The world of credit union compliance is both fast-paced and high-stakes. It would be enough to drive any compliance professional mad… if there weren’t ample resources on their side.

Fortunately, the NCUA is also chock-full of compliance experts. And as such, they provide ample notice, explanation, and documentation for their regulatory moves.

Recently, the NCUA released its annual letter to credit unions. In that letter are a list of supervisory priorities for 2020. In case you haven’t seen the list yet, here’s a quick overview.

Credit Union Supervisory Priorities for 2020

It’s never too early to think about improving policies, processes, and procedures around emphasized regulations. At the very least, it’s time to assiduously document anything related to the following areas.

1.    Bank Secrecy Act and Anti-Money Laundering (BSA/AML)

The NCUA clearly doesn’t follow the mantra, “new year, new me.” They’re bringing back their focus on the BSA/AML that they started back in 2018. (It was a supervisory priority in 2019 as well.)

This year, they’ll look at compliance with FFIEC manual and enforcement updates. They also want to “continue to focus on proper filing of SARs and CTRs.”

If any of that sounds stressful, they compiled BSA/AML resources here.

2.    Consumer Financial Protection

The NCUA essentially states in their letter that consumer financial protection is a supervisory priority because credit unions are supposed to care for their members. This will mean that they may evaluate credit unions on a case-by-case basis.

However, they also listed several specific consumer protection requirements that they do plan to review:

• Electronic Fund Transfer Act (Regulation E)
• Fair Credit Reporting Act (FCRA)
• Gramm-Leach-Bliley (Privacy Act)
• Small dollar lending (and Payday Alternative Lending)
• Truth in Lending Act (Regulation Z)
• Military Lending Act (MLA) and Servicemembers Civil Relief Act (SCRA)

If you want a refresher on any of those, you can see the NCUA resources here.

3.    Credit Risk

One of the NCUA’s supervisory priorities is about credit risk. They’re looking for evidence of risk management in two main areas:

First, they’re looking for sound underwriting standards and procedures. They want to know that borrowers can pay back what they owe.

Second, they’re examining risk exposure. They’re particularly keen on rooting out overexposure to particular loan types.

You can read more about credit and concentration risks here.

4.    Current Expected Credit Losses

We’ve been hearing about CECL for years, and the NCUA wants us to know that it’s still a regulatory concern. However, the deadline to switch to CECL just got delayed to January 2023, so there’s some breathing room.

Nevertheless, that’s no reason to put things off. Prepare for CECL-related questions during this year’s credit union exams.

5.    Information Systems and Assurance (Cybersecurity)

Advances in technology—and the ubiquity of mobile banking—bring new strategies and opportunities for cybercrime. The NCUA will expect evidence of strong cybersecurity measures for credit unions in the $100m to $1bn range.

You’ll need to use the NCUA’s Automated Cybersecurity Examination Tool (ACET) to check your cybersecurity maturity. You may also want to check their resources here.

6.    LIBOR Cessation Planning

The UK’s Financial Conduct Authority can’t guarantee it will still use LIBOR after next year. That means it’s time to find a new source of reference rates.

The NCUA wants to know that credit unions aren’t over-reliant on LIBOR, that they aren’t overexposed to LIBOR-based products and contracts, and that they have a way to transition to a more stable system.

See the NCUA’s LIBOR Assessment Workbook that they’ll use in reviews.

7.    Liquidity Risk

Financial prognosticators have been predicting a major economic upheaval for years now. The NCUA is doing its due diligence by making sure credit unions are ready for whatever comes.

A few of their big supervisory priorities for 2020 include:

• Evaluating the effects of changing interest rates on asset values and borrowing capacities
• Scenario analyses for liquidity risk modeling and changes in cash flow projections
• Contingency funding plans to address potential liquidity shortfalls

You can read more about liquidity risk in the NCUA’s Examiner’s Guide.

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Final Thoughts

There’s a lot more going on in the letter to credit unions than supervisory priorities. There are also modernization initiatives and regulatory updates to consider.

We’ll cover those topics in the coming weeks.

If any of the above areas of focus sound difficult to you, consider trying our audit and examination scorecard. It will help you determine how prepared your credit union is for its next audit or exam.

Or download our audit checklist for credit unions. It’s completely free!