NCUA’s 2021 supervisory priorities reflect COVID effects

January 15, 2021

NCUA issued a letter to credit unions (21-CU-02) Friday detailing the agency’s supervisory priorities for 2021. The letter itself contains a details breakdown of each area.

“The NCUA remains committed to incorporating efficiencies into its examination and supervision program to address the effects of the COVID-19 pandemic on credit unions and their members,” wrote NCUA Chairman Rodney Hood. “As the economic impact of the COVID-19 pandemic evolves, the NCUA will continue to provide the necessary guidance.”

According to NCUA, it will maintain its commitment to the extended examination cycle, and qualifying credit unions will be scheduled accordingly in 2021.

The targeted Small Credit Union Exam Program exam procedures remain in place for most federal credit unions with assets under $50 million.

For all other credit unions, NCUA examiners will conduct risk-focused examinations, which concentrate on areas of highest risk, new products and services, and compliance with applicable laws and regulations.

The NCUA’s primary areas of supervisory focus are:

  • Allowance for Loan and Lease Losses (ALLL): NCUA examiners will not be assessing credit unions’ efforts to transition to the CECL standard until further notice, but encourages credit unions to continue to assess their needs and evaluate methodologies for the eventual implementation. NCUA examiners will be evaluating the adequacy of credit unions’ ALLL accounts by reviewing:
    • ALLL policies and procedures;
    • Documentation of an ALLL reserving methodology, including modeling assumptions and qualitative factor adjustments;
    • Adherence to generally accepted accounting principles; and
    • Independent reviews of credit union reserving methodology and documentation practices by the Supervisory Committee or by an internal or external auditor.
  • Bank Secrecy Act/Anti-Money Laundering Compliance: NCUA will continue to conduct Bank Secrecy Act/Anti-Money Laundering (BSA/AML) reviews during every examination, and will continue to focus on implementing appropriate customer due diligence and beneficial ownership procedures, proper filing of SARs and CTRs, and reviews of bi-weekly 314(a) information requests from FinCEN.
  • CARES Act: NCUA examiners will continue to review credit unions’ compliance with the CARES Act and Consolidated Appropriations Act, 2021, as well as modifications, credit reporting, forbearances, and foreclosures that were conducted in 2020 under CARES Act provisions.
  • Consumer Financial Protection: Examiners will assess a credit union’s Fair Lending Compliance Management System. Reviews will include areas such as board and management oversight, policies and procedures, training, monitoring and corrective action, and member complaint response.
  • Credit Risk Management: NCUA continues to encourage credit unions to work with their members who were affected by the COVID-19 pandemic. Examiners will not criticize credit unions’ efforts to provide prudent relief for borrowers, when such efforts are conducted in a reasonable manner with proper controls and management oversight. NCUA examiners will continue to place emphasis on the review of credit unions’ loan underwriting standards and credit risk-management procedures.
  • Information Systems and Assurance (Cybersecurity): The agency has reprioritized away from performing facilitated Automated Cybersecurity Evaluation Toolbox (ACET) cybersecurity maturity assessments, to piloting the Information Technology Risk Examination for Credit Unions (InTREx-CU). InTREx-CU will continue to be deployed in 2021, allowing examiners and credit unions to identify and remediate potential high-risk areas. ACET will become a self-assessment resource for credit unions, supported by the NCUA.
  • LIBOR Transition: Examiners will continue to educate credit unions on the transition in 2021, particularly those with significant LIBOR exposure or less-developed transition processes. For these credit unions, examiners will assess exposures to LIBOR and the safety and soundness of the credit unions’ preparation plans to transition to an alternative reference rate.
  • Liquidity Risk: NCUA examiners will evaluate the suitability and scope of a credit union’s scenario analysis for liquidity risk management. A robust analysis will address scenarios that include:
    • Sudden and significant share outflows;
    • A broad range of possible interest rate paths to identify the potential variability in loan and securities cash flows;
    • Changes in cash flow projections for relevant factors, such as a change in prepayment speeds, decay rates, share compositions and volumes;
    • The effects of loan payment forbearance, loan delinquencies, projected credit losses and loan modifications on liquidity and cash flow forecasting;
    • The decline in credit quality and resulting market value of assets as it relates to external borrowing capacity, and;
    • Stress scenarios that include the reduction of available credit lines to ensure an adequate mix of diversified funding sources.
  • Serving Hemp-Related Businesses: Credit unions that choose to serve hemp-related businesses need to understand the complexities and risks involved, and secure the necessary expertise and resources to conduct this activity safely and soundly and in compliance with all applicable laws and regulations.

The letter also includes updates on several NCUA modernization projects, including:

  • NCUA Connect & Merit: Due to the COVID-19 pandemic, the NCUA delayed the rollout, training effort, and launch of these applications to all examination staff until the second half of 2021.
  • NCUA Exam Planning Questionnaire: The NCUA is incorporating the use of an Exam Planning Questionnaire into the examination planning process. More information on the pilot of the Exam Planning Questionnaire will be forthcoming.