Examination Focus for 2020
Ida Neely, Chief Examiner for Credit Unions
As we prepare for the 2020 examination period, our thoughts turn to the “hot topics” that remain an examination concern, as well as areas where we see an increased risk/trend that may warrant closer review. With those thoughts in mind, the following are some of our 2020 focus points.
Bank Secrecy Act (BSA) Compliance
The chance that BSA Compliance will never be a hot topic during examinations is very slim. Now, in addition to what is known as the normal BSA review, there is an increased focus on Beneficial Ownership reviews and Marijuana Related Business (MRB) accounts.
Although a credit union may have made the decision not to participate in a MRB book of business, it must have policies and procedures in place that will identify how they will monitor its existing membership base and new members to ensure safeguards are in place.
The review will be for areas of lending where there is potentially an increase in risk to the viability of the credit union, e.g. credit cards, student loans, indirect loans, mortgage lending, member business lending. Some triggers for this review could be because it is a new book of business for the credit union, a sharp increase/decrease of balances, and a spike in delinquency for the loan type.
Student Loan Deferments
This review will be to identify whether the credit union is fully aware of the total dollar amount of debt that is in deferment and the potential risk of non-repayment. The examiner will be looking to identify how this debt is being monitored/reviewed, what triggers a reinstatement of the deferred loan, and the collection processes/procedures when the deferment has ended. In addition, and if applicable, examiners will review the ALLL allocation and methodology that the credit union has implemented.
Information Technology (IT)/Cybersecurity
Vulnerabilities of a credit union’s IT system remains an area of concern. At a minimum, each examination will see the completion of an information questionnaire to be reviewed by the Division’s IT Supervisor to identify if there is a need to perform a more detailed IT examination. In addition, the Division’s IT Examination Team will be adding examination hours and will make every attempt to join the Credit Union Examiners while onsite. Finally, credit union insurers may perform IT examinations as part of the joint examination process. The depth of examination oversight should create a more robust number of hours that will dedicated to ensuring the necessary safety and soundness of membership data.
Current Expected Credit Losses (CECL)
While the implementation of CECL continues to be pushed out, the eventual implementation will have a significant impact on financial institutions. With that in mind, the examination focus will be to see where the credit union is in the process of determining the implementation, if any “mock” studies have been performed to determine the financial impact the requirement will have on the credit union, e.g. ALLL impact, have underwriting policies changed as a result of CECL and has the credit union determined how the data processor for the credit union will aid in this requirement.
While the examination focus can very quickly change due to a current event, this listing should provide insight to just a few of the areas that are to be reviewed. We ask that you remember to reach out to your examiner and ask questions. We all have the same goal, the protection of your members through the safety and soundness of your credit union.