June 26, 2018

NAFCU, in 2nd Hill testimony, to talk 'de-risking' challenges, offer suggestions

John Lewis

NAFCU witness John Lewis, senior vice president of corporate affairs and general counsel at United Nations Federal Credit Union (Long Island City, N.Y.), will share with a House subcommittee today how his credit union balances the risks that come with serving more than 127,000 members around the globe while providing them with safe and sound financial services. This will be NAFCU's second time testifying on Capitol Hill this year.
Lewis is testifying today before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit during the hearing "International and Domestic Implications of De-Risking," which is slated to begin at 2 p.m. Eastern.
De-risking is the practice of limiting certain services or ending a customer/member relationship to avoid perceived regulatory concerns about their risk. As the committee discusses this practice today, Lewis will explain the importance of ensuring any legislative or regulatory actions taken on de-risking do not negatively impact the industry or its service to the nearly 113 million credit union members. He will explain that the credit union's unique membership – with some members that are all over the world – coupled with its vendor relationships, gives United Nations Federal Credit Union (UNFCU) a "strong understanding of the challenges from both sides of the de-risking issue."
Lewis will detail how NAFCU's five tenets for creating a healthy regulatory environment for credit unions relates to the issue of de-risking, and the industry's commitment to the Bank Secrecy Act (BSA) and anti-money laundering (AML) requirements.
"Credit unions are fierce supporters of efforts to combat criminal activity utilizing our financial systems," Lewis notes in his written testimony. "Our members work closely with examiners to ensure consistent application of BSA risk assessments ..."
However, Lewis adds, the implementation of BSA requirements remains burdensome for many smaller credit unions. He also will highlight the concerns of those credit unions serving higher-risk businesses or individuals – including the increased compliance burdens, costs and pressures – even though they are very thorough in their evaluation and record-keeping.
As far as recommendations to keep de-risking from being a credit union's only option due to compliance burden and costs, Lewis will suggest:

  • creating a safe-harbor for financial institutions providing services to high-risk accounts if they've met certain scrutiny requirements regarding those accounts;
  • ensuring that risk-based review requirements for financial institutions are understood by examiners; and
  • not making the financial institution the "de facto" regulator of a business, adding that while a credit union may verify a business's registration and licensing, it shouldn't have to verify certain levels of compliance by the business. 

Lewis will also note legislative solutions to help financial institutions in this area, including the Counter Terrorism and Illicit Finance Act (H.R. 6068), which seeks to modernize the BSA/AML regime; the Financial Institutions Examination Fairness and Reform Act (H.R. 4545), which would create and ensure an independent exam appeals process; and the Financial Institution Customer Protection Act of 2017 (H.R. 2706), which would ensure "Operation Choke Point" policies are not used by regulators to keep financial services away from a member without a valid reason.
In the closing of his testimony, Lewis will touch on international remittances and improvements that can be made to the process – and to the CFPB's rulemaking on the issue – that will ease the cost burden on credit unions.