Credit union boards of directors are feeling the pressure of increased regulatory demands, an evolving risk environment, and a transforming competitive landscape.
Member scrutiny is at an all-time high as technology and innovations influence consumer needs and expectations, while the pace of change accelerates.
The good news is this evolution has ushered in product and service opportunities that offer the prospect of increased wallet share, automated processes, and the ability to serve new markets.
As credit unions look to leverage these new business opportunities, they must exercise enhanced due diligence to address hazards these opportunities bring.
Today’s boards are being asked to do more than approve policies and budgets. They also play a significant role in ensuring a successful credit union risk management program. For many directors, their role in risk management may seem unclear or even overwhelming.
Three basic steps to improve your credit union’s overall risk posture:
1. Understand the importance of education
Successful board members are knowledgeable of the risk and regulatory landscape. As a director, you should always leverage the expertise of staff and third-party service providers, but the ultimate responsibility of the credit union’s safety and soundness still rests with the board.
Maintaining sufficient knowledge of credit union operations allows the board to better connect strategy to risk, leading to more informed decision making. Challenge your board to have a proficient understanding of the credit union’s functional areas and be aware of emerging and evolving industry risks.
2. Create a culture of accountability
Risk identification, assessment, and mitigation should be an integral responsibility for all credit union employees, not just those in risk functions. Set clear expectations, and ensure employees are aware of and understand the credit union’s objectives and risk appetite.
Directors should close the communication gap between employees and the board and ask difficult questions about risks. Routine communication and discussion of risk will transform the process beyond the simple escalation of information to senior leadership into a method for sharing risk insights within and across all levels of the credit union.
3. Require a systematic approach
The complex nature of today’s credit union environment has created new interconnected exposures that are best navigated through a systematic approach to managing risk across the enterprise. An effective risk management program can help credit unions manage those exposures and maximize opportunities.
Credit unions have options when developing a risk framework, but the most effective programs are proactive, deliberate, and methodical. While the framework can vary widely, it typically involves defined responsibilities.
These include the use of established, repeatable processes and the appropriate level of technology or tools to keep up with the magnitude and speed of regulatory change and emerging risks.
The evolving financial sector and credit union marketplace are increasingly complex. Directors should continue to expect risk management to be an increasingly challenging part of board oversight.
Incorporating a risk focus into the credit union’s strategic management function will help alleviate that burden and ensure risk management is an integral cultural component and not simply a compliance function.