NCUA Releases its 2021 Supervisory Priorities

The NCUA recently issued Letter to Credit Unions 21-CU-02 which outlines the NCUA’s supervisory priorities for 2021 to assist credit unions in preparing for their exams. In addition, the Letter to Credit Unions provides an update on the NCUA’s Exam Modernization Initiative.

Supervisory Priorities

The supervisory priorities the NCUA listed include:

Allowances for Loan and Lease Losses

While examiners will not be assessing credit unions efforts to transition to CECL due to the delay that extended the implementation date to January 2023, they will review credit unions’ ALLL accounts by reviewing:

  • ALLL policies and procedures;
  • Documentation of an ALLL reserving methodology, including modeling assumptions and qualitative factor adjustments;
  • Adherence to generally accepted accounting principles; and
  • Independent reviews of credit union reserving methodology and documentation practices by the Supervisory Committee or by an internal or external auditor.

Bank Secrecy Act/Anti-Money Laundering Compliance

The NCUA will continue to focus on implementing appropriate customer due diligence and beneficial ownership procedures, proper filing of SARs and CTRs, and reviews of bi-weekly 314(a) information requests from FinCEN.

Coronavirus Aid, Relief, and Economic Security Act

NCUA examiners will continue to review credit unions’ compliance with the CARES Act and Consolidated Appropriations Act, 2021, including requirements for financial institutions related to the administrative provisions for the additional 2020 recovery rebates for individuals. In addition, NCUA examiners will continue to review, as needed, modifications; credit reporting; forbearances; and foreclosures that were conducted in 2020 under CARES Act provisions.

Consumer Financial Protection

The NCUA will continue to examine for compliance with consumer financial protection regulation and use a risk-focused approach that is based on the credit union’s compliance record, products and services provided, and any new or emerging concerns. Examiners will continue to assess a credit union’s Fair Lending Compliance Management System.

Credit Risk Management

NCUA examiners will continue to place emphasis on the review of credit unions’ loan underwriting standards and credit risk-management procedures. NCUA examiners will focus on any adjustments credit unions made to lending programs to address borrowers facing financial hardship because of the COVID-19 pandemic. NCUA examiners will also focus on reviewing policies that address the use of loan workout strategies, risk-management practices, and new strategies implemented to provide funds to borrowers impacted by the COVID-19 pandemic, including programs that were authorized under the CARES Act and extended in the Consolidated Appropriations Act, 2021. In particular, NCUA examiners will evaluate credit unions’ controls, reporting, and tracking of these programs.

Cybersecurity

The NCUA is reprioritizing away from performing facilitated Automated Cybersecurity Evaluation Toolbox (ACET) cybersecurity maturity assessments and moving towards the Information Technology Risk Examination for Credit Unions (In TREx-CU).

InTREx-CU harmonizes the IT and cybersecurity examination procedures shared by the Federal Deposit Insurance Corporation, the Federal Reserve System, and many state financial regulators. This establishes a consistent approach across all community-based financial institutions. The InTREx-CU will continue to be deployed in 2021, allowing examiners and credit unions to identify and remediate potential high-risk areas by identifying critical information security program deficiencies. ACET will become a self-assessment resource for credit unions, supported by the NCUA.

The NCUA has also published information for credit unions on the increased cybersecurity threats resulting from the pandemic and provided additional resources for protecting their members. For more information, visit the NCUA’s Cybersecurity Resources.

LIBOR Transition

Examiners till focus on credit unions with significant LIBOR exposure or less-developed transition processes. Credit unions’ transition plans should include risk-management process to identify and mitigate their LIBOR transition risks.

Liquidity Risk

NCUA examiners will evaluate the suitability and scope of a credit union’s scenario analysis for liquidity risk management. An analysis will address scenarios that include:

  • Sudden and significant share outflows;
  • A broad range of possible interest rate paths to identify the potential variability in loan and securities cash flows;
  • Changes in cash flow projections for relevant factors, such as a change in prepayment speeds, decay rates, share compositions and volumes;
  • The effects of loan payment forbearance, loan delinquencies, projected credit losses and loan modifications on liquidity and cash flow forecasting;
  • The decline in credit quality and resulting market value of assets as it relates to external borrowing capacity, and;
  • Stress scenarios that include the reduction of available credit lines to ensure an adequate mix of diversified funding sources.

Serving Hemp-Related Businesses

The NCUA will continue to encourage credit unions to consider whether they are able to provide financial services to lawfully operating hemp-related businesses within their fields of membership safely and properly. Credit unions that choose to serve hemp-related businesses need to understand the complexities and risks involved and secure the necessary expertise and resources to conduct this activity safely and soundly and in compliance with all applicable laws and regulations.

Modernization Updates

NCUA Connect & Merit

The NCUA began piloting a new user portal, NCUA Connect, and a new examination tool, the Modern Examination and Risk Identification Tool (MERIT). NCUA Connect is a secure, common entry point for authorized users to access NCUA applications. Due to the COVID-19 pandemic, the NCUA delayed the rollout, training effort, and launch of these applications to all examination staff until the second half of 2021.

NCUA Exam Planning Questionnaire

The NCUA will be incorporating Exam Planning Questionnaires as part of the exam planning process. The questionnaire will provide the NCUA examiners with information on certain products and services, significant events, insider activities, and fraud awareness.

Question of the Week

Q. Under the Servicemember’s Civil Relief Act, after reducing the interest rate to 6%, does the credit union have to lower the amount of the payments or can it just lower the number of payments?

A. The credit union must lower the amount of the payments. The law states that the amount of any periodic payment due from a servicemember under the terms of the instrument that created an obligation for liability must be reduced by the amount of interest forgiven that is allocable to the period for which the payment is made. The reasoning for this is because if the credit union only reduced the number of payments and not the payment amount, the servicemember would not receive the benefit of the 6% during active duty. Therefore, a credit union will not be in compliance with the Act if it reduces the number of payments rather than reducing the payment amount.

Related Links

SCRA 50 U.S.C. § 3937(a)(1)

Legal Briefs

National Credit Union Administration

NCUA, Federal Banking Agencies, FinCEN Issue FAQs on SAR and Other AML Requirements
The NCUA, along with FinCEN and other federal banking agencies, issued responses to frequently asked questions on suspicious activity reporting and other anti-money laundering (AML) requirements. These FAQs clarify the regulatory requirements related to suspicious activity reporting to assist financial institutions with their compliance obligations, while enabling financial institutions to focus resources on activities that produce the greatest value to law enforcement agencies and other government users of BSA reporting.

Consumer Financial Protection Bureau

Joint Final Rule on Role of Supervisory Guidance
The CFPB and other Federal Regulatory Entities, including the NCUA, issued the final rule regarding the use of supervisory guidance for supervised institutions. The rule codifies the statement, with amendments, that the Bureau and other federal financial regulatory agencies issued in September 2018, which clarified the differences between regulations and supervisory guidance.

Internal Revenue Service

Employers Can Withhold, Make Payments of Deferred Social Security Taxes from 2020
The IRS released a notice addressing how employers who elected to defer certain employee’s taxes can withhold and pay the deferred taxes throughout 2021 instead of just the first four months of the year.

Federal Housing Finance Agency

Annual Adjustment of the Cap on Average Total Assets That Defines Community Financial Institutions
The FHFA release the annual adjustment to the cap on average total assets that is used in determining whether a Federal Home Loan Bank member qualifies as a ‘community financial institution. The new cap is set at $1,239,000,000.

Office of Foreign Assets Control

OFAC has updated the SDN list as of Jan. 19. The last update prior to this was Jan. 15.

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

Posted in Compliance, Compliance News.