For credit unions, maintaining compliance with authoritative guidance and regulatory requirements has become both an art and a science. Sure, most rules and regulations are black and white, but differing interpretations and disparate and elusive guidance leave some grey areas. As consumer complaints, whistleblowers, media coverage, and social media reach continue to grow, examinations are increasingly complex. And equality, pandemic, fraud, and cybersecurity concerns have led to increased scrutiny of compliance management systems (CMS) and compliance with customer protection, and Bank Secrecy Act/Anti-Money Laundering (BSA/AML), and other regulations.
The compliance environment has grown exponentially and now includes the National Credit Union Administration (NCUA), the IRS, the Financial Crimes Enforcement Network (FinCEN), the Financial Accounting Standards Board (FASB), the Federal Financial Institutions Examination Council (FFEIC), the Consumer Financial Protection Bureau (CFPB), and other federal, state, and local authorities. So coloring outside the lines within the grey areas of compliance is a dangerous game. To master both the art and science of credit union compliance, you’ll need to align your CMS, including related training and documentation efforts, with the primary concerns of these regulatory authorities. Here are some of the priorities of focus for credit unions to consider.
The Effects of the Coronavirus & Related Legislation
Credit unions need to pay particular attention to changes in market value of assets, funding costs, and borrowing capacity as they project cash flow, model for liquidity risk, assess their borrowing capacity, and form contingency funding plans. In addition, there are many legislative provisions, including those in the Coronavirus Aid & Relief and Economic Security Act (CARES Act), which have directly affected credit unions, including:
- Loan modifications (and related reporting requirements) related to COVID-19
- Trouble debt restructurings (TDRs)
- Relief received from programs such as the Paycheck Protection Program (PPP)
- Prohibition on foreclosures
- Mortgage loan forbearance
- Forbearance, delinquencies, and projected credit losses
Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Compliance
Numerous authoritative agencies have been and will continue to focus many of their efforts on improving the process, regulation, and supervision of BSA and AML. NCUA examiners have focused specifically on:
- Proper member due diligence
- Beneficial ownership procedures
- Proper filing of Suspicious Activity Reports (SAR)
- Proper filing of Currency Transaction Reports (CTR)
- Bi-weekly 314(a) information requests
- BSA requirements for serving hemp-related businesses
Credit unions should also follow updates made to the FFIEC’s BSA/AML Examination Manual.
Cybersecurity, Fraud, and Combatting the Financing of Terrorism (CFT)
Corruption, cybercrime, and domestic and international terrorist financing are also areas of concern for examiners. For information security compliance, credit unions should reference the FFIEC Architecture, Infrastructure, and Operations IT Booklet, Authentication Guidance and the NCUA’s guidance on Business Email Compromise (BEC) risk and their Automated Cybersecurity Evaluation Toolbox application the agency released in October to assist credit unions with cybersecurity preparedness.
Identity theft stemming from financial institutions is a major concern, meaning examiners are focusing on credit union Red Flags/ID Theft programs. These agencies are also working to mitigate transnational criminal organizations and the efforts of drug and human trafficking organizations. On June 30, 2021, FinCEN issued two statements of primary concern for credit unions.
Consumer Protection Regulations
Lawsuits and consumer complaints are on the rise. More and more, examiners are taking a closer look at fair lending compliance management systems to prevent issues with privacy, discrimination, elder abuse, and other consumer issues. Credit unions should focus on compliance related to:
The Electronic Funds Transfer Act (Regulation E)
The Truth in Savings Act (TISA, Regulation Z)
Credit union compliance is a delicate art and an extensive science. And, with the LIBOR transition, the implementation of the new Current Expected Credit Loss (CECL) standards, and more on the horizon, it’s more important now than ever to have the right advisors on your side.
As a Team Leader for ARB’s Credit Union Advisory Services Team, I am actively involved in the industry and committed to helping credit unions understand and stay alert to new and evolving accounting standards. I want to help you create and implement a strategic plan that ensures a smooth transition and ongoing compliance. If you’re ready to talk strategy, contact me today!
Laura Everett is a principal at ARB. She provides accounting, attest, and business advisory services primarily to credit unions, auto dealerships, and buy here/pay here finance companies. As an actively involved member of the credit union industry, Laura specializes in helping credit unions with financial reporting, compliance, and mergers. Her industry expertise includes comprehensive services from financial statement audits, supervisory committee audits, and internal