Oct. 25, 2019 NASCUS Report

THIS WEEK: Nonmember shares acceptance expanded … while new membership rules begin ‘phase in;’ Agency to extend excess insurance disclosures; Legislation updates AML rules; Bureau seeks participants for consumer law task force … and announces symposium on ECOA; ON THE ROAD: In MI with CUs, regulators; Top events for 2020 on agenda; BRIEFLY: ‘Multi-year’ cybersecurity plan eyed; NASCUS 101 a hit

Board votes to expand acceptance
of non-member deposits …

The basis for measuring the regulatory limit on non-member and “public unit” shares will change under a new rule approved by the NCUA Board Thursday, essentially giving federally insured credit unions (FICUs) more sources from which to build deposit bases.

According to the final rule approved unanimously by the board (to take effect 90 days after publication in the Federal Register), an FICU could receive “public unit” shares (deposits from local, state and federal governmental agencies) and nonmember shares up to 50% of the credit union’s paid-in and unimpaired capital and surplus less any public unit and nonmember shares, or $3 million – whichever is more.

The agency noted that it specifically sought comment on the proposed elimination of the alternative limit of $3 million. “In response to the many comments supporting retention of the limit, the final rule provides that a FICU may have public unit and nonmember shares in an amount up to the new 50% aggregate limit, or $3 million, whichever is greater,” the agency said.

In addition, the final rule includes provisions from the proposal that eliminated the requirement that an FICU request a waiver from the agency’s regional office if it wants to exceed the limit. Instead, a FICU would be required to develop a specific use plan if its nonmember shares, combined with its borrowings, exceed 70% of paid-in and unimpaired capital and surplus. Examiners would also be charged with watching the level at which credit unions accepted the non-member shares (which also include the public unit shares, or funds provided by the federal government and its agencies, state governments and agencies, local public school systems, and more).

In its comment this summer about the proposal, NASCUS wrote that public unit deposits can represent a stable source of external funding that can strengthen participating credit unions. “We are confident that NCUA and the states can supervise increased non-member shares public unit deposits in a safe and sound manner,” NASCUS stated. In fact, Board Member Todd Harper quoted the NASCUS letter during the board meeting, reading aloud the passage that “providing credit unions greater operational flexibility to utilize external funding for liquidity makes sense from a supervisory perspective.”

NASCUS also pointed out that, in some cases, the 50% limit may not be enough. “While we concur that the proposed limit should be sufficiently high that the existing alternative measure of $3 million for smaller credit unions would be generally unnecessary, we remain concerned that for some credit unions, there could arise a need for levels of external funding in excess of the 50% limit,” NASCUS wrote.

NASCUS President and CEO Lucy Ito in a statement said the state system and its regulators are prepared to work closely with NCUA to supervise the increased non-member shares public unit deposits in a safe and sound manner. “Raising the limit for public unit and non-member deposits enhances credit union liquidity options and allows credit unions accepting these deposits to preserve other lines of credit,” she said. “We are particularly pleased that NCUA heeded NASCUS’ call to retain the regulatory limit on public unit and non-member shares of $3 million in addition to the newly approved 50% limit of paid-in and unimpaired capital and surplus.”

Final rule: Public Unit and Nonmember Shares

NCUA staff presentation

NASCUS Comments on Public Unit and Nonmember Shares Proposed Rule

… and proposes ‘phasing in’ of new membership rules

Also at Thursday’s NCUA Board meeting: A “phase in” of a court’s ruling allowing expanded federal credit union membership eligibility got underway as the board proposed new rules. The NCUA board unanimously proposed amendments to its rules on FCU membership that would allow an applicant credit union to designate a combined statistical area (CSA), or an individual, contiguous portion of that area, as a well-defined local community (WDLC), provided that the chosen area has a population of 2.5 million or less.

The agency said, in accordance with an August D.C. Circuit Court of Appeals ruling with respect to communities based on a Core-Based Statistical Area (CBSA), that it is providing “further explanation and support for its elimination of the requirement to serve the CBSA’s core area” as provided for in the original rule adopted in 2016 by the board. The agency also said it is proposing to clarify existing requirements and “add an explicit provision to its rules to address concerns about potential discrimination in the FOM selection for CSAs and CBSAs.”

NCUA Board Chairman Rodney Hood indicated in September that the agency would take a “phased approach” in moving forward on its regulation, given that the court’s ruling remained subject to requests for further review. Hood also said “in the near future” the agency would consider a limited proposal to address the definition of local community. The federal court, in its decision, focused on the definition of “Core-Based Statistical Areas” that do not include the urban core.

Thursday, Hood said re-adopting the CSA provision and other provisions in the proposal were “an important stage” in modernizing the agency’s credit union membership rules, and in phasing in the August decision by the appeals court.

NASCUS’s Ito noted that while the proposed rule only applies to FCUs, “NASCUS appreciates the agency’s efforts to strengthen the federal charter by widening access to financial services for members of modest means and providing greater choice and flexibility for consumers and federal credit unions.” She added that that state system “has long held that a competitive federal charter is essential for a strong dual charter system, that benefits all credit unions – both state and federal.”

NCUA Proposal: Chartering and Field of Membership

Agency would extend excess insurance disclosure

A requirement that federally insured credit unions must advertise any deposit or savings account insurance they have in excess of federal insurance would be extended under filings made by NCUA this week. In a notice published in the Federal Register, the agency said the advertising – essentially, a disclosure statement – must include the identity of the carrier of the excess deposit insurance, the type and amount of such insurance and must “avoid any statement or implication that the carrier is affiliated with NCUA or the federal government.”

Only credit unions that have the excess insurance – typically for amounts of deposits above the ceiling covered by federal insurance – must produce the advertisements.

According to NCUA, the disclosure requirements are necessary “to ensure that share account holders are aware that their accounts are insured by carriers other than the NCUA.”

The agency is seeking comments on the proposed extension of the existing advertising requirement for 60 days.

Agency Information Collection Activities: Proposed Collection; Comment Request; Advertising of Excess Insurance

Bill updates AML rules, provides ‘beneficial ownership’ access

Legislation intended to update anti-money laundering (AML) regulations, and also to give credit unions and other financial institutions access to beneficial ownership information about the companies they serve, was adopted by the House this week (by a vote of 249-173); It now heads to the Senate for consideration.

H.R. 2513 (the Corporate Transparency Act of 2019), according to the House Financial Services Committee, would “would close significant loopholes that are commonly abused by bad actors and will make it harder for terrorists, traffickers, corrupt officials, and other criminals to hide, launder, move, and use their money.” The legislation requires corporations and limited liability companies (LLCs) to disclose the “beneficial owners” of their firms to the Financial Crimes Enforcement Network (FinCEN), the Treasury’s anti-money laundering arm.

The legislation also includes a bill passed earlier this year intended to improve the Bank Secrecy Act’s (BSA) provisions for AML and combatting the financing of terrorism (CFT). The Coordinating Oversight, Upgrading and Innovating Technology, and Examiner Reform Act (COUNTER Act, H.R. 2514) is touted as the first major improvements to the BSA AML-CFT provisions since 2001. According to its sponsors, it closes BSA loopholes, increases penalties and “helps provide financial institutions with new tools to fulfill their obligations under the law.”

(Note: the NASCUS-CUNA BSA Certification Conference – where legislation and regulations such as the COUNTER Act will be on topic) is coming up, Nov. 18 – 21 in Tempe, Ariz. See the link below for more details.)

House Passes Bipartisan Financial Services Bill to Crack Down on Shell Companies and Fight Money Laundering and Terrorist Finance

BSA Certification Conference

Bureau wants task force to examine consumer financial law …

A taskforce to examine ways to harmonize and modernize federal consumer financial laws is being established by the CFPB, with the intent of strengthening and improving consumer protection law and regulations – and applications are being taken from those among the public who may want to participate.

The CFPB said recently that the new task force will examine the existing legal and regulatory environment facing both consumers and financial services providers, and report back to Director Kathleen (“Kathy”) Kraninger. According to the bureau, the task force will “produce new research and legal analysis of consumer financial laws in the United States, focusing specifically on harmonizing, modernizing, and updating the enumerated consumer credit laws – and their implementing regulations – and identifying gaps in knowledge that should be addressed through research, ways to improve consumer understanding of markets and products, and potential conflicts or inconsistencies in existing regulations and guidance.”

In a release, the CFPB said it is accepting applications for members to serve on the taskforce. The agency said it seeks members “with a broad range of expertise in the areas of consumer protection and consumer financial products or services; significant expertise in analyzing consumer financial markets, laws, and regulations; and a demonstrated record of senior public or academic service.”

CFPB Announces Taskforce on Federal Consumer Financial Law

… and announces next symposium – on ECOA

Information collected, reported and made public through credit applications made by women-owned, minority-owned and small businesses will be the subject of the CFPB’s next symposium, set for Nov. 6.

The bureau said the event – one of a series the agency is sponsoring on a variety of issues related to its mission – focuses on Section 1071 of the Equal Credit Opportunity Act (ECOA) and the information it requires to be reported. The agency said the symposium will “provide a public forum for the Bureau and the public to hear various perspectives on the small business lending marketplace and the Bureau’s upcoming implementation of Section 1071,” as amended by the 2010 Dodd-Frank Wall Street Reform and Consumer Protection Act (Dodd-Frank).

The agency said the symposium will consist of two expert panels. The first panel will focus on the current state of, and future outlook for, the small business lending marketplace. The second panel, CFPB said, will include a discussion surrounding the implementation of Section 1071 by the agency.

The event gets underway at 9:30 a.m.; members of the public who plan to attend the symposium are asked to RSVP. The event will be webcast on CFPB’s website, the agency said.

RSVP, Nov. 6 CFPB symposium on Sec. 1071 of Dodd-Frank Act (ECOA)

ON THE ROAD: In MI with credit unions and the issues

A full house was on hand this week in Ann Arbor, Mich., for the Michigan Industry Day, which provided an up-close look at the Michigan regulatory agenda and practices, as well as a close look at national issues, for Michigan credit union officials (as well as regulators and others). At left, the large crowd listens intently to opening remarks. At right, NASCUS Executive Vice President and General Counsel Brian Knight takes some time to visit with (center) Anita Fox, director, MI Department of Insurance and Financial Services and Denice Schultheiss director, MI Office of Credit Unions. All three offered presentations at the event.

Top events for 2020 scheduled (and ready for sign ups)

Signature events in 2020 from NASCUS are scheduled and ready to be placed on the calendars of members and participants of the state credit union system. The top events include:

  • NASCUS State System Summit 2020 (Aug. 9-12, New York, N.Y.): The State System Summit is the association’s annual, unique event which brings together credit union regulators and practitioners for mutual exchange and dialogue. It’s a rewarding experience for both groups, as they listen to ideas, share thoughts and look for solutions to the challenges and opportunities facing the state credit union system.
  • State Credit Union Regulators National Meeting 2020 (March 16-17, New Orleans): The annual, regulators-only meeting brings state credit union regulators together from across the country in one place for two full days of discussions that take a long look at the issues, topics and trends resonating through the state credit union regulatory environment today, with an eye toward the year ahead.
  • Cybersecurity Conference with CUNA (June 1-3, San Diego): NASCUS and the Credit Union Natl. Assn. (CUNA) partner for this groundbreaking program that set the standard for credit union cybersecurity conferences. The three-day program – including credit union regulators and practitioners as participants – to consider such topics as to learn hardening cyber defenses, enhancing cyber resilience and maintaining secure data.
  • Hemp and Cannabis Banking Symposium (June 17, Chicago): Following up on this year’s inaugural event – a first-of-its-kind for the credit union system at large — the 2020 symposium builds on the momentum gained in 2019 by exploring issues related to banking hemp and legalized state cannabis businesses as they play out against the backdrop of fast developing, and growing, cannabis and hemp industries.

For more information about any or all of these events – including registration – see the link below.

NASCUS UPCOMING EVENTS: 2020 (and the remainder of 2019)

BRIEFLY: Agency eyes multi-year cybersecurity plan; NASCUS 101 a hit

A long-term plan to provide training and information to better prepare NCUA and credit unions to meet rising cybersecurity threats is on the drawing board by the agency, according to a report made at the NCUA Board meeting Thursday. ““We need to bring fresh thinking to our regulatory approach; it is essential we strike a balance between innovation and security,” Chairman Rodney Hood said. “We at the NCUA are determined to be a leader in identifying and responding to cyberthreats.” NASCUS and the state system has been addressing cybersecurity for more than five years, specifically with an annual conference that addresses the issue (the first of its kind in the industry). NASCUS’ Lucy Ito observed that combatting cybersecurity threats necessitates a collaborative state-federal effort, and it is imperative that state examiners have equal access to NCUA’s cybersecurity examination trainings. “NASCUS stands ready to facilitate the sharing of critical cyber information and training materials between NCUA and state supervisory agencies,” she added … NASCUS held its Fall NASCUS 101 webinar this week, where NASCUS members and friends learned about the association’s unique value proposition – and benefits. See more from the slide deck presented at the webinar (below); Spring and Fall 2020 NASCUS 101 dates will be announced in the coming weeks.

NASCUS Cybersecurity Conference with CUNA

NASCUS 101 Oct. 24 slide deck

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