NCUA’s 2024 Supervisory Priorities

  • Source: ncua.gov

Takeaway

The NCUA’s supervisory priorities for 2024 emphasize key areas of focus for credit unions, including credit risk, liquidity risk, consumer financial protection, information security (cybersecurity), interest rate risk (IRR), Bank Secrecy Act (BSA) compliance, and support for small credit unions and minority depository institutions (MDI).

Treliant can help credit unions navigate these priorities and prepare for their upcoming exams by providing expert regulatory compliance consulting services tailored to their specific needs.

Our team of experts assists in assessing and enhancing risk management practices, ensuring compliance with consumer financial protection laws, implementing robust information security programs, managing interest rate risk, and maintaining BSA compliance.

Highlights

In response to the National Credit Union Administration’s (NCUA) supervisory priorities for 2024, credit unions are urged to adopt proactive measures to mitigate risks and ensure regulatory compliance.

The following outlines specific strategies for credit unions to navigate challenges related to NCUA’s supervisory priorities.

Credit Risk: With economic conditions impacting credit union members’ ability to repay debts, NCUA examiners will review lending programs, risk management practices, and credit unions’ efforts to provide relief for borrowers.

    • Mitigation Strategy:
      • Conduct a comprehensive review of lending programs.
    • Action Steps:
      • Assess and adjust loan underwriting standards based on current economic conditions and product/service availability.
      • Implement robust portfolio monitoring practices to identify early signs of risk or deterioration.
      • Develop effective modification and workout strategies for borrowers facing financial hardships.
      • Enhance collection programs to minimize credit risk exposure.

Liquidity Risk: Credit unions are urged to maintain strong liquidity risk management due to increased uncertainty in interest rate levels and economic conditions. The importance of contingency funding plans is emphasized.

    • Mitigation Strategy:
      • Strengthen contingency funding plans.
    • Action Steps:
      • Regularly update and test contingency funding plans to address changing market conditions.
      • Assess current and prospective sources of liquidity in comparison to funding needs.
      • Conduct scenario analysis for liquidity risk modeling, considering potential member share migrations and changing cash flow projections.
      • Diversify funding sources and evaluate the cost of various alternatives under normal and stressed conditions.

Consumer Financial Protection: Examiners will focus on overdraft programs, fair lending, and auto lending compliance, conducting reviews of credit unions’ policies and procedures in these areas.

    • Mitigation Strategy:
      • Enhance compliance with consumer financial protection laws.
    • Action Steps:
      • Review and adjust overdraft programs, ensuring transparency in website advertising and settlement processes.
      • Evaluate fair lending policies and practices to mitigate redlining, marketing, Artificial Intelligence (AI) models, and pricing discrimination risks.
      • Thoroughly review disclosures, policies, and practices related to auto lending, with a focus on compliance with the Truth in Lending Act.
      • Strengthen policies and procedures governing compliance with flood insurance rules.

Information Security (Cybersecurity): The evolving cybersecurity threat landscape remains a key examination focus. Credit unions are required to adhere to the new Cyber Incident Notification Reporting Rule, reporting incidents within 72 hours.

    • Mitigation Strategy:
      • Stay vigilant in maintaining and updating BSA policies and procedures.
    • Action Steps:
      • Regularly update BSA policies, procedures, programs, and controls to align with regulatory changes.
      • Stay informed about updates to supervisory expectations and examination procedures.
      • Prepare for potential changes to BSA requirements resulting from rulemakings under the Anti-Money Laundering Act of 2020.

Interest Rate Risk (IRR): The tightening of U.S. monetary policy increases the importance of IRR management. Examiners will evaluate credit unions’ proactive management of IRR and related risks.

    • Mitigation Strategy:
      • Proactively manage IRR and related risks.
    • Action Steps:
      • Ensure key assumptions and data sets used in IRR programs are reasonable and well-documented.
      • Conduct regular back testing and sensitivity testing of assumption sets.
      • Communicate IRR exposure results to decision-makers and the board of directors.
      • Take proactive action to stay within safe and sound policy limits.

Bank Secrecy Act Compliance: BSA compliance continues to be a supervisory area of interest, and credit unions are expected to stay vigilant in maintaining and updating their BSA policies, procedures, and controls.

    • Mitigation Strategy:
      • Stay vigilant in maintaining and updating BSA policies and procedures.
    • Action Steps:
      • Regularly update BSA policies, procedures, programs, and controls to align with regulatory changes.
      • Stay informed about updates to supervisory expectations and examination procedures.
      • Prepare for potential changes to BSA requirements resulting from rulemakings under the Anti-Money Laundering Act of 2020.

Support for Small Credit Unions and MDIs: The NCUA remains committed to supporting small credit unions and MDIs through its Support Program, offering custom support to eligible credit unions.

    • Strategy:
      • Leverage support programs to navigate operational challenges.
    • Action Steps:
        • Explore opportunities for grants, training, and initiatives offered by the NCUA’s Support Program.
        • Collaborate with industry mentors and organizations to enhance support for small credit unions and MDIs.
        • Seek assistance from the NCUA in addressing unique risks and operational hurdles.

What Does This Mean for Financial Institutions?

Credit unions should consider proactively leveraging expert consulting services to address the specific challenges outlined by the NCUA. As the industry experiences changes in economic conditions, interest rates, and regulatory expectations, institutions need to adapt their risk management practices and compliance measures.

Credit unions should:

  • Take a closer look at these areas and ensure that all specified priorities within this issuance are appropriately mapped to documentations, controls, and processes.
  • Assess whether their issues management program is adequately capturing document, control, and process deficiencies that do not account for these specific areas, that there are plans to remediate these deficiencies, and that timeline and milestones for remediation for deficient controls are being met.

In the context of the growing trend of mergers in the credit union space, institutions should consider how these supervisory priorities impact their decision-making processes. Credit unions that are focused on these areas and robustly meeting expectations may be attractive candidates for the NCUA to consider in mergers and acquisitions. Failure to manage risks effectively in these areas influence the evaluation of potential mergers and acquisitions. Additionally, proactive management of these risks may reduce reputational and regulatory compliance risk considerably.

Treliant stands ready to assist credit unions in navigating these challenges, providing tailored solutions to support a safe and sound credit union system.

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Authors

Daniel Johnson Sr.

Daniel Johnson is Managing Director at Treliant. He is an experienced regulatory compliance and data science professional with comprehensive financial services experience in regulatory compliance, risk management, internal audit, fair lending, statistical analysis, operations management, enterprise program administration, and compliance training. Daniel has notably innovated in the field of data…

Mike Scarpa

Mike Scarpa is a Managing Director in Treliant’s Regulatory Compliance, Mortgage, and Operations Solutions practice. He helps set Treliant’s regulatory compliance/operations agenda, including key trends, solution offerings, and client pursuits. He also executes on regulatory compliance projects and serves as a subject matter expert. Mike is an expert in financial…