On January 7, 2020, the National Credit Union Administration (NCUA) issued its annual letter to credit unions. The 2020 letter discusses supervisory priorities in preparing for NCUA examinations and statutory and regulatory updates.
Supervisory Priorities for 2020
Bank Secrecy Act (BSA) and Anti-Money-Laundering (AML) Compliance – There are numerous improvement efforts in the works for regulation and supervision of BSA and AML through the collaboration of the NCUA, FinCEN, and federal banking agencies. Examiners will focus on customer due diligence, beneficial ownership requirements, and proper filing of SARs and CTRs.
Consumer Financial Protection – NCUA’s compliance focus is rotated each year. In 2020, expect risk-focused examinations that include the NCUA’s review of your compliance with the EFT Act (Regulation E), FCRA, Gramm-Leach-Bliley (Privacy Act), Small Dollar Lending, including PALs, the Truth in Lending Act (Regulation Z), as well as with MLA and SCRA.
Cybersecurity – The NCUA began using the Automated Cybersecurity Examination Tool (ACET) in 2018. In 2020, credit unions will be able to complete self-assessments using this tool through the NCUA website. New evaluation procedures for critical security controls can also be expected in 2020. NCUA will begin using this tool for credit unions with assets over $100 million in 2020. For more information on credit union cybersecurity, take a look at our previous article, Cybersecurity: Is Your Data Safe?
Credit & Liquidity Risk – Managing financial risk is an integral part of supervisory responsibility. Expect your NCUA examination to include a heightened review of your loan underwriting standards and procedures, your concentration risk exposure, and liquidity management and planning procedures.
CECL – The NCUA is continuing to monitor credit union progress in implementing the FASB Accounting Standards Update on credit losses. The ASU applies to fiscal years beginning after December 15, 2022, and for interim periods within fiscal years beginning after December 15, 2023. For a calendar year credit union, the proposed effective date will be January 1, 2023. For information on preparing for the transition, take a look at our previous article, CECL’s Legislative Journey and How Credit Unions Can Prepare.
LIBOR Transition – LIBOR has commonly been used in setting the interest rate for adjustable-rate or variable-rate financial products. Beginning in 2022, this reference rate will no longer be available. Expect a review of your exposure and plans for the transition as part of your NCUA examination.
Statutory & Regulatory Updates
Hemp Businesses – Through legislative changes passed in the Agriculture Improvement Act of 2018, hemp production is federally legal. Credit unions may now provide services, including loans, for lawfully-operating hemp-related businesses.
Supervisory Committee Audits Rule – On January 8, 2020, the NCUA issued a new Supervisory Committee Audit Guide which outlines the minimum procedures required for supervisory committee audits.
Public Unit and Nonmember Shares Rule – On January 29, 2020, an amendment to CFR Title 12, Part 701, Section 701.32 takes effect. This amendment allows “federal credit unions (FCU) to receive public unit and nonmember shares up to 50 percent of the credit union’s net amount of paid-in and unimpaired capital and surplus less any public unit and nonmember shares or $3 million, whichever is greater.” Expect the NCUA to review your plan for accommodating this amendment.
Full CFR Title 12, Chapter VII, Subchapter A Regulations may be referenced here.
ARB’s Credit Union Services Group is active in, and dedicated to, your industry. We are available to assist with understanding new standards, staying alert to accounting updates, and creating a plan for implementation and compliance. Contact us for more information on these NCUA publications, or for your other accounting and business advisory needs.
by Holly D. Ferguson, Principal, CPA
