Recently the National Credit Union Association (NCUA) issued the Letter to Credit Union No. 14-CU-02 highlighting the areas that federally insured credit unions should put a concretive focus on for 2014. This comes as a result of NCUA’s on-going efforts to help credit unions identify and mitigate potential future risks threatening institutions or the Share Insurance Fund. Read more to find out where the supervisory focus should be this year.

4 Risks to Keep an Eye On

When NCUA’s field staff is at your credit union for its examination this year they will be validating that the institution is properly managing 4 key risks:

  1. Interest rate risk: With interest rates on the rise, your once unrealized gain might now be an unrealized loss. Be sure to make the necessary adjustments to account for a rise in the rate environment.
  2. Cybersecurity threats: Cyber-attacks on U.S. businesses, including credit unions of all sizes, have become a much more common occurrence. Having the right controls in place including, strong passwords, patch management, network monitoring, and vender due diligence, among many others, can help you prevent, detect and recover much quick from a cyber-attack.
  3. Money services businesses: Money laundering is a common activity when dealing with MSBs. Keep your guidelines tight to ensure compliance with the Bank Secrecy Act when it comes to MSBs.
  4. Private student lending: Since private loans aren’t backed by the U.S. government, do your due diligence on your third-party lender and its insurers to limit your risk exposure.

New Regulations Now In Effect

Keeping up with the ever-changing regulatory environment that credit unions operate in can be tough. Make sure you have put the proper measurements in place to be in compliance with the key provisions of these new regulations:

  • Loan Participation Rule ( Effective Sept. 23, 2013)
    • Single-originator concentration limit
    • 10 percent risk retention requirement
    • 15 percent limit on loans to one borrower
  • Ability-to-Repay and Qualified Mortgage Standards (Effective Jan. 10, 2014):
    • Consideration of 8 specific factors to assess a borrower’s ability to repay a loan at origination
    • Loans meet the ability-to-pay requirements and subject to certain legal protections of “qualified loans”
  • Credit Union Service Organizations (CUSO) Rule ( Effective Jun. 30, 2014):
    All federally insured credit unions require the CUSO to:

    • Account for transactions using Generally Accepted Accounting Principles (GAAP), prepare quarterly financial statements and obtain annual audits of financial statements if making an investment or loan in a CUSO
    • Obtain approval from state regulators if your credit unions is considered inadequately capitalized prior to making an investment in a CUSO
    • Have written agreements to address the requirements of the new rule by Jun. 30, 2014 with the CUSO
    • Report certain information directly to the NCUA beginning in 2015

Streamlined 2014 Examination Process

In order for the NCUA examination staff to diligently focus their time on the most relevant risks areas affecting your credit union, the NCUA developed a new policy to broaden its exam scope. It will provide guidance to the staff to which areas are required to be reviewed, recommended, but optional, and other areas to consider.

Don’t procrastinate – make sure your have the right policies, procedures and controls in place today to avoid an unfavorable exam this year.

To learn more about areas of risks, new regulations and the 2014 examination processes, download the NCUA Letter to Credit Unions 14-CU-02. If you have additional questions how this might impact your credit union’s current operations, please contact our Financial Institutions Group specialists in Michigan, Houston or Ft. Lauderdale.

Source: NCUA Letter to Credit Unions 14-CU-02