The National Credit Union Administration on Jan. 31 will host a webinar discussing the 2023 Supervisory Priorities Letter to Credit Unions.
Registration for this event is now open. Christel Orusede, from the NCUA’s Office of Examination and Insurance, will moderate a panel of NCUA subject matter experts who will discuss topics outlining NCUA’s supervisory priorities and other aspects of the agency’s examination program for 2023 to help credit unions prepare for their next NCUA examination.
The “2023 Supervisory Priorities” webinar is scheduled to begin at 2 p.m. Eastern and last approximately 60 minutes. There is no charge. There will be a question-and-answer period afterward.
Participants will be able to log into the webinar and view it on their computers or mobile devices using the registration link. They should allow pop-ups from this website. The webinar will be closed captioned and archived approximately one week following the live event.
Participants can submit questions during the presentation or in advance by emailing [email protected]. The email’s subject line should read, “2023 Supervisory Priorities.” Please email technical questions about accessing the webinar to either [email protected] or [email protected].
(Jan. 28, 2022) Boards of federal credit unions (FCUs) would be required to “establish and adhere to” processes for succession planning under a proposal issued, on a 2-1 vote, by the NCUA Board Thursday.
The proposal only affects FCUs. NCUA noted that federally insured, state-chartered credit unions (FISCUs) must comply with any state-specific requirements pertaining to succession planning. “However, the Board encourages FISCU boards, to the extent compatible with state law, to undertake succession planning efforts to help ensure continued viability of their credit union,” NCUA said in the proposal.
In fact, the proposal’s summary notes that, although it would apply only to FCUs, “the Board’s purpose is to encourage and strengthen succession planning for all credit unions.”
The proposal also does not affect federally insured corporate credit unions, the agency noted. NCUA said its regulations (under 12 CFR part 704) already “adequately address succession planning” at the corporates.
According to the proposal, succession plans will help to ensure that the FCU has plans to fill key positions, such as officers of the board, management officials, executive committee members, supervisory committee members, and (if provided for in the bylaws) the members of the credit committee to provide continuity of operations.
“In addition, the proposed rule would require directors to be knowledgeable about the FCU’s succession plan,” the proposal states.
One of the reasons that the proposal was issued, according to the agency, is that credit union consolidation largely through mergers is being driven by lack of succession planning. “An NCUA analysis found that poor management succession planning was either a primary or secondary reason for almost a third (32 percent) of credit union consolidations,” the agency said.
At the same time, the agency said, another reason for a heightened focus on succession planning is the ongoing retirements of the “Baby Boomer” generation of individuals born between 1946 and 1964.
“According to some sources, approximately 10 percent of credit union chief executive officers were expected to retire between 2019 and 2021,” the agency asserted.
NCUA Board Member Rodney Hood voted against the proposal because, he said, the agency has “other tools in its toolbox” other than a regulation to help credit unions deal with succession planning. He suggested, for example, greater uses of webinars sponsored by the agency. Both Board Chairman Todd Harper and Vice Chairman Kyle Hauptman supported issuing the proposal for a 60-day comment period.
In other action, the board:
- Heard a briefing on the agency’s Central Liquidity Facility (CLF), including plans to increase credit union membership in the facility to “to better serve individual CUs, the Share Insurance Fund and the system overall.” The agency also noted that it continues to advocate for Congress restoring and making permanent the enhanced authorities provided to the CLF as part of the 2020 Coronavirus Aid, Relief, and Economic Security (CARES) Act and extended (until the end of 2021) by Congress in early 2021. The enhancements are: Increasing the facility’s maximum legal borrowing authority; permitting temporary access for corporate credit unions, as agent members, to borrow for their own needs; providing greater flexibility and affordability to agent members to join and serve smaller groups of their covered institutions than their entire memberships; and providing the NCUA Board with more clarity and flexibility regarding the loans.
- Listened to a briefing on the agency’s supervisory priorities for 2022 (which echoed the letter sent to all federally insured credit unions the week before). However, the agency staff said regarding the current expected credit loss (CECL) accounting standard, which takes effect for credit unions next year, the agency will be providing training and guidance to credit unions as they adopt the new accounting model – including a spreadsheet to be released later this year. Additional training, the agency said, would be made available to credit unions on an as-needed basis.
- Heard an update on its final rule (approved by a board notation vote late last month) on adjusting the maximum amount of civil monetary penalty (CMP) amounts, as required by statute, a somewhat routine action that other federal financial institution regulators have already taken this month.
LINKS:
Proposed Rule, Part 701, Succession Planning.
Board Briefing, 2022 Supervisory Priorities
Board Briefing, Final Rule, Part 747, Statutory Inflation of Civil Monetary Penalties.
(Jan. 21, 2022) Credit risk management, cybersecurity and payment systems are the three top supervisory priorities for NCUA, the agency said this week.
Additionally, the agency indicated it will also be taking a closer look at overdraft programs at credit unions, with an eye to perhaps further action in 2023.
Overall, NCUA said in its letter to credit unions (22-CU-02), it will continue to conduct examination and supervision activities primarily offsite, given the uncertainty associated with the coronavirus crisis.
“Working with our public health consultant, the agency continues to closely monitor the COVID-19 pandemic trends and will resume onsite examination and supervision work when safe to do so,” the letter stated.
On its apparent top priority of credit risk management, the agency said its examiners would continue to review management and mitigation efforts at credit unions. “For all lending programs, credit unions’ risk management practices should be commensurate with the level of complexity and nature of their lending activities,” the agency letter states. “Credit unions must maintain safe-and-sound lending practices and comply with consumer financial protection laws, including disclosures and regulatory reporting requirements.”
Examiners will focus on adjustments credit unions made to lending programs to address borrowers facing financial hardship, the letter states. Examiners will also emphasize reviewing policies that address the use of loan workout strategies, risk-management practices, and “new strategies implemented to provide funds to borrowers under distress, including programs authorized under the CARES Act and extended in the Consolidated Appropriations Act, 2021,” the letter states. Examiners will evaluate credit unions’ controls, reporting, and tracking of these programs, in particular, NCUA wrote.
“NCUA examiners will not criticize a credit union’s efforts to provide prudent relief for borrowers when such efforts are conducted in a reasonable manner with proper controls and management oversight,” the letter stated.
On cybersecurity, the agency said it is developing updated information security examination procedures tailored to institutions of varying size and complexity. The procedures will be piloted and finalized this year, NCUA said. “Cybersecurity risks remain a significant threat to the financial system,” the letter stated. “Ransomware, third-party/supply chain risks, and business email compromises, in particular, continue to be of concern.”
The agency asserted that payment systems are growing in complexity and risk for credit unions and consumers, pledging increased focus in the area. “Today’s environment of easy and fast electronic processing of transactions relies on technology, the applications and their controls, and the underlying security of the platforms facilitating the transactions,” NCUA wrote. “The changes in payment systems increase the risk of fraud, illicit use, and breaches of data security.”
Key points of the other priorities include:
- Overdraft programs (consumer financial protection): Examiners will request information about a credit union’s policies and procedures governing its overdraft programs and the monitoring tools and audit of its overdraft programs, as well as the communications it provides to consumers about such programs. “We anticipate using this documentation for a fuller review of credit unions’ overdraft programs in 2023,” NCUA wrote.
- Loan-loss reserving: The agency reminded that credit unions subject to generally accepted accounting principles (GAAP) are required to implement the current expected credit losses (CECL) accounting methodology by the start of next year. (Credit unions under $10 million are not required to follow GAAP.) All federal credit unions, the agency noted, will be required to have a reasonable reserve methodology, provided the methodology adequately covers known and probable loan losses. Federally insured, state-chartered credit unions (FISCUs) should refer to state law on GAAP accounting requirements and CECL standard applicability, the agency wrote.
- Loan participations: Examiners will verify that credit unions have evaluated the risk in the loan participation transactions and how that risk fits within the tolerance levels established by the credit union’s board. At a transactional level, NCUA said, each loan participation must have separate and distinct records for individual payments, including principal, interest, fees, escrows, and other information relating to individual loans.
- LIBOR transition: Examiners will focus on credit unions with significant LIBOR exposure or inadequate fallback language.
LINK:
NCUA Letter to Credit Unions 22-CU-02: NCUA’s 2022 Supervisory Priorities