NCUA Exam Director Explains Priorities to CA & NV Leaders

Kelly Lay, director of the Office of Examination and Insurance for the National Credit Union Administration (NCUA)
Kelly Lay, director of the Office of Examination and Insurance for the National Credit Union Administration (NCUA)

The California and Nevada Credit Union Leagues hosted an online discussion on Thursday with Kelly Lay, director of the Office of Examination and Insurance for the National Credit Union Administration (NCUA). Lay outlined the agency’s supervisory priorities for 2022 and took questions at the end.

NCUA’s Top 10 Supervisory Priorities for 2022
The agency is focusing on:

  • 1) Its Phase II plan and policy changes regarding onsite work at credit union office locations and branches. As the nation steps out of the COVID-19 pandemic, credit union policies are being monitored, as well as how they coincide with local COVID-19 case levels and public health guidance.
  • 2) Credit risk management, including the pandemic’s resulting economic impact, credit quality, lending relief programs, and internal policies and procedures in conjunction with financially impacted members. This includes credit and lending changes as a result of extended COVID-19 relief beyond Dec. 31, 2021. Credit unions are still encouraged to work with their members’ financial circumstances.
  • 3) Information security, including potential cybersecurity issues arising from tension and instability coming out of the war and geo-political conflict in Ukraine and Russia. Credit unions should maintain a heightened sense of awareness and diligence as cybersecurity remains a significant threat to the U.S. financial system (ransomware, compromised emails, supply chain risk, and more). The agency has provided guidance on this.
  • 4) Updating security examination procedures through continuing the transition from InTREx-CU to the ACET system (Automated Cybersecurity Examination Tool). ACET is in testing and will become a self-assessment resource for credit unions most likely by fourth-quarter 2022. The transition process includes tailoring ACET to asset size and complexity of institution, which means it will look different for credit unions that are $50 million and under versus those that are larger (three asset-size tiers in total).
  • 5) Promoting the cybersecurity ACET Toolbox to help credit unions conduct cybersecurity preparedness assessments (which is completely voluntary). You can find the toolbox-download button on the agency’s ACET and Other Assessment Tools webpage.
  • 6) Payment systems, including risk review of payment offerings (ACH, wire transfers, remote deposit capture, ATMs, and mobile payments). These risks will look different from one credit union to another, and examiners should be tailoring their reviews based on risk factors that are individually present at individual credit unions.
  • 7) Asset liability management (ALM) and Bank Secrecy Act (BSA) items. Financial regulatory agencies are working on interagency goals with respect to new requirements that will be announced sometime in second-quarter or third-quarter 2022, including an interagency exemption rule.
  • 8) Capital adequacy. As risk-based capital requirements (RBC) went into effect on Jan. 1, 2022, the agency’s examiners and staff will take a closer look and stay aware of the impact on share/deposit growth to a credit union’s capital position.
  • 9) Consumer financial protections, including forbearance and accommodations under review as the industry comes out of financial relief programs from the COVID-19 pandemic.
  • 10) Fraud risk — including monitoring, transaction testing, internal control assessments, and separation of duties.

Additional NCUA Updates
Lay provided an update on the agency’s call-report examination modernization initiative to enhance the value of credit union data collected, which is part of the larger multi-year Enterprise Solution Modernization (ESM) program to introduce emerging and secure technology solutions (including the NCUA Connect platform). Additionally, the agency’s virtual examination program (research and discovery phase) was discussed, as well as the MERIT platform (replacing AIRES).

Updates were also provided on the National Credit Union Share Insurance Fund’s (NCUSIF) capitalization and equity ratio, including a projection of the Normal Operating Level (NOL) through June 30, 2022. Also, top trends in examination findings were discussed, including BSA whistleblower complaints and interest rate risk affecting balance sheet metrics (net interest margin, net economic value and others) with respect to the most recent share/deposit surge.

Lay also answered more than half a dozen questions at the end by participants.

"We want to thank Director Lay for her time yesterday," said Diana Dykstra, president and CEO of the Leagues.

The Latest from Sacramento & Carson City
In California, the state’s fiscal committee bill deadline is next week, which means any legislative bill with a fiscal impact to the state’s budget must pass policy committee by then.

  • The policy committees will hear more than 1,000 bills before deadline. The California Credit Union League has experienced some good early returns on top of defeating the recent state Community Reinvestment Act (CRA) bill. A bill to expand the scope of the Property Assessed Clean Energy (PACE) program (Assembly Bill 2258) and a bill to change the standard workweek to 32 hours are both NOT moving forward! These bills, especially the 32-hour workweek bill, would have had significant impacts on credit unions throughout the state.

In Nevada, the Sunset Subcommittee of the Legislative Commission recently met.

  • This commission reviews state boards and councils. The commission reviewed the purpose and history of the Credit Union Advisory Council under the Financial Institutions Division (part of the Nevada Department of Business and Industry), and the commission recommended this council will stay in place — which is great news for credit unions in the state!

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