NCUA exam priorities: What to expect in 2020

Compliance: NCUA issues supervisory priorities for 2022

January 18, 2022

NCUA issued a Letter to Credit Unions (22-CU-02) this week outlining its supervisory priorities for 2022. Additional information can be found on CUNA’s CompBlog.

“Given the ongoing uncertainty associated with the COVID-19 pandemic, the NCUA will continue to conduct examination and supervision activities primarily offsite. Working with our public health consultant, the agency continues to closely monitor the COVID-19 pandemic trends and will resume onsite examination and supervision work when safe to do so,” wrote NCUA Chairman Todd Harper.

NCUA supervisory priorities for 2022 are:

  • Credit risk management. NCUA examiners will continue to review that credit unions’ risk management practices should be commensurate with the level of complexity and nature of  lending activities and that comply with consumer financial protection laws
  • Cybersecurity. NCUA continues to develop updated information security examination procedures that are tailored to institutions of varying size and complexity. These procedures will continue to be piloted in 2022, with the goal of having them finalized in 2022.
  • Payment products, services, and operations will be an increased area of focus, as changes in payment systems increase the risk of fraud, illicit use, and breaches of data security.
  • Bank Secrecy Act (BSA) compliance and Anti-Money Laundering (AML)/Countering the Financing of Terrorism (CFT). The AML Act will bring several new requirements for credit unions to update their risk-based BSA and AML/CFT policies, procedures, and processes. These requirements will be implemented incrementally throughout 2022.
  • Capital adequacy and risk-based capital rule implementation. NCUA examiners will be mindful of the effects of recent excess share growth on net worth and risk-based capital (RBC) ratios. NCUA examiners will ensure that credit unions are evaluating the impact of their COVID-19 response and relief efforts on their capital position and financial stability. NCUA examiners will review the accuracy of complex credit unions’ reporting for the new data elements required in the risk-based capital schedule of the Call Report.
  • Loan loss reserving. Federal credit unions with less than $10 million in assets are not required to implement CECL. However, all federal credit unions will be required to have a reasonable reserve methodology.
  • Consumer financial protection. The scope of each examination’s consumer compliance review is risk-focused and is based on the credit union’s compliance record, products and services provided, and any new or emerging concerns. In 2022, examiners will focus on areas related to:
    • the COVID-19 pandemic,
    • fair lending,
    • Servicemembers Civil Relief Act,
    • Fair Credit Reporting Act, and
    • overdraft programs.
  • Loan participations. NCUA examiners will verify that credit unions have evaluated the risk in the loan participation transactions and how that risk fits within the tolerance levels established by the credit union’s board.
  • Fraud. NCUA will review credit union efforts to deter and detect fraud, including internal controls and separation of duties.
  • London Inter-Bank Offered Rate (LIBOR) transition. NCUA examiners will focus on credit unions with significant LIBOR exposure or inadequate fallback language.
  • Interest rate risk. Credit unions should continue to carefully model and manage interest rate risk using a broad range of scenarios that include various prepayment speed and yield curve assumptions.

The letter also includes an update on NCUA’s examination program.