Article written by:
Ethan Lane, CPA
If you are a federal credit union expecting the NCUA to complete an examination at your Credit Union in 2020, chances are you may see some changes this year compared to prior years. The reason for this is the NCUA has announced the implementation of its Modern Examination and Risk Identification Tool (MERIT) system. Unlike the current AIRES examination process, credit unions will be able to use MERIT for several activities including the secure transferring of documents, providing status updates, requesting due date changes on corrective actions, and securely accessing completed examination reports.
The implementation of the new MERIT system may also be why you saw an increase in your operating fee during 2019. According to the NCUA, the fee increased an average of 2% during 2019, and will increase an average of 1.13% beginning in 2020 due to a $3 million increase in the capital budget. This increase in the capital budget will be used to pay for a new technical platform and centralized system for stakeholders to do business with the agency, and will help to pay for the new MERIT examination system, replacing the legacy AIRES software.
What can you and your management team expect the NCUA to focus on during their next examination? The most pressing matters facing the NCUA, according to Chairman Hood, will be the Bank Secrecy Act (BSA) and Anti-Money Laundering (AML), consumer financial protection, credit risk, liquidity risk, and cybersecurity. The agency will continue to emphasize BSA and AML compliance with new customer due diligence and beneficial ownership rules that went into effect in May 2018. Each year, the NCUA selects specific consumer financial protection rules on which to focus during exams, and the agency intends to focus on compliance with the Electronic Fund Transfer Act, fair credit lending and reporting, and the Gramm-Leach-Bliley Act regarding the handling of non-public information about consumers in 2020. Two other significant areas will be credit risk and liquidity risk: determining whether borrowers have the ability to meet debt service requirements without the reliance on collateral, and the impact of changing interest rates and contingency plans on liquidity. Credit union management should be aware the NCUA began using the Automated Cybersecurity Examination Tool on credit unions with assets greater than $250 million in 2018 and plans to use this tool on credit unions with assets greater than $100 million beginning in 2020.
Reach out to your GBQ advisor with any questions regarding the NCUA’s priorities in 2020, or choosing the right annual audit that best meets the needs of your credit union.