Washington State DFI Releases Examination Focus for 2017

The Washington State Department of Financial Institutions Division of Credit Unions released DCU bulletin B-17-01 which establishes the Division’s examination focus areas for 2017 and is intended to help credit unions better prepare for their 2017 examinations.

While this information is specific to Washington State chartered credit unions, credit unions that are either chartered in other states or are federally-chartered may want to address the topics covered for their own examinations.


Cybersecurity threats continue to represent a significant concern to all financial institutions.  The Division’s IT examinations will continue to focus on the following:

  1. Onsite IT exams will be performed during most safety and soundness examinations;
  2. Cybersecurity will be the primary IT exam focus; and
  3. Examiners will continue to stress the importance of each credit union completing the FFIEC cybersecurity self-assessment tool or a similar assessment tool.

Credit unions may wish to make use of the resources available on the NWCUA’s Cybersecurity Resources page which includes a fillable version of the FFIEC cybersecurity assessment tool.

Member Business Loans

With the increased growth in member business lending at Washington State credit unions, the Division will closely review MBL program offerings, especially increases to these lending programs, to assess whether risks are being properly managed and controlled. The exam team will include examiners who have specialized training in commercial lending, worked at a bank, or have bank examination experience. Any Washington state-chartered credit union with a significant amount of MBLs is expected to have a safe and sound MBL program comparable to a bank of similar size and complexity.

Interest Rate Risk

IRR remains a significant regulatory focus. Examiners will closely evaluate and review each credit union’s overall IRR management program and balance sheet.

Examiners will consider the following main factors when evaluating a credit union’s overall IRR level and its IRR management program:

  1. The current and projected levels of net income and net worth;
  2. The ability of management, including the Board of Directors, to manage and control IRR;
  3. The ability of staff and management to accurately measure and assess IRR exposure;
  4. The credit union’s current IRR trend; and
  5. Whether the credit union’s asset liability management (ALM) and IRR strategies and practices are consistent with anticipated market interest rate changes and board approved IRR tolerance limits.

Consumer Protection Law Compliance

With all the newly created or revised federal rules, consumer protection compliance becomes more complex. The Division will continue to use the exam process as described in their Consumer Compliance Exam Manual. Examiners will focus on the following compliance areas:

  1. The effectiveness of the overall compliance management program;
  2. The compliance program’s ability to detect and self-correct problems; and
  3. The credit union’s timeliness in implementing new regulatory compliance requirements to include the TILA- RESPA integrated disclosure requirements, the Servicemembers Civil Relief Act, and other specific consumer compliance regulations.

In 2017, the Division plans to continue to schedule separate compliance examinations at credit unions with total assets over $500 million. For credit unions with assets of less than $500 million, compliance examination work will be performed during regularly scheduled safety and soundness examinations.

The Importance of Strong Management and Credit Union Success

The biggest determinant of a credit union’s success is the quality of its management (including the Board of Directors and supervisory committee). Examiners will continue to evaluate whether a credit union has strong management to develop and implement programs and products that prudently manage risks while keeping the credit union productive, profitable, and competitive.

Legal Briefs

National Credit Union Administration (NCUA)

The NCUA announced that it will provide consulting services to 153 small, federally insured credit unions during the first half of 2017. The counseling is done by the NCUA’s economic development specialist and helps credit unions develop strategic plans that promote growth, innovation, and better member services. The NCUA is also accepting nominations for consulting services for the second have of 2017. Eligible credit unions must have assets of less than $100 million, have been chartered for fewer than 10 years, and have a low-income designation or be a minority depository institution.

The NCUA announced that CUSOs will have from February 1 to March 31, 2017 to complete their annual reaffirmation with the NCUA’s CUSO registry. To help CUSOs complete this process, the NCUA is hosting a training webinar on Wednesday, January 25, 2017. CUSOs can register for the webinar here.

Consumer Financial Protection Bureau (CFPB)

The CFPB announced changes to its senior leadership team. The positions changed include the Chief of Staff; Chief Information Officer; Chief Financial Officer; Assistant Director of Consumer Lending, Reporting, and Collections Markets; and Assistant Director for the Office of Servicemember Affairs.

The CFPB published information from the FFIEC and HUD regarding HMDA filing for 2017. The information published includes filing instruction guides, a LAR formatting tool, and an FAQ.

Federal Deposit Insurance Corporation (FDIC)

The FDIC, jointly with the OCC, Treasury, and FRB issued a joint notice and request for comment that would streamline the call report for small institutions, defined as financial institutions with domestic offices only and under $1 billion in total assets.

Federal Reserve Board (FRB)

The FRB released the minutes from the December Federal Open Market Committee meeting.

FRB Governor Jerome H. Powell delivered a speech at the annual meeting of the American Finance Association. Powell’s speech focused on low interest rates and the impacts on the financial system.

The FRB released the January issue of FedFocus.

Office of the Comptroller of the Currency (OCC)

The OCC issued a report detailing the mortgage metrics for the third quarter of 2016. The report found that performance on first-lien mortgages improved during the third quarter of 2016.

The OCC released its Semiannual Risk Perspective for Fall 2016, which discusses the risks facing national banks and federal savings associations. The risks include strategic, credit, operations, and compliance risks.

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of January 6, 2017. The last update prior to this was January 5, 2017.

Compliance Question of the Week

Our credit union participates in indirect lending where the auto dealers sign up new members. What are the CIP rules for the credit union?

You may use non-documentary methods to verify identity; such as a credit report or a copy of a driver’s license or passport; however, your procedures should be designed to enable you to form a reasonable belief that you know the true identity of your member. If you are confident that your procedures identify your member than you should be able to use your option. Make sure that you clearly document what your procedures are regarding your indirect lending process.

Related Links:

31 CFR 1020.220

Questions? Contact the Compliance Hotline: 1.800.546.4465, compliance@nwcua.org.

Posted in Advocacy News, Compliance News, Compliance News, Economy, Federal, NCUA.