Bank Secrecy Act (BSA) compliance and cybersecurity maturity assessments will remain at the top of NCUA’s list of examination priorities for 2019.

Other primary areas of supervisory focus include credit concentration risk, compliance with consumer regulations, current expected credit loss (CECL), and liquidity and interest-rate risks. These supervisory priorities are outlined in NCUA’s Letter to Credit Unions 19-CU-01: Supervisory Priorities for 2019 [PDF].

NCUA’s 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 that have assets of less than $50 million.

For all other credit unions, NCUA examiners will conduct risk-focused examinations, concentrating on the areas of highest risk, new products and services, and compliance with federal regulations.

In addition, NCUA notes examiners will have increased flexibility to conduct “suitable” examination work offsite.

BSA compliance

NCUA examiners plan to perform more in-depth reviews of credit unions’ BSA and anti-money laundering (BSA/AML) policies, procedures, and processes to assess compliance with the Financial Crimes Enforcement Network’s customer due diligence (CDD) regulations.

The regulations, which went into effect in May 2018, strengthen and codify existing CDD guidance and require institutions to identify and verify the identity of individuals (called “beneficial owners”) who own or control certain legal entity customers/members (i.e., business accounts), subject to certain exclusions and exemptions.

NCUA examiners began assessing credit unions’ efforts to comply with the new regulations during the second half of 2018.

CUNA wrote in support of a bill that would update thresholds for certain reporting thresholds contained in BSA.

Concentrations of credit

NCUA examiners will continue to focus on large concentrations of loans (e.g., real estate loans, member business loans, loan participations, etc.) in credit portfolios.

“Concentration risk” is defined as “any single exposure or group of highly correlated exposures that have the potential to produce losses large enough to threaten a credit union’s health or ability to maintain its core operations.”

Concentration in credit portfolios is generally considered to be the most significant source of risk to a financial institution.

Implementing sound risk management practices is critical to managing concentration risk. If examiners identify excessive levels of credit concentration risk, they’ll work with credit union management to identify strategies to mitigate the risk.

Consumer compliance

In the area of consumer compliance, NCUA examiners will continue to perform limited reviews of Home Mortgage Disclosure Act (HMDA) loan/application registers to evaluate federal credit unions’ good faith efforts to comply with 2018 HMDA data collection and reporting requirements.

The reviews will take into account the statutory partial exemptions that took effect May 24, 2018.

Examiners will also continue to evaluate credit unions’ efforts to comply with:

• Military Lending Act, which affects most non-mortgage-related consumer credit a lender extends to active duty servicemembers and their dependents.
• Equal Credit Opportunity Act’s (Regulation B) notification requirements following adverse action (e.g., denial) taken on consumer credit applications.
• Electronic Funds Transfer Act’s (Regulation E) “opt in” requirements for overdrafts related to ATM and one-time debit card transactions. A number of lawsuits have been filed against financial institutions for improperly imposing overdraft charges related to these types of transactions.

Next: CECL requirements