Industry groups call on NCUA to refine virtual examination process

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Industry groups are calling on the National Credit Union Administration to further refine its remote examination processes as the pandemic drags on.

NCUA earlier this year put onsite exams on hold indefinitely, meaning credit unions will continue to interact with examiners remotely for the foreseeable future. The agency pulled all of its examiners out of credit unions on March 16 due to the coronavirus.

Advocacy groups responded to a recent request for input from the regulator by suggesting that one of the easiest ways to ease the exam cycle for credit unions could be done without the use of technology: exending the examination cycle. However, approaches varied regarding how to do that. Low-risk, well-run credit unions assets of less than $1 billion are currently the only institutions eligible for an 18-month examination cycle, and the Credit Union National Association recommended raising that threshold to $3 billion, leveling the playing field with banks. For its part, the National Association of Federally-Insured Credit Unions didn’t specify an asset threshold but rather said all low-risk, well-run credit unions should be eligible for the 18-month timeline.

A NAFCU survey last year found fewer than half of all eligible credit unions were receiving the 18-month exam cycle, and more examiners were spending more time in credit unions when conducting on-site supervision.

Many were bullish on the possibilities of using videoconferencing technologies such as Google Meet, Skype and Zoom to facilitate remote interactions between CUs and examiners. However, an unidentified credit union writing for the CrossState CU Association, which serves credit unions in Pennsylvania and New Jersey, suggested those tools could be problematic.

“At present I do not think that CUs across the spectrum have the necessary technology and experience, despite the strides made during the pandemic, to effectively conduct the remote communication that will be needed,” a representative for the credit union wrote. “We are also working with highly sensitive data on both sides and must be certain the processes used to share that data are extremely well-secured. Also, since so many credit unions rely on [third-]party business partners for key parts of their operations … having these partners invested in the communications tools and protocol being developed will be critical. Our credit union is very concerned that many institutions will find this a hurdle and a major investment in both human and hardware and software resources.”

NCUA's questions for credit union raised the possibilty of getting information directly from some third-party providers, but that suggestion was shot down. Some credit unions told advocacy groups their preference was to keep control of their own data, in part because of the difficulty of ensuring cybersecurity best practices are in place at third-party providers.

Cybersecurity was one of the most frequently raised topics in letters to the regulator, and many pointed out that aside from inherent cyber risks that come from using remote technologies, smaller institutions in particular may lack the resources needed for some remote supervision. A letter from the National Association of State Credit Union Supervisors noted that CUs needing technology assistance will likely not just need help getting up and running, but also maintaining and securing those tools.

There were also suggestions that offsite exams could hinder institutions’ relationships with their examiners and make it more difficult for management to build trust with those conducting oversight.

“We believe there is the potential for miscommunication and misunderstandings between parties,” wrote Luke Martone, CUNA’s senior director of advocacy and counsel. “Additionally, we believe that disagreements on examination findings and observations could increase because of the reduction/lack of face-to-face discussions that provide context and clarity on specific issues. None of these problems will be insurmountable but will take a concerted effort by the NCUA and credit unions to overcome.”

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Exams Compliance Financial regulations NCUA CUNA NAFCU NASCUS
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