(Jan. 21, 2022) Under the last portion of the letter, on the agency’s exam program – and particularly on “recording of official meetings” – the letter holds a footnote stating that the guidance provided in the letter on recordings of exit meetings with examiners only applies to NCUA examiners.
“State examiners will follow guidance provided by the state supervisory authority,” the footnote reads. “Generally, the NCUA will defer to the state supervisory authority for state-chartered credit union meetings.”
During a virtual appearance this week at the Volunteer Leadership Institute (VLI) conference in Waimea, Hawaii, NASCUS President and CEO Brian Knight suggested that NCUA’s disclaimer about deference to state authority on federally insured, state chartered credit union (FISCU) exams should have been more prominent than a footnote so as to avoid potential confusion.
“We have 45 states and many of the states don’t think (recording) is going to be beneficial,” Knight told the group, according to reporting by CUToday.info. Referring to state regulators, Knight added “they do think it creates a chilling effect. They either do not allow it or discourage it intensely.”
Knight made his remarks to the conference during a session with NCUA Board Member Rodney Hood, which was moderated by HI Credit Union President and CEO Dennis Tanimoto. Knight participated in the session via the Internet from NASCUS headquarters in Arlington, Va. The conference is sponsored by the consulting firm Rochdale Paragon.
In other comments, Knight told the group:
- State regulators have great familiarity with some of the most sophisticated financial services transactions, products and services being offered, given the other institutions their agencies may supervise (including industrial savings and loans, banks, money transmitters and other entities). He said that expertise flows out of the state system and benefits the entire credit union system.
- Issues to watch for the state system in the coming year, Knight indicated, include third-party vendor due diligence and management, and BSA/AML issues.
- The state system’s service and performance during the coronavirus pandemic is worth of praise, and that the partnership between state and federal regulators has been “fantastic.”
(Sept. 17, 2021) Input from federal credit unions (FCUs) on NCUA’s pre-examination, reporting, and post-examination requirements will be collected through a survey pilot set to launch early next week and administered by the agency’s ombudsman, the agency said in a letter this week. this week.
In the Letter to Federal Credit Unions (LTFCU), NCUA said the survey will allow FCUs to provide timely feedback to the agency while helping to standardize the feedback process. The program is being conducted with FCUs that volunteer to participate; the letter does not apply to federally insured, state-chartered credit unions (FISCUs).
During the pilot, set to run from Sept. 20 through March 31 of next year, FCU CEOs or managers will receive a link to the post-examination survey from the NCUA’s Ombudsman at the conclusion of a regular examination, the agency said. FCUs will have 15 days to submit responses. There will be no survey at the conclusion of a follow-up examination or supervision contact, and credit unions are not required to respond to the survey, it said.
“The Ombudsman will administer the collection of survey responses to maintain separation of the survey responses from NCUA staff conducting examination work,” the letter states. “The Ombudsman is responsible for reviewing survey responses, consolidating data from responses, and reporting the results to NCUA leadership. Survey responses will be collected through SurveyMonkey and will generally not be used to evaluate the results of individual examinations.”
The letter says the survey will include five questions focused on pre-examination, reporting, and post-examination requirements; plus an open-ended question that will ask for credit union feedback on the types of questions the agency should consider in a future permanent survey. Three versions of the survey will rotate among credit unions with completed examinations.
The NCUA said the survey should only be submitted once and can be completed by any senior-level employee or official designated by the credit union manager or CEO. It instructs credit unions not to include personally identifiable information in the survey response.
It also said examination disagreements or reports of waste, fraud, or abuse should not be reported through the survey response but that credit unions should refer to the examination report cover letter to learn how to report such concerns.
LINK:
NCUA LTFCU: Post-Examination Survey Pilot (21-FCU-05)
(Clockwise from upper left: NASCUS’ Lucy Ito joins NASCUS Executive Vice President and General Counsel Brian Knight, and NCUA Office of Examination and Insurance Director Myra Toeppe in a discussion of key issues)
(Aug. 20, 2021) The surging Delta variant of the coronavirus is putting a damper on NCUA’s plan to resume on-site operations, including exams, the agency’s top supervisor told the NASCUS S3 conference this week.
According to NCUA Office of Examination and Insurance Director Myra Toeppe, the continued phasing-in of on-site operations depends on the virus variant. She indicated a timetable still needs to be determined. However, the agency is ready (and willing) to go into a credit union whenever it sees a risk to the insurance fund, she said.
“We’ll go in where we need to go in if we see a risk to the insurance fund; we have been clear on that,” Toeppe said during a Tuesday session of the conference. (She was sitting in on the session in place of NCUA Board Chairman Todd Harper, who was unable to attend.) “We do have problem case officers that are doing things. Our regional offices, if we need to be on site, they will get with the (NCUA) executive director to determine from an insurance perspective if we need to go in. We’ve actually had to do some conservatorships during this time. Those are the exception, not the rule.”
But Toeppe emphasized that the agency would move with caution in any event. “People matter,” she said.
The agency’s top examiner also offered a strong defense for NCUA’s call for third-party vendor exam authority. “We do need it,” Toeppe, a former savings and loan regulator, said. “When I first came over to NCUA, I was stunned we didn’t have third-party vendor exam authority. I was used to always having it.” She said her former agency was never accused of abusing the authority, “and it was never a problem.”
Toeppe said NCUA sees reliance “more and more and more” by credit unions on the use of vendors and third parties to help them in a number of areas. She cited data processing and lending as examples.
The agency executive asserted that use of third-party vendors can become a source of risk to the share insurance fund. “And that’s always my focus,” she said. “We want to be sure we aren’t exposing the insurance fund to undue risk. And that’s really where it comes from; it’s a risk perspective for NCUA.”
She added that if the agency secures the authority (which will take an act of Congress to do so), NCUA would use it cautiously. She disputed some reports that the agency would be “ramping up” such as by hiring 500 additional examiners. “I think we’d use (the authority) prudently, where needed, just exactly like the state supervisors have done,” she said. “Where it’s needed, when it’s needed when we see a risk– just like the state supervisors, they’ve used it prudently. The banking regulators use it prudently. I don’t think there would be any difference.
She said that using the authority, when needed, is necessary to avoid a regulatory blind spot. “From (the perspective of) managing the share insurance fund, that makes us very nervous. That’s one thing that keeps me up at night,” she said.
In other comments, Toeppe said:
- Cybersecurity is a persistent threat; the one risk that just doesn’t go away. “We have ebbs and flows of other risks, but cybersecurity just keeps coming,” she said. “It just doesn’t stop, it’s in everything. It’s the constant ‘come at you’ thing. It’s high level, persistent.”
- NCUA is not discouraging mergers among credit unions (as opposed to banking regulators with banks, under an executive order from President Joe Biden). “We don’t tell (credit unions) no you can’t merge, but we want to make sure they are doing the right thing.”
- She has no problem with credit unions buying banks, as long as the transaction is done well and the credit union has done its homework. “Everyone thinks we rubber stamp them,” she said, adding the agency does not. She said the transaction must make sense, and that the agency has be sure of the risk that the insurance fund is taking on with the transaction.
(March 19, 2021) Nine areas that will affect the resource needs of NCUA– including monitoring the equity ratio of the savings insurance fund, enhancing the examination program and building the supervision workforce — in the coming year and likely beyond, are listed in the agency’s 2020 annual report released this week.
The nine areas, the agency said, “will continue to shape the environment facing credit unions and will determine the resource needs of the NCUA.” Those areas are:
- Monitoring the National Credit Union Share Insurance Fund’s (NCUSIF’s) equity ratio
- Enhancing the agency’s examination program
- Building the NCUA workforce to supervise an evolving credit union environment
- Declining membership in small credit unions
- Growing threats to cybersecurity
- Adapting to technology-driven changes to the financial landscape
- Factoring the near-term economic outlook
- Managing interest rate risk and liquidity risk
- Continuing consolidation
Regarding the insurance fund, the agency said that an incident such as a significant credit union failure that drops the equity ratio below 1.0% “would result in a direct expense to credit unions through the impairment of the 1.0% capital deposit they contribute to the fund, which credit unions have recorded as an asset on their balance sheets.”
“Additionally, if the equity ratio falls below 1.20%, or is expected to within six months, the Federal Credit Union Act requires the NCUA Board to assess a premium on federally insured credit unions to restore the fund to at least 1.20% or adopt a fund restoration plan,” the report reminds. It notes that the fund, as of Dec. 31, 2020, was at 1.26% of equity to shares insured — 12 points below the “normal operating level” of the fund of 1.38%.
As for enhancing the exam program, the report states that in 2021 the agency will finalize deployment of the new MERIT system and transition new exams from AIRES to the new method. “This transition includes the agency’s primary examination platform as well as many business processes targeted to take advantage of MERIT’s configurable platform,” the report states. It also indicates that the agency will continue to develop its Enterprise Data Program, intended to “enhance how agency governs and reports its data.”
On building its workforce, the agency said it increasingly needs cybersecurity specialists and experts in areas including capital markets, commercial lending, consumer financial protection and payments systems. “The agency also has a large percentage of employees who have reached, or will soon reach, retirement age, including many in senior levels of management,” the report states. “Finding appropriate successors who can lead the agency and employees who have the requisite skills and expertise is essential to ensuring that the NCUA can continue to achieve its mission effectively.”
The report notes that, this year, it will use a new learning management system to “better enable access to on-demand training for all employees,” and will develop and execute training to support implementation of the new MERIT exam system and its multi-year leadership development strategy.
Also in the report, the agency states:
- Among its supervisory priorities in the wake the coronavirus crisis, it will work with state regulators and credit unions to identify operational challenges emerging from the impact of the pandemic;
- It will continue in 2021 working with six state regulators in piloting an alternating-year examination program for federally insured, state-chartered credit unions (FISCUs). After the pilot ends, the agency said, it and the states will assess how – and whether – the results can improve the exam program, particularly by improving coordination.