2021 NCUA supervisory priorities focus on COVID-19, BSA/AML, consumer protection; no CECL reviews for now

A continued focus on the challenges posed by the ongoing coronavirus (COVID-19) pandemic and steps to enhance the agency’s offsite monitoring of credit unions’ condition are among the highlights in a letter Friday on 2021 supervisory priorities announced by the National Credit Union Administration (NCUA).

In one item of note, the agency said that examiners will not be assessing credit unions’ efforts to transition to the current-expected-credit-losses (CECL) standard “until further notice.”

The NCUA, in a Letter to Federally Insured Credit Unions signed by board Chairman Rodney Hood, said it remains “steadfast in its commitment to respond to the ongoing pandemic with guidance, policies, and procedures that reflect the current economic climate, as well as efforts to increase the efficiency of the supervision program.” It said it planned to continue to focus examination activities on areas posing the highest risk to the credit union industry and that it will continue with tis extended examination cycle, with qualifying credit unions to be scheduled “accordingly” in 2021.

The targeted exam procedures in the agency’s Small Credit Union Exam Program “remain in place for most federal credit unions with assets under $50 million,” the agency said. “For all other credit unions, NCUA examiners will conduct risk-focused examinations, which concentrate on areas of highest risk, new products and services, and compliance with applicable laws and regulations.”

Along that line, the agency said it is incorporating an exam planning questionnaire into the exam planning process. It said examiners will provide the questionnaire – which will collect information on certain products and services, significant events, insider activities, and fraud awareness – to credit unions in advance of their scheduled exams. Responses will be used to refine the exam scope, increase offsite-monitoring capabilities, and incorporate efficiencies to the exam. (More information on this questionnaire will be “forthcoming,” it said.) Meanwhile, the agency noted that it will continue to pilot its new examination tool, the Modern Examination and Risk Identification Tool (MERIT), until the broader rollout in the second half of 2021.

The agency lists its primary supervisory priorities in 2021 as follows:

  • Allowance for loan and lease losses (ALLL): As referenced above, the agency, noting the ongoing economic impact of the COVID-19 pandemic and the Financial Accounting Standards Board’s decision to delay its requirement to comply with the current expected credit losses (CECL) standard until January 2023, said its examiners will not be assessing credit unions’ efforts to transition to the CECL standard until further notice. It does, however, encourage credit unions to continue to assess their needs and evaluate methodologies for the eventual implementation of the CECL standard.
  • Bank Secrecy Act/anti-money laundering (BSA/AML) compliance: The NCUA will continue to conduct BSA/AML reviews during every examination and will take appropriate action when necessary to ensure credit unions meet their regulatory obligations. It noted a focus on developing suggestions and clarifications to improve suspicious activity report (SAR) and currency transaction report (CTR) filings.
  • Coronavirus Aid, Relief and Economic Security Act (CARES Act): For examination purposes, examiners will continue to review compliance with provisions of the CARES Act and Consolidated Appropriations Act of 2021. These include, among other things, a provision that suspended the requirement to categorize certain loan modifications as troubled debt restructurings (TDRs), which was extended through Jan. 1, 2022; and requirements for financial institutions related to the administrative provisions for the additional 2020 recovery rebates for individuals.
  • Consumer financial protection: Citing again the COVID-19 pandemic, the agency said it will continue to examine for compliance with applicable consumer financial protection regulations during every federal credit union examination. The scope of each examination’s consumer compliance reviews is largely risk-focused and based on the credit union’s compliance record, products and services provided, and any new or emerging concerns. Examiners will assess a credit union’s Fair Lending Compliance Management System.
  • Credit Risk Management: The NCUA reaffirms that examiners will not criticize credit unions’ efforts to provide prudent relief for borrowers, when such efforts are conducted in a reasonable manner with proper controls and management oversight. Examiners will continue to emphasize review of policies and practices related to helping borrowers affected by COVID-19 and will verify that credit unions evaluated the potential impact their COVID-19 response and relief efforts will have on their capital position and financial stability.

The agency’s supervisory priorities also include cybersecurity; the transition away from the London Interbank Offered Rate (LIBOR) as a benchmark in transactions and contracts; liquidity risk (including, for example, that posed by “sudden and significant” share outflows); and serving hemp-related businesses.

“The NCUA will continue to encourage credit unions to consider whether they are able to provide financial services to lawfully operating hemp-related businesses within their fields of membership safely and properly,” the agency said.

NCUA Letter to Federally Insured Credit Unions (21-CU-02)