products and concentrations of specific risk characteristics,” the letter states, defining “concentration risk” as “any single exposure or group of highly correlated exposures that have the potential to produce losses large enough to threaten a credit union’s health or ability to maintain its core operations.” The agency said if examiners identify excessive levels of credit concentration risk (which it called a “common cause of financial losses), they will work with credit union management to identify strategies to mitigate the risk.
  • HMDA compliance: “As in 2018, examiners will continue to perform limited reviews of Home Mortgage Disclosure Act (HMDA) quarterly Loan/Application Registers, or full-year Loan/Application Registers when applicable,” the letter states. The letter adds that reviews will evaluate credit unions’ good faith efforts to comply with 2018 HMDA data collection and reporting requirements, accounting for partial exemptions that took effect with the passage last spring of the Economic Growth, Regulatory Relief and Consumer Protection Act (EGRRCPA, S. 2155) enacted last spring.
  • Information security: “Examiners will continue conducting information security maturity assessments with the Automated Cybersecurity Examination Toolbox (ACET),” which, the letter states, will be used to assess credit unions with more than $250 million in assets that have not been previously assessed. The agency also plans to assess credit union information technology (IT) risk management and oversight of service provider arrangements “to ensure credit unions implement effective risk-based supply chain management.” NASCUS has supported that latter approach, as long as — in states with existing third-party examination mechanisms in place — deference is given by the federal agency to the state authority to supervise these vendors.
  • Liquidity, interest rate risks: “An effective liquidity and interest rate risk management program is a key component of a credit union’s safety and soundness,” the letter states. “The projected economic fluctuations in 2019 make this an increased area of emphasis.” NCUA said its examiners, specifically, will look at:
    • Potential effects of rising interest rates on the market value of assets that affect changes to net worth and borrowing capacity;
    • Member preference shifts to shares with more market sensitivity; and
    • Credit union management’s ability to meet liquidity needs given the increased competitive pressures that affect share balances.

NCUA Examiner’s Guide


The agency’s annual performance plan, along with consideration of the Illinois state member business lending rule, are among the items on the agenda for next week’s meeting of the NCUA Board in Washington.

The 2019 Annual Performance Plan will outline the resources and strategies the agency will use to set priorities and improve performance (in concordance with the annual spending plan). Last year’s plan highlighted new technology and analytical tools to be adopted by NCUA to improve offsite monitoring and adjust its examination approach as well as operations, priorities and structure.

Also stated in the plan: that NCUA’s strategy would be to “work closely with the state supervisory authorities to ensure necessary action to mitigate risk within the state credit union program.”

In other action, the board’s agenda includes:

  • Considering revisions to the member business loan rule for Illinois state credit unions (by the Illinois Department of Financial and Professional Regulation) to provide parity with NCUA’s rule. States that wish to have their own versions of the rule must receive NCUA Board approval for federally insured credit unions in their states.
  • A briefing on making an inflation adjustment to the agency’s civil money penalties.
  • Another briefing, this one on the redesign of the agency’s website, NCUA.gov, unveiled this week. According to a press release from the agency, the new design “features a mobile-first design that allows users to access and view the agency’s website on a variety of platforms, including smartphones, tablets, laptops and desktops.” The website also now includes searchable Letters to Credit Unions, legal opinions, Corporate Credit Union Guidance Letters, Board appeals, press releases, and conservatorships and liquidations, the agency said.

The NCUA Board meeting, at agency headquarters in Alexandria, Va., gets underway Thursday at 10 a.m.

NCUA Board Jan. 17 meeting agenda


A consolidation to three regional offices – from five previously — is now complete for NCUA in the latest phase of a restructuring that began in 2017, the agency said this week. Effective Jan. 7, NCUA has closed its Albany, N.Y., and Atlanta, Ga., offices and consolidated its regional operations across the three remaining offices (in Alexandria, Va. for the agency’s Eastern Region; Austin, Texas for the Southern Region; and Tempe, Ariz. for the Western Region). Reorganization of NCUA headquarters operations were completed last year, the agency said. Meanwhile, NCUA said its Asset Management and Assistance Center (AMAC, based in Austin) realigned its servicing business model and moved to a financial supervisory structure as part of the reorganization.


Mortgage lending rules designed to ensure borrowers have the income and debt levels to manage loans do not appear to have raised lending costs, and other rules giving smaller lenders (including credit unions) more leeway in making loans (as long as they are held in portfolio) do not appear to have constrained the activities of the lenders, are among the key findings of two “assessment” reports issued this week by the CFPB.

The agency Thursday released “assessments” of two Truth in Lending Act (TILA) and Real Estate Settlement Procedures Act (RESPA) rules issued under the 2010 Dodd-Frank financial reform law focusing on home loan affordability and servicing. The assessments – the first such reports issued under the leadership of bureau Director Kathleen (“Kathy”) Kraninger – were issued to satisfy a requirement of the Dodd-Frank law which requires the agency to conduct an assessment of each significant rule or order adopted by the bureau and to publish a report of its assessment no later than five years after the effective date of the significant rule or order.

Thursday’s assessment reports focus on the ability-to-repay/qualified mortgage (ATR/QM) rule issued under TILA (Regulation Z) and the mortgage servicing rule issued under RESPA (Regulation X), which went into effect in 2014. The reports, 271 pages and 300 pages long, respectively, include opening messages from Kraninger, who is encouraging input from stakeholders.

“The issuance of this report is not the end of the line for the Bureau,” Kraninger states in her forward to the ATR/QM rule assessment report. “I am committed to assuring that the Bureau uses lessons drawn from the assessments to inform the Bureau’s approach to future rulemakings. We are interested in hearing reactions from stakeholders to the report’s methodology, findings and conclusions. The Bureau anticipates that continued interaction with and receipt of information from stakeholders about this report will help inform the Bureau’s future assessments as well as its future policy decisions regarding this rule.”

Consumer Financial Protection Bureau Publishes Assessments of Ability-to-Repay and Mortgage Servicing Rules

Assessment report – Ability-to-repay/qualified mortgage rule

Assessment report – Mortgage servicing rule


NASCUS kicks off a busy 2019 education agenda the first week of February with its Enterprise Risk Management (ERM) training session in Needham, Mass. The Feb. 7 event is the first of more than a dozen events already scheduled for the New Year, with more on the planning table. The ERM session will cover the details of a high level, institution-wide ERM program and identify significant strategic issues that are important for a credit union to successfully integrate into its risk management program and for the examiner to use in identifying weaknesses. Other key events coming up in 2019 include: The NASCUS State System Summit 2019 (Aug. 13-16 in San Francisco), the NASCUS-CUNA Cybersecurity Conference (June 10-12 in Austin, Texas); and the NASCUS-CUNA BSA Conference (Nov. 18-21 in Tempe, Ariz.)

NASCUS ERM Training, Feb. 7

NASCUS State System Summit 2019, Aug. 13-16

NASCUS-CUNA Cybersecurity Conference, June 10-12

NASCUS-CUNA BSA Conference, Nov. 18-21

NASCUS CFPB latest developments pages

BRIEFLY: Regulators, state-by-state, updated

Check out our list of regulators, state-by-state, updated with the latest transitions (including in Colorado, Massachusetts, Michigan, New Jersey, Texas and more). It’s all on our “State Regulators” page on nascus.org.

NASCUS State Regulators listings

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