August 31, 2020

NAFCU urges flexibility, reduced burden as NCUA considers virtual exams

ncuaIn response to the NCUA's request for information (RFI) on future exam modernization efforts, NAFCU Director of Regulatory Affairs Ann Kossachev Friday shared the association's appreciation for the NCUA's progress on certain reform initiatives and urged the agency to prioritize reducing examination burden. The agency is currently seeking ways to leverage new technology, analytics, and other capabilities to transition to a mostly virtual exam format.

"The NCUA should fervently continue to pursue its exam modernization efforts in a transparent fashion that allows credit unions to consistently provide feedback," wrote Kossachev. "Transparency is essential in the examination process as well as during the NCUA’s information-gathering process on how to structure its future approach to supervision and examinations."

In the letter, Kossachev stressed the need for virtual exams to prioritize reducing exam burden and duration, highlighting that many credit unions are still not seeing a meaningful reduction in exam duration, with some seeing a significant increase in the time allotted to exams.

"Duration of an exam has a direct correlation to the time and resources credit union staff can devote to serving members," said Kossachev. "Shorter, more efficient exams would allow credit unions to better serve their members, particularly during an unanticipated disruption, like the COVID-19 pandemic."

Kossachev also shared credit union feedback, noting that NAFCU members continue to share concerns regarding exam consistency, including this year's shift to virtual due to the coronavirus pandemic. To help remedy this, Kossachev shared NAFCU's recommendation that the agency continue its recent trend of providing more guidance on a "go-forward" basis beyond the pandemic.

"Inconsistent examinations may lead to some credit unions being dissatisfied with their examination results," highlighted Kossachev. "Those credit unions may then seek to appeal their examination results and should be able to do so without fear of retribution.

"Unfortunately, the NCUA has yet to provide credit unions with a streamlined, independent appeals process for supervisory determinations," she added.

Additionally, Kossachev discussed the need for clear virtual examination procedures, flexibility on record digitization, and the incorporation of strong data protection requirements. Kossachev also urged the NCUA to adopt extended exam cycles for all low-risk, well-run credit unions.

NAFCU has consistently pushed the NCUA for updates on exam modernization and at the onset of the pandemic, President and CEO Dan Berger called on the agency to provide additional examination flexibility. The NCUA last month released a revised version of its 2020 supervisory priorities, indicating that it will focus its exam activities on areas that pose an "elevated risk" to the credit union industry.

In addition, NAFCU previously spoke with the NCUA's Office of National Examinations and Supervision to discuss how the agency's supervisory activities have adapted to the challenges created by the pandemic and subsequent shift to virtual exams.

The association will continue to work with the NCUA on efforts to modernize exams as the agency works to transition to a primarily virtual format.