ARTICLE
Compliance Update with Amy K by Amy Kleinschmit, Chief Compliance Officer NCUA – Interim Final Rules Last week the NCUA issued two interim final rules relating to the Central Liquidity Facility (CLF) and Asset Thresholds for large credit unions. CLF The NCUA’s interim final rule (IFR) regarding the CLF is effective when published in the Federal Register and comments must be submitted within 60 days after publication. This IFR reflects relevant changes made by the Consolidated Appropriations Act (CAA). The CAA, among other things, extended the sunset date of the CLF enhancements in the CARES Act to December 31, 2021. Among the revisions made, the IFR provides that credit unions that join the CLF between January 1, 2021 and December 31, 2021, regardless of percentage amount of stock subscription, may withdraw from membership in the Facility after notifying the NCUA Board in writing on the sooner of: (A) Six months from the date of its written notice to the NCUA Board; or (B) December 31, 2021. Any credit union that joins the Facility during the aforementioned period and remains a member after December 31, 2021, may immediately withdraw from membership in the Facility upon notifying the Board in writing of its intent to do so. Such immediate withdrawal period will expire on December 31, 2022. On January 1, 2023 the immediate withdrawal period will cease, and all members will be subject to the termination provisions in effect before April 29, 2020. Asset Thresholds – Large Credit Unions The NCUA also issued an IFR to temporarily allow federally insured credit unions to use asset data as of March 31, 2020, to determine the applicability of certain regulatory asset thresholds during calendar years 2021 and 2022. This IFR is also effective when published in the Federal Register and is open for a 60-day comment period. As explained in the IFR the NCUA, “does not believe that the balance sheet growth related to the COVID-19 Pandemic has significantly increased the general risk profile of the affected FICUs.” As discussed previously, FICUs’ growth is largely due to the extraordinary growth in insured shares held by FICUs. Therefore, the Board feels it prudent to offer FICUs relief with respect to certain regulatory requirements being triggered by the unprecedented balance sheet growth. This IFR impacts regulations for determining when a credit union is subject to capital planning and stress testing requirements and supervision from the Office of National Examinations and Supervision. NCUA Administrative Order The National Credit Union Administration recently issued an Administrative Order against a smaller ($69M) Michigan federal credit union and several of the provisions that the credit union consented to are on the topic of its marijuana-related business (MRB) accounts. Marijuana has been a hot topic this legislative session in South Dakota. North Dakota has obviously had medical marijuana on the books for a while. Therefore, any credit union contemplating serving this industry need to do their homework with enhanced due diligence and ensure it has the appropriate safeguards in place. Learning from the mistakes of others, the Administrative Order requires the credit union to take several actions, including to implement an automated system to effectively monitor and identify all transactions for suspicious activity. The automated compliance and suspicious activity monitoring system must include functions to support compliance with FinCEN requirements for MRB. The Order expands on what is the system needs to be able to do, including: reconciliation of MRB Point of Sale, METRC, or accounting system data relative to member deposits; ongoing monitoring of adverse public information affecting MRBs; timely verification of changes in licensure status, including notification of a lapse in an MRB's state licensure; systematic monitoring of unusual Automated Clearing House or wire activity for MRB accounts; and monitoring of FinCEN "Red Flags" outlined in FIN-2014-G001, "BSA Expectations Regarding Marijuana-Related Businesses." The Order also requires the credit union to engage a third party to validate the credit unions automated compliance and suspicious activity monitoring system simultaneously with the implementation of this system. The credit union is directed to immediately file all Suspicious Activity Reports which includes continuous and initial MRB SARs and develop and implement a system to ensure all SARs are filed accurately, completely, and on time by March 31, 2021. The credit union must immediately develop and implement a system to ensure all Currency Transaction Reports are filed accurately. The order directs that the credit union must immediately cease opening new MRB accounts. The Order also touches on Money Services Businesses and directs the credit union to cease Money Services Business program by March 15, 2021, which includes suspending transactional activity on existing MSB accounts. The credit union must engage a qualified third party to perform a retrospective review of their MSB activity to determine the existence of suspicious activity warranting a SAR. At a minimum, the review must evaluate the criteria outlined in FIN- 2019-A003, "Advisory on Illicit Activity Involving Convertible Virtual Currency." NCUA – Guaranteed Notes Program Update The NCUA Board was also briefed on the Guaranteed Notes Program and Asset Management Estate which included an announcement that in April of 2021, membership capital account holders from the U.S. Central Federal Credit Union, Members United Corporate Federal Credit Union, and Southwest Corporate Federal Credit Union, will receive a partial distribution. U.S. Central, Members United, and Southwest member capital holders of record with the liquidating agent will receive member capital account distributions. After accounting for mergers, purchases and assumptions, and liquidations, over 1,800 active credit unions will receive a distribution. Additional information on the distribution along with FAQs can be found here -Corporate Capital Distribution Process | National Credit Union Administration (ncua.gov). NACHA Last week, the NACHA WEB Debit Account Validation Rule became effective. The Nacha Operating Rules now require that businesses initiating consumer ACH debits via the internet or mobile devices verify the consumers’ account information for the first payment. NACHA issued a number of FAQs on the topic which can be found here. This rule is intended to help prevent fraud on the ACH Network and protect financial institutions from posting fraudulent or incorrect unauthorized payments. Merchants and billers (and their processing partners) are in the best position to detect and prevent fraud related to payments they are initiating. Interagency Q&A – Private Flood Insurance The NCUA, along with the OCC, Board of Governors of the Federal Reserve System, FDIC and FCA, issued a proposed supplement for the Interagency Questions and Answers Regarding Flood Insurance. This proposal can be found here and comments must be submitted by May 17, 2021. Flood insurance requirements has had a long history beginning with the National Flood Insurance Act of 1968 which created the National Flood Insurance Program (NFIP). This was expanded with the Flood Disaster Protection Act of 1973 which made purchase of flood insurance mandatory in connection with loans made by federally regulated lending institutions when the loans are secured by improved real estate or mobile homes located in a special flood hazard area. Revisions came in 1994 with the National Flood Insurance Reform Act. The Biggert-Waters Flood Insurance Reform Act of 2012 added escrow, force placement, and private flood insurance provisions. In 2014 the Homeowner Flood Insurance Affordability Act amended the Biggert-Waters Act’s requirements regarding the escrow of flood insurance premiums and fees and created a new exemption from the mandatory flood insurance purchase requirement for certain detached structures. Since 1997, the Interagency Questions and Answers regarding flood insurance have provided the lending industry with guidance addressing a wide spectrum of technical flood insurance-related compliance issues. These Q&As have been revised and updated several times since 1997, and the NCUA (along with other agencies) are seeking comment on 24 proposed Q&A regarding the most recent regulatory changes for private flood insurance. The questions fall into three categories/sections: Mandatory Acceptance (9 questions); Discretionary Acceptance (4 questions); and General Compliance (11 questions). Infosight Updates Required Compliance Training Check out the Required Compliance Training information that has been added under the Resources area of InfoSight! This document provides an overview of the compliance training requirements and the associated citation for that requirement. RISK Alerts for March New RISK Alerts now available from CUNA Mutual Group including: New! Don’t Let Staff Commit Fouls During March Madness (3/16/2021); Planning for the Vaccination (3/9/2021); and ACH Booster Payment Fraud Grows with Transactional Services Offerings (3/2/2021). All RISK Alerts from CUNA Mutual Group are listed and summarized on the RISK Alerts and Resources page. Contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.
Compliance Update with Amy K
by Amy Kleinschmit, Chief Compliance Officer
NCUA – Interim Final Rules
Last week the NCUA issued two interim final rules relating to the Central Liquidity Facility (CLF) and Asset Thresholds for large credit unions.
CLF
The NCUA’s interim final rule (IFR) regarding the CLF is effective when published in the Federal Register and comments must be submitted within 60 days after publication. This IFR reflects relevant changes made by the Consolidated Appropriations Act (CAA). The CAA, among other things, extended the sunset date of the CLF enhancements in the CARES Act to December 31, 2021.
Among the revisions made, the IFR provides that credit unions that join the CLF between January 1, 2021 and December 31, 2021, regardless of percentage amount of stock subscription, may withdraw from membership in the Facility after notifying the NCUA Board in writing on the sooner of: (A) Six months from the date of its written notice to the NCUA Board; or (B) December 31, 2021. Any credit union that joins the Facility during the aforementioned period and remains a member after December 31, 2021, may immediately withdraw from membership in the Facility upon notifying the Board in writing of its intent to do so. Such immediate withdrawal period will expire on December 31, 2022. On January 1, 2023 the immediate withdrawal period will cease, and all members will be subject to the termination provisions in effect before April 29, 2020.
Asset Thresholds – Large Credit Unions
The NCUA also issued an IFR to temporarily allow federally insured credit unions to use asset data as of March 31, 2020, to determine the applicability of certain regulatory asset thresholds during calendar years 2021 and 2022. This IFR is also effective when published in the Federal Register and is open for a 60-day comment period.
As explained in the IFR the NCUA, “does not believe that the balance sheet growth related to the COVID-19 Pandemic has significantly increased the general risk profile of the affected FICUs.” As discussed previously, FICUs’ growth is largely due to the extraordinary growth in insured shares held by FICUs. Therefore, the Board feels it prudent to offer FICUs relief with respect to certain regulatory requirements being triggered by the unprecedented balance sheet growth.
This IFR impacts regulations for determining when a credit union is subject to capital planning and stress testing requirements and supervision from the Office of National Examinations and Supervision.
NCUA Administrative Order
The National Credit Union Administration recently issued an Administrative Order against a smaller ($69M) Michigan federal credit union and several of the provisions that the credit union consented to are on the topic of its marijuana-related business (MRB) accounts. Marijuana has been a hot topic this legislative session in South Dakota. North Dakota has obviously had medical marijuana on the books for a while. Therefore, any credit union contemplating serving this industry need to do their homework with enhanced due diligence and ensure it has the appropriate safeguards in place.
Learning from the mistakes of others, the Administrative Order requires the credit union to take several actions, including to implement an automated system to effectively monitor and identify all transactions for suspicious activity. The automated compliance and suspicious activity monitoring system must include functions to support compliance with FinCEN requirements for MRB. The Order expands on what is the system needs to be able to do, including: reconciliation of MRB Point of Sale, METRC, or accounting system data relative to member deposits; ongoing monitoring of adverse public information affecting MRBs; timely verification of changes in licensure status, including notification of a lapse in an MRB's state licensure; systematic monitoring of unusual Automated Clearing House or wire activity for MRB accounts; and monitoring of FinCEN "Red Flags" outlined in FIN-2014-G001, "BSA Expectations Regarding Marijuana-Related Businesses."
The Order also requires the credit union to engage a third party to validate the credit unions automated compliance and suspicious activity monitoring system simultaneously with the implementation of this system. The credit union is directed to immediately file all Suspicious Activity Reports which includes continuous and initial MRB SARs and develop and implement a system to ensure all SARs are filed accurately, completely, and on time by March 31, 2021. The credit union must immediately develop and implement a system to ensure all Currency Transaction Reports are filed accurately. The order directs that the credit union must immediately cease opening new MRB accounts.
The Order also touches on Money Services Businesses and directs the credit union to cease Money Services Business program by March 15, 2021, which includes suspending transactional activity on existing MSB accounts. The credit union must engage a qualified third party to perform a retrospective review of their MSB activity to determine the existence of suspicious activity warranting a SAR. At a minimum, the review must evaluate the criteria outlined in FIN- 2019-A003, "Advisory on Illicit Activity Involving Convertible Virtual Currency."
NCUA – Guaranteed Notes Program Update
The NCUA Board was also briefed on the Guaranteed Notes Program and Asset Management Estate which included an announcement that in April of 2021, membership capital account holders from the U.S. Central Federal Credit Union, Members United Corporate Federal Credit Union, and Southwest Corporate Federal Credit Union, will receive a partial distribution.
U.S. Central, Members United, and Southwest member capital holders of record with the liquidating agent will receive member capital account distributions. After accounting for mergers, purchases and assumptions, and liquidations, over 1,800 active credit unions will receive a distribution.
Additional information on the distribution along with FAQs can be found here -Corporate Capital Distribution Process | National Credit Union Administration (ncua.gov).
NACHA
Last week, the NACHA WEB Debit Account Validation Rule became effective. The Nacha Operating Rules now require that businesses initiating consumer ACH debits via the internet or mobile devices verify the consumers’ account information for the first payment. NACHA issued a number of FAQs on the topic which can be found here.
This rule is intended to help prevent fraud on the ACH Network and protect financial institutions from posting fraudulent or incorrect unauthorized payments. Merchants and billers (and their processing partners) are in the best position to detect and prevent fraud related to payments they are initiating.
Interagency Q&A – Private Flood Insurance
The NCUA, along with the OCC, Board of Governors of the Federal Reserve System, FDIC and FCA, issued a proposed supplement for the Interagency Questions and Answers Regarding Flood Insurance. This proposal can be found here and comments must be submitted by May 17, 2021.
Flood insurance requirements has had a long history beginning with the National Flood Insurance Act of 1968 which created the National Flood Insurance Program (NFIP). This was expanded with the Flood Disaster Protection Act of 1973 which made purchase of flood insurance mandatory in connection with loans made by federally regulated lending institutions when the loans are secured by improved real estate or mobile homes located in a special flood hazard area. Revisions came in 1994 with the National Flood Insurance Reform Act. The Biggert-Waters Flood Insurance Reform Act of 2012 added escrow, force placement, and private flood insurance provisions. In 2014 the Homeowner Flood Insurance Affordability Act amended the Biggert-Waters Act’s requirements regarding the escrow of flood insurance premiums and fees and created a new exemption from the mandatory flood insurance purchase requirement for certain detached structures.
Since 1997, the Interagency Questions and Answers regarding flood insurance have provided the lending industry with guidance addressing a wide spectrum of technical flood insurance-related compliance issues. These Q&As have been revised and updated several times since 1997, and the NCUA (along with other agencies) are seeking comment on 24 proposed Q&A regarding the most recent regulatory changes for private flood insurance.
The questions fall into three categories/sections: Mandatory Acceptance (9 questions); Discretionary Acceptance (4 questions); and General Compliance (11 questions).
Infosight Updates
Required Compliance Training
Check out the Required Compliance Training information that has been added under the Resources area of InfoSight! This document provides an overview of the compliance training requirements and the associated citation for that requirement.
RISK Alerts for March
New RISK Alerts now available from CUNA Mutual Group including: New! Don’t Let Staff Commit Fouls During March Madness (3/16/2021); Planning for the Vaccination (3/9/2021); and ACH Booster Payment Fraud Grows with Transactional Services Offerings (3/2/2021).
All RISK Alerts from CUNA Mutual Group are listed and summarized on the RISK Alerts and Resources page.
Contact Amy Kleinschmit at akleinschmit@dakcu.org with any compliance related questions.