ARTICLE
Compliance Update with Amy K by Amy Kleinschmit, Chief Compliance Officer LIBOR Transition The National Credit Union Administration (NCUA) joined on a joint statement concerning managing LIBOR transition. Supervisory Letter 21-01 can be found here. As previously noted, the NCUA strongly advises that institutions stop using LIBOR in new financial contracts as soon as possible, but no later than December 31, 2021. The Supervisory Letter identifies potential LIBOR exposure - credit unions use LIBOR in a variety of products, including derivatives, business loans, consumer loans, variable rate notes, and securitizations, such as mortgage-backed securities. Credit unions may have LIBOR exposure in these types of transactions as well as Federal Home Loan Bank (FHLB) borrowings and various other member share products that use a variable interest rate. The letter also discusses LIBOR replacement alternatives – noting that the NCUA does not endorse a specific replacement rate for USD LIBOR. Emergency Capital Investment Program Participation A last minute reminder that the NCUA issued a Supervisory Letter 21-02, which can be found here. This letter addresses the NCUA’s position on participation by low-income credit unions in the U.S. Department of Treasury’s Emergency Capital Investment Program (ECIP). The ECIP is a congressionally appropriated program administered by Treasury with the sole purpose of addressing the financial hardships created by the COVID-19 pandemic, particularly in low- and moderate-income communities. The letter notes that, “Effective immediately, the agency permits LICUs to issue 30-year subordinated debt notes under the ECIP. A LICU may receive secondary capital treatment for a 30-year subordinated debt ECIP note, in accordance with the NCUA’s regulations, provided that any LICU receiving secondary capital treatment has an NCUA-approved secondary capital plan by December 31, 2021.” The letter, dated October 20, 2021, directs that: In accordance with NCUA Letter to Credit Unions 21-CU-11, LICUs that have already had their secondary capital plans approved for issuances under the ECIP must notify their respective state supervisory authority and/or NCUA regional office, in writing, to include the following information no later than 30 days from the date of this letter: 1. The stated maturity of the ECIP subordinated debt note (choose 15 years or 30 years); 2. The length of regulatory capital treatment for the ECIP issuance; and 3. A statement that the credit union will not materially deviate from the strategies outlined in its previously approved secondary capital plan. If a credit union chooses a maturity that is longer than the maturity used in its originally approved secondary capital plan and the longer maturity will cause the credit union to materially deviate from the strategies documented in the approved plan, then the credit union must submit a revised secondary capital plan in accordance with 12 C.F.R. §701.34(b), for federally chartered credit unions, or 12 C.F.R. §741.204(c) for federally insured, state-chartered credit unions. NCUA – CUSO Final Rule At its recent Board meeting the NCUA approved, by a 2-1 vote, a final rule to amend the credit union service organization (CUSO) regulations. This final rule can be found here and is effective November 26, 2021. The final rule will permit CUSOs to originate any type of loan that an FCU may originate and grants the NCUA additional flexibility to approve permissible CUSO activities and services outside of notice and comment rulemaking. In approving this rule, the NCUA noted that it “now believes that permitting FCUs to invest in or lend to CUSOs that originate any type of loan that an FCU may originate may better enable FCUs to compete effectively in today’s marketplace and better serve their members.” Therefore, 12 CFR 712.5, “What activities and services are preapproved for CUSOs?” is revised to remove existing subpart (c), (d), (n) and (s) which specified business loan origination, consumer mortgage loan origination, student loan origination, and credit card loan origination respectively, which were previously the only forms of a lending a CUSO could engage in. New subsections (q) and (r) are added 12 CFR 712.5 to read as follows: (q) Loan origination, including originating, purchasing, selling, and holding any type of loan permissible for Federal credit unions to originate, purchase, sell, and hold, including the authority to purchase and sell participation interests that are permissible for Federal credit unions to purchase and sell; and (r) Other categories of activities as approved in writing by the NCUA and published on the NCUA’s website. Once the NCUA has approved an activity and published that activity on its website, the NCUA will not remove that particular activity from the approved list or make substantial changes to the content or description of that approved activity, except through formal rulemaking procedures. Risk Mitigation Webinar Don’t miss the upcoming Attorney Conference for the Non-Attorney webinar – risk mitigation, on November 10, 2021, 9:30 a.m. – 12:00 p.m. (CT). Registration can be found here. Attendees will hear about Cuna Mutual Group claims update, presented by Cheryl Guthrie-Swarztrauber and Christa Loger with CMG; HR/Employer Risks presented by Carlos Molina with CMG; arbitration clauses presented by attorneys at Husch Blackwell; and Remote Capture update presented by attorneys at Husch Blackwell. Most credit unions do not have in-house counsel or access to the type of information provided at events like CUNA’s Attorney Conference. The Attorney’s Conference for Non-Attorneys can provide this information to you, along with risk mitigation strategies to help protect your credit union from liability. Each session is only $25 – be sure to reserve your seat now! You’ll learn from lawyers with expertise in working with credit unions. This series is made possible thanks to our sponsor Husch Blackwell and the collaborative efforts of the Minnesota Credit Union Network, Heartland Credit Union Association, Illinois Credit Union League, Iowa Credit Union League, Montana Credit Union League, Dakota Credit Union Association, Nebraska Credit Union League, and Wisconsin Credit Union League. Compliance Solution Highlight What can help your credit union meet compliance challenges in a proactive and cost efficient manner? Take a three minute break from reading and learn how AffirmX can help you: http://youtu.be/27TLDXcjETE AffirmX Risk Intel Center helps credit unions adhere to government regulations in a proactive and cost efficient manner through a patented, cloud-based platform that is customized and branded for your institution. The platform draws on internal and external data sources to develop risk-based priorities to help you quickly identify issues, reduce costs, and streamline compliance management practices. Unlike checklist-based systems that place the burden for understanding compliance requirements on your team, Risk Intel Center combines easy-to-use workflows with expert analysis and a risk-based dashboard to help your team stay on top of compliance issues ranging from BSA and IT Security to Fair Lending and Enterprise Risk. Don’t forget AffirmX can be tailored to meet the needs of your credit union including offering individual audits – such as BSA Independent Audit, Annual ACH Independent Audit, Annual SAFE Act Independent Audit and Website Compliance Review. Pick just one or bundle the four audits together and save! For Questions or Quotes – contact Amy Kleinschmit akleinschmit@dakcu.org.
Compliance Update with Amy K
by Amy Kleinschmit, Chief Compliance Officer
LIBOR Transition
The National Credit Union Administration (NCUA) joined on a joint statement concerning managing LIBOR transition. Supervisory Letter 21-01 can be found here.
As previously noted, the NCUA strongly advises that institutions stop using LIBOR in new financial contracts as soon as possible, but no later than December 31, 2021.
The Supervisory Letter identifies potential LIBOR exposure - credit unions use LIBOR in a variety of products, including derivatives, business loans, consumer loans, variable rate notes, and securitizations, such as mortgage-backed securities. Credit unions may have LIBOR exposure in these types of transactions as well as Federal Home Loan Bank (FHLB) borrowings and various other member share products that use a variable interest rate.
The letter also discusses LIBOR replacement alternatives – noting that the NCUA does not endorse a specific replacement rate for USD LIBOR.
Emergency Capital Investment Program Participation
A last minute reminder that the NCUA issued a Supervisory Letter 21-02, which can be found here. This letter addresses the NCUA’s position on participation by low-income credit unions in the U.S. Department of Treasury’s Emergency Capital Investment Program (ECIP). The ECIP is a congressionally appropriated program administered by Treasury with the sole purpose of addressing the financial hardships created by the COVID-19 pandemic, particularly in low- and moderate-income communities.
The letter notes that, “Effective immediately, the agency permits LICUs to issue 30-year subordinated debt notes under the ECIP. A LICU may receive secondary capital treatment for a 30-year subordinated debt ECIP note, in accordance with the NCUA’s regulations, provided that any LICU receiving secondary capital treatment has an NCUA-approved secondary capital plan by December 31, 2021.”
The letter, dated October 20, 2021, directs that:
In accordance with NCUA Letter to Credit Unions 21-CU-11, LICUs that have already had their secondary capital plans approved for issuances under the ECIP must notify their respective state supervisory authority and/or NCUA regional office, in writing, to include the following information no later than 30 days from the date of this letter:
1. The stated maturity of the ECIP subordinated debt note (choose 15 years or 30 years);
2. The length of regulatory capital treatment for the ECIP issuance; and
3. A statement that the credit union will not materially deviate from the strategies outlined in its previously approved secondary capital plan. If a credit union chooses a maturity that is longer than the maturity used in its originally approved secondary capital plan and the longer maturity will cause the credit union to materially deviate from the strategies documented in the approved plan, then the credit union must submit a revised secondary capital plan in accordance with 12 C.F.R. §701.34(b), for federally chartered credit unions, or 12 C.F.R. §741.204(c) for federally insured, state-chartered credit unions.
NCUA – CUSO Final Rule
At its recent Board meeting the NCUA approved, by a 2-1 vote, a final rule to amend the credit union service organization (CUSO) regulations. This final rule can be found here and is effective November 26, 2021.
The final rule will permit CUSOs to originate any type of loan that an FCU may originate and grants the NCUA additional flexibility to approve permissible CUSO activities and services outside of notice and comment rulemaking.
In approving this rule, the NCUA noted that it “now believes that permitting FCUs to invest in or lend to CUSOs that originate any type of loan that an FCU may originate may better enable FCUs to compete effectively in today’s marketplace and better serve their members.”
Therefore, 12 CFR 712.5, “What activities and services are preapproved for CUSOs?” is revised to remove existing subpart (c), (d), (n) and (s) which specified business loan origination, consumer mortgage loan origination, student loan origination, and credit card loan origination respectively, which were previously the only forms of a lending a CUSO could engage in.
New subsections (q) and (r) are added 12 CFR 712.5 to read as follows:
(q) Loan origination, including originating, purchasing, selling, and holding any type of loan permissible for Federal credit unions to originate, purchase, sell, and hold, including the authority to purchase and sell participation interests that are permissible for Federal credit unions to purchase and sell; and
(r) Other categories of activities as approved in writing by the NCUA and published on the NCUA’s website. Once the NCUA has approved an activity and published that activity on its website, the NCUA will not remove that particular activity from the approved list or make substantial changes to the content or description of that approved activity, except through formal rulemaking procedures.
Risk Mitigation Webinar
Don’t miss the upcoming Attorney Conference for the Non-Attorney webinar – risk mitigation, on November 10, 2021, 9:30 a.m. – 12:00 p.m. (CT). Registration can be found here.
Attendees will hear about Cuna Mutual Group claims update, presented by Cheryl Guthrie-Swarztrauber and Christa Loger with CMG; HR/Employer Risks presented by Carlos Molina with CMG; arbitration clauses presented by attorneys at Husch Blackwell; and Remote Capture update presented by attorneys at Husch Blackwell.
Most credit unions do not have in-house counsel or access to the type of information provided at events like CUNA’s Attorney Conference. The Attorney’s Conference for Non-Attorneys can provide this information to you, along with risk mitigation strategies to help protect your credit union from liability. Each session is only $25 – be sure to reserve your seat now! You’ll learn from lawyers with expertise in working with credit unions. This series is made possible thanks to our sponsor Husch Blackwell and the collaborative efforts of the Minnesota Credit Union Network, Heartland Credit Union Association, Illinois Credit Union League, Iowa Credit Union League, Montana Credit Union League, Dakota Credit Union Association, Nebraska Credit Union League, and Wisconsin Credit Union League.
Compliance Solution Highlight
What can help your credit union meet compliance challenges in a proactive and cost efficient manner? Take a three minute break from reading and learn how AffirmX can help you: http://youtu.be/27TLDXcjETE
AffirmX Risk Intel Center helps credit unions adhere to government regulations in a proactive and cost efficient manner through a patented, cloud-based platform that is customized and branded for your institution.
The platform draws on internal and external data sources to develop risk-based priorities to help you quickly identify issues, reduce costs, and streamline compliance management practices.
Unlike checklist-based systems that place the burden for understanding compliance requirements on your team, Risk Intel Center combines easy-to-use workflows with expert analysis and a risk-based dashboard to help your team stay on top of compliance issues ranging from BSA and IT Security to Fair Lending and Enterprise Risk.
Don’t forget AffirmX can be tailored to meet the needs of your credit union including offering individual audits – such as BSA Independent Audit, Annual ACH Independent Audit, Annual SAFE Act Independent Audit and Website Compliance Review. Pick just one or bundle the four audits together and save!
For Questions or Quotes – contact Amy Kleinschmit akleinschmit@dakcu.org.