NCUA 2024 Supervisory Priorities

​ViClarity’s compliance experts can assist you through NCUA examination expectations and help to identify potential problem areas.

by Jovilyn Herrick, Sr. Director Client Solutions & Carrie Helmle, Sr. Director Audit Services. 

In a move that the credit union industry anticipates every year, the National Credit Union Administration (NCUA) released its Supervisory Priorities for 2024. The regulator noted that despite economic disruption within the financial industry, the credit union system has remained stable in its performance and relatively resilient.

While the news of stability was a good thing for the start of the new year, NCUA tempered its statement by noting that it observed growing signs of financial distress. The administration seemed to attribute this distress to the rise in interest rate and liquidity risks, which NCUA claims has resulted in many credit unions receiving a 3, 4, or 5 composite CAMELS Code. In addition to these risks, economists are forecasting an economic slowdown, causing NCUA to consider all of the previously mentioned factors as having the potential to affect credit union performance.

With all that in mind, NCUA’s primary areas of supervisory focus for 2024 are:

• Credit Risk
• Liquidity Risk
• Consumer Financial Protection
• Information Security (Cybersecurity)
• Interest Rate Risk

Credit unions should be aware that NCUA will continue to conduct onsite and offsite examination and supervision activities, where appropriate. NCUA will also be continuing its Small Credit Union Exam Program in most federal credit unions with assets of $50 million or less. However, for all other credit unions, NCUA examiners will continue to use their risk-focused examination procedures.

Consistency in Credit Risk Focus & Spotlight on Consumer Financial Protection
Speaking of things that will continue to be the same, credit unions may have noticed that the risk-related priorities stayed the same from 2023 to 2024. For example, NCUA continues to monitor credit risk and consumer financial protection. In the area of credit risk, NCUA specifically will monitor existing lending programs’ soundness and credit union risk management practices, including any adjustments a credit union made to loan underwriting standards, portfolio monitoring practices, modification and workout strategies for borrowers facing financial hardships and collection programs.
 
In the area of consumer financial protection, NCUA examiners will specifically focus on areas related to overdraft programs, fair lending and auto lending, including review of indirect auto loans. As the continued uncertainty around overdraft fees plays out, NCUA has made it clear that credit union overdraft programs will continue to be reviewed. Of note, NCUA specifically commented on the evaluation of adjustments credit unions have made to their programs to address consumer risk and harm. The fair lending reviews will look at policies and practices for potential redlining, marketing and pricing discrimination. Truth in Lending Act compliance and Guaranteed Asset Protection (GAP) insurance are on the docket regarding auto lending compliance.

Continued Attention on Interest Rate Risk, Liquidity Risk & Cybersecurity
Credit risk and consumer financial protection are not the only priorities that stayed the same. NCUA is continuing to focus on interest rate risk, liquidity risk, and information security (cybersecurity).

In the area of interest rate risk, NCUA is looking at a credit union’s key risk management and control activities including:

• Verification that key assumptions and related data sets are reasonable and well-documented
• Completion of back testing and sensitivity testing of the assumption set
• Confirmation that the credit union’s overall level of interest rate risk exposure is properly measured and controlled
• Evidence that results are communicated to decision makers and the board of directors
• Evidence that proactive action is taken to remain within safe and sound policy limits

In the area of liquidity risk, NCUA will place a greater emphasis on forecasting assumptions, forward-looking cash flows and risk projections. In addition to those items, examiners will also continue to evaluate:

• The effects of changing interest rates on the market value of assets and borrowing capacity
• Scenario analysis for liquidity risk modeling, including possible member share migrations (for example, shifts from core deposits into more rate-sensitive accounts)
• Scenario analysis for changes in cash flow projections for an appropriate range of relevant factors (for example, changing prepayment speeds)
• The cost of various funding alternatives and their impact on earnings and capital
• The diversity of funding sources under normal and stressed conditions
• The appropriateness of contingency funding plans to address any plausible unexpected liquidity shortfalls

In the last area of the continued focus from 2023, NCUA is monitoring information security (cybersecurity). Specifically, NCUA is looking at whether the items outlined in its Sept. 1, 2023, Cyber Incident Notification Requirements letter have been implemented. As a reminder, those requirements include:

• Updating response plans
• Reviewing third-party contracts
• Training employees
• Monitoring and documenting incidents

And not to be forgotten, Bank Secrecy Act (BSA) compliance continues to be a supervisory area of interest. This is an area of significant risk and importance, and credit unions have a key role in safeguarding the financial system. For more BSA resources, visit the NCUA’s Bank Secrecy Act Resources page. 

Next Steps
If you’re reading this and you’ve gotten through all the things NCUA will monitor in the coming year, what should you do next?

First, if your CAMELS rating was adjusted last year and there were specific areas of improvement listed that align with what you see above, ensure that your credit union has adequately addressed those areas.

Second, if there is an area listed above that your credit union doesn’t understand or doesn’t have a good plan to manage, work with the appropriate internal staff to develop good internal practices.

Finally, if you’ve reviewed the above information and feel confident that your credit union has implemented and established all of the requirements, ensure that your staff and management are consistently carrying out the necessary practices and procedures to be successful during an examination process.

Expert Assistance at Your Fingertips
Wondering whether you can do something better? ViClarity’s compliance experts can assist you through NCUA examination expectations and help to identify potential problem areas.

Questions not related to an NCUA examination? No problem! We’ve got you covered on all things risk, compliance and audit. The ViClarity team has a deep bench of expertise, skill and experience.

Learn more about our compliance support and audit and review services, or reach out at [email protected].

The Dakota Credit Union Association’s dues-supported compliance solution –  ViClarity – is a world leader in credit union compliance. To access materials, you will need to log in with your username and password. If you have questions about establishing your members-only account with ViClarity, click here for detailed instructions or contact John Alexander in the DakCU office.