The importance of compliance education
By Stephen Dedene, CUCE, BSACS
One thing that drives compliance management crazy is getting a list 30 days before assignments are due and half of their staff is on the list. What list you ask? Continuing education, also known as compliance training. Chances are your manager won’t just submit a performance appraisal stating you did not complete your training. Why not? Well, because compliance training in some cases is required in statute or regulation and is essential to the overall operations and success of the credit union. You may not think of it this way, but compliance training has an impact on your credit union’s CAMEL rating, insurance coverage and premiums.
To begin defining your training obligations, look no further than NCUA rules and regulations if you are federally chartered and your state act if you are state-chartered.
Here are top regulations that drive the need for compliance training:
- 701.4 of NCUA Regulations – provide the general authorities and duties of federal credit union directors. Among other responsibilities, the regulation specifies that directors are responsible for the general direction and control of the affairs of each federal credit union and that they should carry those duties as Director in good faith and in the best interests of the membership. This regulation also requires that directors manage operations of the federal credit union in conformity with the requirements established in the Federal Credit Union Act, other applicable law, and sound business practice.
- State regulations – If you are a state-chartered credit union, you probably have something similar. Consider the Michigan Credit Union Act. Section 490.383 requires an official to discharge the duties of the position in good faith and with a degree of diligence, care and skill. This regulation also allows a credit union to compensate a person in several cases, including those individuals who are party to or are threatened to be made a party to civil or criminal proceedings. To qualify for the indemnification, the official must have acted in good faith and in a manner he or she reasonably believed to be in the best interest of the credit union and its members.
- Corporate governance – Corporate governance also requires compliance training, whether required by rule, law, regulation or not. How can a director fulfill their good faith duty in the best interest of the credit union and their members if the directors and employees of the credit union do not receive training commensurate with their duties? Simple, they cannot. Compliance training is a must.
- CAMEL rating – Under this rating system, credit unions are evaluated on their overall management of the organization. According to Appendix A - NCUA’s CAMEL Rating System of Letter to Credit Unions 07-CU-12, Management evaluates the capabilities of the board of directors and management, in their respective roles to identify, measure, monitor and control the risks of a credit union’s activities and to ensure a credit union’s safe, sound and efficient operation in compliance with applicable laws and regulations. The key phrase here being: in compliance with applicable laws and regulations!
The internal controls component of Management contains seven aspects which deserve special attention, one of which is education of staff. This aspect states that credit union staff and volunteers should be thoroughly trained in specific daily operations. The appendix goes on to state, under other management issues, that compliance with laws and regulations is a key factor considered when assessing management of the credit union. In this way, if training is required under law or regulation it will be considered.
Another important area that compliance education and training impacts is insurance. As credit unions, we are exposed every day to potential loss and litigation. To addresses this, credit unions have a variety of insurance coverage options including the fidelity bond and professional and management liability. Is compliance training important when it comes to insurance coverage? You bet it is!
Training employees to comply with rule of law benefits not just individual credit unions but the industry as a whole and can reduce premiums. According to Mike Hoover, Commercial Underwriting Specialist for CUNA Mutual Group, “When you have proper training you are likely to experience less losses and that translates into lower premiums.”
Of course, premiums are just one aspect of the policy. Policies contain exclusions, and while specific exclusions for failing to train do not exist, there are broader exclusions that may take training into account. “Policy exclusions exist if you intentionally or willfully violate laws or regulations. Compliance is a very important part of the industry and as underwriters we expect credit unions to take compliance seriously,” according to Hoover. In other words, if a law or regulation requires training and you are intentional, dishonest or willful in your disregard for that training it could be excluded from coverage. The bottom line is compliance training serves as a preventative measure against potential monetary loss, exclusions and litigation while potentially reducing premiums.
There are also certain training requirements specifically relevant to data security.
- NCUA Section 748 – Under this section, you must be trained to implement the credit union’s information security program, respond appropriately to member inquires related to unauthorized access and have Bank Secrecy Act training.
- Section 701.4 – This regulation requires directors to have certain knowledge related to basic finance and accounting practices while section 6d of article VI of Federal Credit Union Standard Bylaws requires the establishment of policies and procedures to address training for directors and volunteer officials in areas such as ethics and fiduciary responsibility, regulatory compliance and accounting.
- Section 717 – This section requires training if you furnish information about consumers to consumer reporting agencies to implement the policies and procedures as such, and training to identify, detect and respond to red flags.
While the NCUA has these requirements, various other agency regulations require compliance training. Such requirements include employee training and compliance under section 229.19 of the Expedited Funds Availability Act. Section 1007.104 of the SAFE act requires that all MLOs be informed of registration requirements and be instructed on how to comply with such requirements and the use of their unique identifier. And Section 1026.36 of the Truth in Lending Act requires periodic training covering federal and state law requirements that apply to the individual loan originator’s loan origination activities.
While this is not a complete and exhaustive list of laws and regulations requiring training, it shows the importance of compliance training. Chapter 18 of the NCUA examination manual dealing with regulatory compliance requires examiners to review the training provided to applicable personnel. While a law or regulation may not specifically require training, it should be obvious that to comply with rules and regulations, training must occur. Consider the evaluation of applications for credit. While there is no specific requirement to train under the Equal Credit Opportunity Act, without training you cannot fulfill your duties to evaluate the application in compliance with the regulation.
The fiduciary duties of directors, insurance, and management in CAMEL require you to keep your training up-to-date even if a regulation does not directly state that. The question is not what regulations you should be trained on, but what regulations you need to be trained on to perform your job functions in a safe, sound, responsible and compliant manner.
This article was written by Stephen Dedene, CUCE, BSACS and vice president compliance and risk at Credit Union ONE.
Here are some resources for your training checklist:
Learn to recognize financial crimes related to anti-money laundering while earning your Bank Secrecy Act Compliance Specialist (BSACS) designation
Earn your Credit Union Compliance Expert (CUCE) designation with this eSchool and its associated proctored exams.
Access a dedicated community of credit union compliance professionals to share resources, ideas and advice on shared challenges.
Gain an overview of major compliance issues in this training for new compliance officers, managers or staff members.
Covering the finer details of compliance topics even experienced compliance professionals can struggle with.
Streamline compliance processes with a centralized, web-based platform designed specifically for credit unions.
An aide for compliance tasks offering easy-to-understand resources, including PDFs, supplemental guides, checklists and the opportunity to participate in a compliance mentor program.
Learn more about these and other compliance learning events and resources at cuna.org/compliance.