NCUA OIG report indicates adding ‘S’ to CAMEL could take nearly 3 more years

Plans at credit unions’ federal regulatory agency to add an “S,” for market risk Sensitivity, to the CAMEL rating system now suggest final implementation may not occur before year-end 2021, according to the latest semiannual report to Congress by the agency’s inspector general office.

That’s three years later than was anticipated in previous reports, which showed a year-end 2018 implementation of CAMELS.

In the more recent report, which covers the six months ending this March 31, the National Credit Union Administration (NCUA) Office of Inspector General (OIG) says management explained the longer time frame by noting that adopting “S” to the CAMEL rating system requires public notice and comment, NCUA Board approval, and “cohering regulation and system changes.”

In further detail, the report stated, management explained that NCUA is involved in a multi-year effort to update its legacy systems (the “Enterprise Solutions Modernization” program). This program is expected to include incorporating the ability to assign and capture the “S” component “as an optional part of the CAMEL rating.” It says management expects this system change to be in place by the middle of next year. After that, management reportedly indicated, the agency will then have the flexibility to adopt the “S” rating “if the Board so chooses, and to capture the ‘S’ rating for federally insured state-chartered credit unions in the states where the state regulators have adopted the ‘S’ rating.”

The report adds, “At that time, management indicated, the NCUA Board will be in a position to consider the necessary policy changes.”

The NCUA OIG recommended the move from CAMEL to CAMELS in a November 2015 report on a review of the agency’s interest-rate risk program. The goal, according to the OIG, is for the agency to better capture a credit union’s sensitivity to market risk and to improve interest rate risk clarity and transparency.

This recommendation is one of three “significant” OIG recommendations that remain open, the report shows. The other two have to do with findings in a 2013 material loss review of the failed El Paso Federal Credit Union (regarding verification of member transactions) and the 2018 audit of the agency’s comprehensive records management process.

NCUA’s material loss review of El Paso Federal Credit Union, liquidated in September 2012, included a recommendation that the agency update its policies and procedures to require that third-party confirmations be obtained regularly for all accounts where the balance or activity is significant to the operations of the credit union. This was going to be handled through changes in the Supervisory Committee Guide, but since that guide is being phased out, it will instead be handled through a rule change, the report states.

NCUA OIG Semiannual Report to the Congress (Oct. 1, 2018 – March 31, 2019)

RR: Credit union agency OIG told CAMEL getting an ‘S’ by year-end, reports on insurance fund loss review, more (May 14, 2018)