NCUA and WA DCU Issue 2019 Examination Priorities

Examiners will continue using streamlined small credit union exam program procedures for those under $50 million in assets.

1/15/2019 

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Both the National Credit Union Administration (NCUA) and the Washington State Department of Financial Institutions Division of Credit Unions (DCU) have released their examination priorities for 2019 to aid credit unions in preparing for upcoming examinations. 

In Letter to Credit Unions 19-CU-01, the NCUA explains that the extended exam cycle introduced in 2017 will be fully implemented in 2019. Examiners will continue using the streamlined small credit union exam program procedures for most credit unions with assets under $50 million and will conduct risk-focused examinations for all other credit unions. 

In alphabetical order, the NCUA’s supervisory priorities for 2019 are: 

Bank Secrecy Act Compliance 

NCUA examiners will perform more in-depth reviews of credit unions’ BSA/AML policies, procedures, and processes to assess compliance with the Beneficial Ownership rules. 

Concentrations of Credit 

Examiners will focus on large concentrations of loan products and concentrations of specific risk characteristics. 

Consumer Compliance 

The examiners will continue to perform limited reviews of HMDA quarterly LARs and full-year LARs as applicable in order to determine credit unions’ good faith efforts to comply with the 2018 HMDA data collection and reporting requirements. 

Examiners will also focus on MLA compliance, compliance with ECOA notification requirements, as well as overdraft program compliance with Regulation E. 

Current Expected Credit Losses (CECL) 

While the CECL requirements may continue to evolve in 2019, examiners will inquire about efforts a credit union has taken to prepare for the new accounting standard, and whether a credit union has performed analysis for how CECL would alter the Allowance for Loan and Lease Losses funding needs. 

Information Systems and Assurance (Cybersecurity) 

Examiners will continue to conduct information security maturity assessments with the Automated Cybersecurity Examination Toolbox (ACET). Examiners will use the ACET to assess credit unions with over $250 million in assets that have not previously received an assessment. The security, confidentiality, and integrity of credit union member information remains a key supervisory priority for the NCUA. 

Liquidity and Interest Rate Risks 

Examiners will assess liquidity and interest rate risk management, including the following: 

  • The 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. 

In DCU Bulletin B-19-01, the Washington State Department of Financial Institutions Division of Credit Unions provides insight into the DCU’s examination focus for 2019. The focus items for 2019 include: 

Cybersecurity 

Cybersecurity risks continue to represent a significant area of concern for all financial institutions. The DCU will continue to perform onsite IT security exams during most safety and soundness exams. IT examiners will: 

  • Continue to encourage credit unions to complete the FFIEC Cybersecurity self-assessment tool, the NCUA Automated Cybersecurity Assessment Tool, or to use a similar type of tool to help assess the credit unions cybersecurity preparedness; 
  • Review the cybersecurity self-assessment work completed by the credit union; and 
  • Provide guidance to help address potential cybersecurity vulnerability gaps. 

Internal Controls and Fraud Prevention 

Examiners will focus on: 

  • Evaluating the effectiveness of a credit union’s internal control reviews; and 
  • Practices to prevent and detect fraud. 

Consumer Protection Law Compliance 

The DCU will continue to schedule separate compliance examinations for credit unions with assets over $500 million. For credit unions with assets under $500 million, compliance examination work will be part of the safety and soundness examination. Areas of focus include: 

  • HMDA to ensure procedures are updated and followed and that training is provided to staff; 
  • Commercial Lending Compliance as it pertains to HMDA; 
  • Regulation E with a focus on the dispute process; and 
  • FCRA to ensure the credit union is reporting accurate information. 

Interest Rate Risk (IRR) 

IRR continues to be a significant regulatory focus. Examiners will closely evaluate and review each credit union’s overall IRR management program and balance sheet composition to determine whether IRR levels are too high. 

Liquidity 

Examiners will expand their liquidity analysis for credit unions with low liquidity levels to ensure these credit unions have well run liquidity management programs and other sources of contingency liquidity to safely manage liquidity pressures when they arise. 

Question of the Week 

What is the difference between a 1099-MISC and a 1099? 

Form 1099-MISC must be filed for each person the credit union pays at least $600 in prizes, awards, gross proceeds paid to an attorney, professional fees, or services. Form 1099-MISC must be filed once each calendar year regarding the payments it made during the calendar year. 

Form 1099-INT must be filed for each person the credit union pays $10 or more in interest during the calendar year. Interest is an amount paid or credited by a credit union on deposits. Even if the credit union does not call the amount interest, it may still be included in the definition of interest for the purpose of filing a 1099-INT. 

When determining whether to file a 1099-MISC or a 1099-INT for an incentive, consider whether the incentive was given in connection with either opening a deposit account or maintaining an account relationship. If the incentive was given for one of those reasons, the item given is considered interest and a 1099-INT must be filed if it is valued at $10 or more. If the person did not agree to participate based on the opening or maintaining of an account, a 1099-MISC is required. 

Related Links: 

26 CFR 1.6041-1 

26 CFR 1.6049-4 

26 CFR 1.6049-5 

Legal Briefs 

National Credit Union Administration (NCUA) 

The NCUA announced a new regional structure as part of an agency-wide reorganization. The Western Region in Tempe, Arizona, will cover Idaho, Oregon, and Washington. 

The NCUA issued Letter to Credit Unions 19-CU-01 which outlines the NCUA’s primary areas of supervisory focus for 2019, and is intended to assist credit unions in preparing for 2019 NCUA examinations. 

The NCUA issued a joint statement with the five federal financial institutions regulators and the state regulators to encourage financial institutions to work with consumers affected by the federal government shutdown. 

Washington State Department of Financial Institutions Division of Credit Unions (DCU) 

The DCU issued DCU Bulletin B-19-01, which establishes the examination focus areas for the DCU for 2019 and helps credit unions better prepare for their 2019 examinations. 

Consumer Financial Protection Bureau (CFPB) 

The CFPB published reports assessing the effectiveness of the CFPB’s Ability to Repay and Qualified Mortgage and the RESPA Mortgage Servicing Rule. 

Office of Foreign Assets Control (OFAC) 
OFAC has updated the SDN list as of Jan. 8. The last update prior to this was Dec. 19, 2018. 

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