Strategies for Future Examination and Supervision Utilizing Digital Technology, 39588-39591 [2020-14129]
Download as PDF
<![CDATA[
39588
Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Notices
Office of Government
Information Services (OGIS) annual
open meeting.
ACTION:
NATIONAL CREDIT UNION
ADMINISTRATION
We are announcing OGIS’s
annual meeting, open to the public. The
purpose of the meeting is to discuss
OGIS’s reviews and reports and allow
interested people to appear and present
oral or written statements, in
accordance with the Freedom of
Information Act (FOIA). DATES: The
meeting will be on Monday, July 20,
2020, from 10:00 a.m. to 12:00 p.m.
EDT. Please register no later than 11:59
p.m. EDT on Thursday, July 16, 2020.
SUMMARY:
This meeting will be held
virtually due to the COVID–19 situation.
We will email instructions on how to
access the meeting to those who register
according to instructions below.
ADDRESSES:
FOR FURTHER INFORMATION CONTACT:
Kirsten Mitchell by email at
ogisopenmeeting@nara.gov or by
telephone at 202.741.5770.
OGIS’s
2020 Report for Fiscal Year 2019,
published during Sunshine Week
(March 15–21, 2020), summarizes
OGIS’s work, in accordance with FOIA,
5 U.S.C. 552(h)(4)(A). We will post
meeting materials online at https://
archives.gov/ogis/outreach-events/
annual-public-meeting. You are invited
to present oral or written statements at
the meeting, in accordance with the
FOIA at 5 U.S.C. 552(h)(6). You may
submit written statements or questions
for OGIS to consider before the meeting
by emailing ogisopenmeeting@nara.gov.
We will not answer questions about
specific OGIS cases.
Procedures: This virtual meeting is
open to the public. You must register
through Eventbrite, https://ogis-annualopen-meeting-2020.evenbrite.com, if
you wish to attend, and you must
provide an email address so that we can
provide you with access instructions for
the online meeting. To request
accommodations (e.g., a transcript),
email ogis@nara.gov or call
202.741.5770. Members of the media
who wish to register, those who are
unable to register online, and those who
require special accommodations, should
contact Kirsten Mitchell (contact
information listed above).
SUPPLEMENTARY INFORMATION:
Kimberly Keravuori,
Federal Register Liaison.
[FR Doc. 2020–14178 Filed 6–30–20; 8:45 am]
BILLING CODE 7515–01–P
VerDate Sep<11>2014
01:53 Jul 01, 2020
Jkt 250001
Strategies for Future Examination and
Supervision Utilizing Digital
Technology
National Credit Union
Administration.
ACTION: Request for information (RFI).
AGENCY:
The National Credit Union
Administration (NCUA) is conducting a
comprehensive study of alternative
procedures to modernize the agency’s
examination program. The objective of
modernizing is to improve efficiency
and effectiveness in achieving the
NCUA’s mandates under the Federal
Credit Union Act. The agency seeks to
support a predominately offsite
examination and supervision model by
taking advantage of new and emerging
approaches and techniques to utilizing
data and technology.
Through modernization, the NCUA
intends to:
• Reduce burden on credit unions
and increase agency efficiency by
reducing onsite examination time;
• Improve offsite supervision
capabilities;
• Provide more consistency and
standardization for the examination and
supervision process;
• Improve communication between
examiners, credit unions, and state
supervisory authorities; and
• Explore and evaluate technology
utilization and appetite for adoption.
The NCUA is using this RFI as a
research tool in its modernization
efforts. Specifically, this RFI explains
the NCUA’s objectives and seeks
assistance identifying the interrelated
considerations and challenges that
could arise if the agency moves forward
with doing more examination work
using technology. The resulting
information will support a reengineering of the concept of regulatory
examination and supervision oversight.
Recent events, such as the COVID–19
pandemic, have shown that adopting
modern technology helps make credit
unions more resilient to economic
shocks. In turn, a credit union’s
resiliency has a positive impact on its
member-owners and the economy atlarge. Further, the current social unrest
in the United States has exposed the
limited financial options available to
many minorities and underserved areas.
This modernization effort could reduce
the regulatory burden and establish
technology options that would make it
easier for credit unions to provide
services to these underserved
communities and populations.
SUMMARY:
PO 00000
Frm 00070
Fmt 4703
Sfmt 4703
The NCUA seeks public input on its
modernization initiative and is eager for
feedback from interested stakeholders.
The NCUA will use stakeholder
responses to:
• Refine a strategy for leveraging
technology in the future examination
and supervision process;
• Determine how much onsite
examination activity would still be
required with an examination primarily
done offsite; and
• Develop an implementation strategy
that reduces burden while maintaining
the agency’s ability to determine
whether federally insured credit unions
are operating safely and soundly and in
compliance with applicable laws and
regulations.
In addition to this RFI, the agency
may seek clearance from the Office of
Management and Budget to conduct
stakeholder calls and form focus groups
to gather additional information about
barriers and benefits to the
modernization initiative. The NCUA
invites interested parties to respond
generally to this modernization
initiative and specifically to the
questions included in this RFI.
DATES: Comments must be received on
or before August 31, 2020.
ADDRESSES: Comments may be
submitted using one of the methods
below (Please do not send comments via
multiple methods). Include ‘‘[Your
name and company name (if any)]—
Strategies for Future Examination and
Supervision utilizing Digital
Technology’’ in all correspondence.
• Email: exammodernization@
NCUA.gov. Include ‘‘[Your name]
Comments on Strategies for Future
Examination and Supervision utilizing
Digital Technology’’ in the email subject
line. Acceptable formats: HTML, ASCII,
Word, RTF, or PDF.
• Mail: Heather Phelps, National
Credit Union Administration, 1775
Duke Street, Alexandria, Virginia 22314.
The NCUA will post all comments
received by August 31, 2020 on
ncua.gov without alteration or
redaction. Commenters should not
include information they do not wish to
be made public (for example, personal
or confidential business information).
Marketing materials and spam will be
discarded without publication.
FOR FURTHER INFORMATION CONTACT:
Heather Phelps, Program Analysis
Officer for Virtual Examination Studies,
Office of Examination and Insurance, at
1775 Duke Street, Alexandria, VA 22314
or (703) 380–2756. Media inquiries
should be directed to the NCUA Office
of External Affairs Communication at
OEACmail@ncua.gov.
E:\FR\FM\01JYN1.SGM
01JYN1
39589
Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Notices
SUPPLEMENTARY INFORMATION:
Background
Examiners from the NCUA and the
states have historically conducted
annual (or 18-month) onsite
examinations of federally insured credit
unions, scheduling onsite supervision
contacts throughout the year as
warranted. During an onsite visit,
agency examiners gather information,
conduct analysis, review documents
and controls, hold meetings, develop
recommendations, and deliver a final
report to a credit union’s board of
directors.
During an examination, credit unions
provide data from multiple sources and
in multiple formats. Collectively, this
data provides examiners with essential
information used to evaluate risks in
federally insured credit unions, and are
integral to risk supervision. Likewise,
risk supervision is central to
safeguarding the National Credit Union
Share Insurance Fund. Before 1995, the
NCUA collected data from credit unions
in written format. In 1995, the agency
initiated its first electronic data
collection program, and encouraged
federally insured credit unions to
provide member data to examiners
electronically. (See NCUA Letter to
Credit Unions 95–CU–179, AIRES
Examination Program, issued September
1995.) Over time, as examinations and
technology progressed, credit unions
began providing examiners additional
information electronically.
In May 2016, the NCUA Board
established the Exam Flexibility
Initiative internal working group to
evaluate the agency’s examination and
supervision program. This working
group sought input from credit unions
and others to obtain opinions and
advice regarding the existing
examination and supervision program.
In late 2016, this working group
provided the NCUA Board with ten
recommendations to consider. One of
these recommendations encouraged the
agency to evaluate alternative
approaches to our current examination
program by seeking ways to reduce our
onsite presence.
Consistent with the NCUA Board
promoting modernizing the examination
program and reducing our onsite
presence, the Flexible Examination
Program, commonly referred to as FLEX,
was piloted in 2017 to assess examiners’
ability to work remotely on elements of
examinations of well-run credit unions
that have appropriate technology and
platforms to securely provide electronic
data. On average, examiners were able
to reduce their time onsite by 30
percent. One of the issues noted during
the FLEX pilot was the need for a secure
file transfer portal to support the
transmission of data remotely and
securely. The agency deployed a secure
file transfer portal in July 2018.
However, most of the review of credit
union information and data is still
conducted onsite.
In November 2017, the NCUA Board
approved funding for virtual
examination exploration and research
and, in 2018, the Virtual Examination
Program was established. The Virtual
Examination Program is part of a series
of interrelated programs to transform the
agency’s operations to meet core
mission objectives. Currently, the
Program is in the research and discovery
phase. During this phase, the team is
researching ways the agency can
harness new and emerging data, assess
advancements in analytical techniques,
and utilize innovative technologies.
Additionally, the team is identifying
ways to improve its supervisory
approach and to move to a more virtualbased examination model in the next
five to ten years.
In response to the recent COVID–19
Pandemic, the agency moved to an
offsite posture in March 2020. During
this time, for credit unions that were
able, examiners worked with credit
union staff to facilitate the secure
exchange of information needed to
conduct offsite examination and
supervision functions. Examiners were
able to successfully perform many
elements of the examination program
that would otherwise have been
performed onsite at the credit union.
In support of the ongoing examination
modernization initiatives, the NCUA
anticipates adopting an examination
model that enables examiners to review
a credit union’s operational and
financial condition from an alternate
worksite, such as a home office. In
addition to reviewing data offsite, the
agency is looking for innovative
methods to augment the agency’s
evaluation of a credit union’s financial
and operational condition.
Context
The credit union industry is dynamic,
with federally insured credit unions
growing larger and more complex each
year. The NCUA must ensure its
examination approach evolves with
industry practices and technological
advances to:
• Evaluate all material risk exposures
and compliance matters fully;
• Leverage new data and analytical
techniques to achieve desired
supervisory outcomes efficiently and
effectively;
• Optimize the benefits of utilizing
technology for examinations without
increasing the risk to the safety and
soundness of the credit union system;
and
• Minimize the burden on supervised
institutions.
Increasing complexity, a desire for
more effective supervision, and evolving
technologies necessitate a review of the
agency’s current examination process.
Table One illustrates the evolution of
the federally insured credit unions over
the last 15 years. While the number of
institutions has declined, credit unions
overall continue to grow in assets, loans,
shares, membership, and complexity.
TABLE ONE—15-YEAR FEDERALLY INSURED CREDIT UNION TRENDS
# Federally Insured Credit Unions ......................................................................
Total Assets ........................................................................................................
Total Loans .........................................................................................................
Real Estate Loans 1 .....................................................................................
% CU involved in RE ...........................................................................
Auto Loans ..................................................................................................
% CU involved in Auto .........................................................................
Indirect Loans ..............................................................................................
% CUs involved in IL ............................................................................
Commercial/MBL .........................................................................................
% CU involved in MBL .........................................................................
Credit Cards ................................................................................................
% CU involved in CC ...........................................................................
Participation Loans ......................................................................................
VerDate Sep<11>2014
01:53 Jul 01, 2020
Jkt 250001
PO 00000
Frm 00071
Fmt 4703
12/31/2005
12/31/2019
8,695 ......................
$678.98B ...............
$458.56B ...............
$218.42B ...............
68.8% .....................
$170.56 B ..............
96.2% .....................
$64.82B .................
19.9% .....................
$16.31B .................
21.5% .....................
$23.91 B ................
50.6% .....................
$7.49B ...................
5,236 ......................
$1,566.91B ............
$1,107.99B ............
$557.98B ...............
76.1% .....................
$375.11 B ..............
97.2% .....................
$228.13B ...............
35.8% .....................
$81.85B .................
34.9% .....................
$66.03 B ................
62.5% .....................
$41.15B .................
Sfmt 4703
E:\FR\FM\01JYN1.SGM
01JYN1
% Change
(39.78%).
130.77%.
141.62%.
155.46%.
10.56%.
119.93%.
1.08%.
251.94%.
80.28%.
401.84%.
62.59%.
176.16%.
23.51%.
449.40%.
39590
Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Notices
TABLE ONE—15-YEAR FEDERALLY INSURED CREDIT UNION TRENDS—Continued
% CU involved in PL ............................................................................
Student Loans 2 ...........................................................................................
% CU involved in SL ............................................................................
Total Shares .......................................................................................................
Average Assets ..................................................................................................
Median Assets ....................................................................................................
# Loans ...............................................................................................................
# Shares Accounts .............................................................................................
# Members ..........................................................................................................
12/31/2005
12/31/2019
13.7% .....................
Not collected ..........
Not available ..........
$577.42B ...............
$78.06M .................
$11.95M .................
42.47M ...................
149.22M .................
84.5M .....................
36.3% .....................
$5.47B ...................
13.2% .....................
$1,319.75B ............
$299.22M ...............
$35.19M .................
70.71M ...................
223.0M ...................
120.39M .................
% Change
166.09%.
Not available.
Not available.
138.02%.
283.32%.
194.48%.
66.49%.
55.48%.
42.47%.
1 Total
real estate loans includes commercial/member business loans secured by real estate.
guaranteed student loans as reported on the 5300 Call Report. The NCUA began collecting this information with the March 31,
2011 Call Report. Credit unions reported a total of $1.02B non-federally guaranteed student loans as of March 31, 2011. Since then, these loans
have increased 536%.
2 Non-federally
Today, examiners request
documentation and data electronically.
Documents requested typically include
policies, board minutes, budgets,
business plans, audits, accounting
records, and various reports. Data
requests typically relate to loans, shares,
and investment portfolios. The level of
information requested has increased due
to the increased range of products and
services most credit unions provide.
The agency recognizes that advances
in technology may enable new practices
or approaches that would achieve the
objectives more efficiently or effectively
and reduce the supervision burden for
credit unions. Technological advances
and modern approaches to
examinations, including offsite
examination procedures, may enhance
the examination experience for both
credit unions and examiners, while
supporting the NCUA’s mission of
ensuring the safety and soundness of the
credit union community.
We also anticipate that moving offsite
could save credit union resources—such
as staff time, money spent on manually
preparing examination materials, among
others. Given the history of credit
unions, we anticipate that the savings to
the credit union would be passed on to
members in the form of dividends,
improved services or that credit unions
will use these resources to expand their
reach to new members. We would hope
many of these new members would be
those who are currently not in the
mainstream financial system.
Through existing modernization
efforts, the NCUA has improved the
loan and deposit portfolio analysis tools
examiners use to support a more
consistent analysis of risk within and
across institutions in order to mitigate
losses to the National Credit Union
Share Insurance Fund. The NCUA is
also replacing legacy systems and
developing a central user interface to
help credit unions and examiners
communicate and share documents. The
VerDate Sep<11>2014
01:53 Jul 01, 2020
Jkt 250001
agency hopes to use its new systems to
aid the examination process by using
vendors for analytics and reporting.
This will also provide the groundwork
for exploration of future examination
and supervision using technology.
Request for Comment
The questions identified below are
intended to prompt suggestions to
inform the agency’s development of an
examination program that benefits all
parties. The questions are not intended
to limit discussion; responders may
explore any issue relevant to this
examination initiative. Commenters are
also invited to report any concerns,
issues, or comments they have regarding
the program.
Responses that contain references to
studies, research, or data not widely
available to the public should include
copies of referenced materials. When
responding, please provide a
description of the commenter’s
organization and its interest in this
concept to help the NCUA use the
feedback for the future examination
model.
Questions for Future Examination and
Supervision Utilizing Digital
Technology
1. What capabilities can federally
insured credit unions adopt to facilitate
the NCUA’s transition toward more
offsite exam work?
2. What capabilities do you
recommend the NCUA adopt to be able
to conduct more examination work
offsite?
3. How would such offsite capabilities
increase the efficiency and effectiveness
of the exam and supervision process
from the credit union perspective?
4. Do you think the NCUA can do
significantly more offsite work without
compromising its safety and soundness
responsibilities?
5. What credit union data can be
provided to examiners to facilitate more
PO 00000
Frm 00072
Fmt 4703
Sfmt 4703
offsite supervision and reduce time
onsite during the examination?
6. What credit union data is currently
provided to other parties that NCUA
could potentially leverage to reduce the
burden on credit unions? To ease the
administrative burden, should the
NCUA ask third party service providers
for data on credit unions directly?
7. Are credit unions moving from a
physical presence in member services to
more reliance on digital or mobile
banking platforms? How should the
examination program evolve to
accommodate these changes?
8. What other methodologies or
approaches should NCUA include in
this exam study?
9. Would credit unions benefit from
more clarity and consistency on the
timing and types of documents and data
examiners need to conduct
examinations?
10. Would it be easier or less
burdensome for credit unions to provide
documents and data to the NCUA on a
more scheduled, flow basis throughout
the year so the time spent onsite would
be more efficient and the majority of the
examination/supervision could
primarily be conducted offsite? If this
process could lead to more frequent/
offsite contacts using technology and
reduce the time and frequency of fullscope onsite examinations, do you think
this would be an improvement and/or
less burdensome than the current
examination process or cause more
disruption?
11. What do you see as the most
significant challenges facing the
NCUA’s move to an offsite examination/
supervision model that utilizes
technology?
12. What difficulties do you foresee
with moving to a future examination
model for federal and state charted
credit unions? How could we better
coordinate with the states in this
approach?
E:\FR\FM\01JYN1.SGM
01JYN1
Federal Register / Vol. 85, No. 127 / Wednesday, July 1, 2020 / Notices
13. What concerns do you have, if
any, about a diminished NCUA onsite
presence, and can these be mitigated?
14. What impact, positive or negative,
do you anticipate this future
examination program strategy will have
on your credit union and its operation?
15. Will moving offsite create any
noticeable change in credit unions’
ability to provide services to members,
particularly during major disruptions,
like pandemics?
16. Are there resiliency tests that can
be performed by examiners offsite that
could not be performed when examiners
are onsite? If so, please detail them.
17. If rebuilding the examination
process from scratch, how might you
redesign what is currently done today in
order to reduce the burden on credit
unions and/or minimize time that
examiners need to be onsite at credit
unions?
18. What new or emerging
technologies could enable the NCUA to
examine a credit union with less time
onsite?
19. Are video and
telecommunications capabilities
sufficient to maintain good lines of
communication between examiners and
credit union management and officials
with reduced in-person meeting
opportunities? What other methods of
communication or communication
protocols would support quality
communications between the credit
union and examination staff?
20. What types of artificial
intelligence and/or machine learning
techniques are you currently using or
anticipate using?
21. Does the NCUA have regulations/
policies that are sufficiently flexible to
allow you to leverage various
technological advances such as artificial
intelligence, machine learning, process
robotics, Fintech, Regtech, and Suptech
etc.?
22. Do the current regulations/policies
create unnecessary hurdles or burdens
with respect to adopting technology?
Are there ways we can update our
regulations/policies to help facilitate a
greater use of technology?
23. Do you feel comfortable using the
NCUA’s secure file transfer portal as a
means to transfer data electronically,
including personally identifiable
information and confidential credit
union data, to NCUA staff? If not, please
provide details regarding your concerns
and recommendations on ways the
NCUA could mitigate these concerns.
24. What issues are unique to smaller
institutions regarding the use and
implementation of innovative products,
services, or processes that the NCUA
should consider? Additionally, by
VerDate Sep<11>2014
01:53 Jul 01, 2020
Jkt 250001
moving to an offsite exam posture, will
this negatively affect small credit unions
that may not have the technology
required to transmit requested
documentation? Are you exploring any
types of services, products or
technologies to offer to your members in
the future?
25. With respect to the future
examination model, should the NCUA
consider alternative exam approaches
for smaller credit unions?
26. Are there better ways for the
NCUA to support your financial
inclusion and financial education
mission through the use of technology?
Additionally, are there better ways for
the NCUA to use technology to help
low-income designated credit unions
and minority depository institutions to
better serve their members?
27. Do you feel there are
circumstances that would disqualify or
preclude a credit union from
participating in this examination model
where the majority of work is completed
offsite?
28. What documentation and
measures should be collected and used
to assess a credit union’s financial
education efforts or programs?
29. Are there better ways for the
NCUA to receive important contextual
information regarding how you serve
the low-income, underserved, and
unbanked communities in your field of
membership?
30. What baseline data protection and
privacy safeguards would enable credit
unions to comply with consumer
protection statutes and federal/state law
when sharing data for remote
examinations?
31. How could an offsite posture
affect the oversight of consumer
financial protection and BSA/antimoney laundering laws and regulations
at your credit union? What changes
should the NCUA make to address your
concerns?
32. All technology is coupled with
internal and external security risks. As
credit unions remain diligent in
addressing these risks, what can the
NCUA do to support credit unions’
security posture?
33. What cybersecurity challenges do
you see with the NCUA moving to this
future examination model?
34. Are there digital banking activities
or issues that are not covered by this RFI
that the NCUA should address?
35. In response to the pandemic, the
NCUA moved to an offsite posture. Did
you participate in an exam during this
time?
a. From your perspective, what has
worked well?
PO 00000
Frm 00073
Fmt 4703
Sfmt 4703
39591
b. What exam steps could continue to
be completed offsite after we return to
an onsite posture?
c. Were there parts of the exam,
during the offsite posture that did not
work well?
36. Are there issues the NCUA should
consider in light of changes in the
banking system that have occurred in
response to the COVID–19 pandemic?
Commenters are also encouraged to
discuss any other relevant issues they
believe the NCUA should consider with
respect to this examination study.
By the National Credit Union
Administration Board on June 25, 2020.
Gerard Poliquin,
Secretary of the Board.
[FR Doc. 2020–14129 Filed 6–30–20; 8:45 am]
BILLING CODE 7535–01–P
NATIONAL FOUNDATION ON THE
ARTS AND THE HUMANITIES
National Endowment for the
Humanities
Agency Information Collection
Request; 30-Day Public Comment
Request
National Endowment for the
Humanities; National Foundation on the
Arts and the Humanities.
ACTION: Notice; request for comments.
AGENCY:
The National Endowment for
the Humanities (NEH) is seeking Office
of Management and Budget (OMB)
approval for the information collection
described below. In accordance with the
Paperwork Reduction Act of 1995, NEH
is requesting comments from all
interested individuals and organizations
on this proposed collection.
DATES: Please submit comments by July
31, 2020.
ADDRESSES: Written comments and
recommendations for the proposed
information collection should be sent
within 30 days of publication of this
notice to www.reginfo.gov/public/do/
PRAMain. Find this particular
information collection by selecting
‘‘Currently under 30-day Review—Open
for Public Comments’’ or by using the
search function.
FOR FURTHER INFORMATION CONTACT: Mr.
Timothy Carrigan, Chief Funding
Opportunity Officer, Office of Grant
Management, National Endowment for
the Humanities: 400 Seventh Street SW,
Washington, DC 20506, or tcarrigan@
neh.gov; or 202–606–8377.
SUPPLEMENTARY INFORMATION: NEH first
published notice of its intent to seek
OMB approval for this information
SUMMARY:
E:\FR\FM\01JYN1.SGM
01JYN1
]]>Agencies
[Federal Register Volume 85, Number 127 (Wednesday, July 1, 2020)]
[Notices]
[Pages 39588-39591]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-14129]
-----------------------------------------------------------------------
NATIONAL CREDIT UNION ADMINISTRATION
Strategies for Future Examination and Supervision Utilizing
Digital Technology
AGENCY: National Credit Union Administration.
ACTION: Request for information (RFI).
-----------------------------------------------------------------------
SUMMARY: The National Credit Union Administration (NCUA) is conducting
a comprehensive study of alternative procedures to modernize the
agency's examination program. The objective of modernizing is to
improve efficiency and effectiveness in achieving the NCUA's mandates
under the Federal Credit Union Act. The agency seeks to support a
predominately offsite examination and supervision model by taking
advantage of new and emerging approaches and techniques to utilizing
data and technology.
Through modernization, the NCUA intends to:
Reduce burden on credit unions and increase agency
efficiency by reducing onsite examination time;
Improve offsite supervision capabilities;
Provide more consistency and standardization for the
examination and supervision process;
Improve communication between examiners, credit unions,
and state supervisory authorities; and
Explore and evaluate technology utilization and appetite
for adoption.
The NCUA is using this RFI as a research tool in its modernization
efforts. Specifically, this RFI explains the NCUA's objectives and
seeks assistance identifying the interrelated considerations and
challenges that could arise if the agency moves forward with doing more
examination work using technology. The resulting information will
support a re-engineering of the concept of regulatory examination and
supervision oversight.
Recent events, such as the COVID-19 pandemic, have shown that
adopting modern technology helps make credit unions more resilient to
economic shocks. In turn, a credit union's resiliency has a positive
impact on its member-owners and the economy at-large. Further, the
current social unrest in the United States has exposed the limited
financial options available to many minorities and underserved areas.
This modernization effort could reduce the regulatory burden and
establish technology options that would make it easier for credit
unions to provide services to these underserved communities and
populations.
The NCUA seeks public input on its modernization initiative and is
eager for feedback from interested stakeholders. The NCUA will use
stakeholder responses to:
Refine a strategy for leveraging technology in the future
examination and supervision process;
Determine how much onsite examination activity would still
be required with an examination primarily done offsite; and
Develop an implementation strategy that reduces burden
while maintaining the agency's ability to determine whether federally
insured credit unions are operating safely and soundly and in
compliance with applicable laws and regulations.
In addition to this RFI, the agency may seek clearance from the
Office of Management and Budget to conduct stakeholder calls and form
focus groups to gather additional information about barriers and
benefits to the modernization initiative. The NCUA invites interested
parties to respond generally to this modernization initiative and
specifically to the questions included in this RFI.
DATES: Comments must be received on or before August 31, 2020.
ADDRESSES: Comments may be submitted using one of the methods below
(Please do not send comments via multiple methods). Include ``[Your
name and company name (if any)]--Strategies for Future Examination and
Supervision utilizing Digital Technology'' in all correspondence.
Email: [email protected]. Include ``[Your name]
Comments on Strategies for Future Examination and Supervision utilizing
Digital Technology'' in the email subject line. Acceptable formats:
HTML, ASCII, Word, RTF, or PDF.
Mail: Heather Phelps, National Credit Union
Administration, 1775 Duke Street, Alexandria, Virginia 22314.
The NCUA will post all comments received by August 31, 2020 on
ncua.gov without alteration or redaction. Commenters should not include
information they do not wish to be made public (for example, personal
or confidential business information). Marketing materials and spam
will be discarded without publication.
FOR FURTHER INFORMATION CONTACT: Heather Phelps, Program Analysis
Officer for Virtual Examination Studies, Office of Examination and
Insurance, at 1775 Duke Street, Alexandria, VA 22314 or (703) 380-2756.
Media inquiries should be directed to the NCUA Office of External
Affairs Communication at ncua.gov">[email protected]ncua.gov.
[[Page 39589]]
SUPPLEMENTARY INFORMATION:
Background
Examiners from the NCUA and the states have historically conducted
annual (or 18-month) onsite examinations of federally insured credit
unions, scheduling onsite supervision contacts throughout the year as
warranted. During an onsite visit, agency examiners gather information,
conduct analysis, review documents and controls, hold meetings, develop
recommendations, and deliver a final report to a credit union's board
of directors.
During an examination, credit unions provide data from multiple
sources and in multiple formats. Collectively, this data provides
examiners with essential information used to evaluate risks in
federally insured credit unions, and are integral to risk supervision.
Likewise, risk supervision is central to safeguarding the National
Credit Union Share Insurance Fund. Before 1995, the NCUA collected data
from credit unions in written format. In 1995, the agency initiated its
first electronic data collection program, and encouraged federally
insured credit unions to provide member data to examiners
electronically. (See NCUA Letter to Credit Unions 95-CU-179, AIRES
Examination Program, issued September 1995.) Over time, as examinations
and technology progressed, credit unions began providing examiners
additional information electronically.
In May 2016, the NCUA Board established the Exam Flexibility
Initiative internal working group to evaluate the agency's examination
and supervision program. This working group sought input from credit
unions and others to obtain opinions and advice regarding the existing
examination and supervision program. In late 2016, this working group
provided the NCUA Board with ten recommendations to consider. One of
these recommendations encouraged the agency to evaluate alternative
approaches to our current examination program by seeking ways to reduce
our onsite presence.
Consistent with the NCUA Board promoting modernizing the
examination program and reducing our onsite presence, the Flexible
Examination Program, commonly referred to as FLEX, was piloted in 2017
to assess examiners' ability to work remotely on elements of
examinations of well-run credit unions that have appropriate technology
and platforms to securely provide electronic data. On average,
examiners were able to reduce their time onsite by 30 percent. One of
the issues noted during the FLEX pilot was the need for a secure file
transfer portal to support the transmission of data remotely and
securely. The agency deployed a secure file transfer portal in July
2018. However, most of the review of credit union information and data
is still conducted onsite.
In November 2017, the NCUA Board approved funding for virtual
examination exploration and research and, in 2018, the Virtual
Examination Program was established. The Virtual Examination Program is
part of a series of interrelated programs to transform the agency's
operations to meet core mission objectives. Currently, the Program is
in the research and discovery phase. During this phase, the team is
researching ways the agency can harness new and emerging data, assess
advancements in analytical techniques, and utilize innovative
technologies. Additionally, the team is identifying ways to improve its
supervisory approach and to move to a more virtual-based examination
model in the next five to ten years.
In response to the recent COVID-19 Pandemic, the agency moved to an
offsite posture in March 2020. During this time, for credit unions that
were able, examiners worked with credit union staff to facilitate the
secure exchange of information needed to conduct offsite examination
and supervision functions. Examiners were able to successfully perform
many elements of the examination program that would otherwise have been
performed onsite at the credit union.
In support of the ongoing examination modernization initiatives,
the NCUA anticipates adopting an examination model that enables
examiners to review a credit union's operational and financial
condition from an alternate worksite, such as a home office. In
addition to reviewing data offsite, the agency is looking for
innovative methods to augment the agency's evaluation of a credit
union's financial and operational condition.
Context
The credit union industry is dynamic, with federally insured credit
unions growing larger and more complex each year. The NCUA must ensure
its examination approach evolves with industry practices and
technological advances to:
Evaluate all material risk exposures and compliance
matters fully;
Leverage new data and analytical techniques to achieve
desired supervisory outcomes efficiently and effectively;
Optimize the benefits of utilizing technology for
examinations without increasing the risk to the safety and soundness of
the credit union system; and
Minimize the burden on supervised institutions.
Increasing complexity, a desire for more effective supervision, and
evolving technologies necessitate a review of the agency's current
examination process. Table One illustrates the evolution of the
federally insured credit unions over the last 15 years. While the
number of institutions has declined, credit unions overall continue to
grow in assets, loans, shares, membership, and complexity.
Table One--15-Year Federally Insured Credit Union Trends
----------------------------------------------------------------------------------------------------------------
12/31/2005 12/31/2019 % Change
----------------------------------------------------------------------------------------------------------------
# Federally Insured Credit 8,695..................... 5,236.................... (39.78%).
Unions.
Total Assets.................. $678.98B.................. $1,566.91B............... 130.77%.
Total Loans................... $458.56B.................. $1,107.99B............... 141.62%.
Real Estate Loans \1\..... $218.42B.................. $557.98B................. 155.46%.
% CU involved in RE... 68.8%..................... 76.1%.................... 10.56%.
Auto Loans................ $170.56 B................. $375.11 B................ 119.93%.
% CU involved in Auto. 96.2%..................... 97.2%.................... 1.08%.
Indirect Loans............ $64.82B................... $228.13B................. 251.94%.
% CUs involved in IL.. 19.9%..................... 35.8%.................... 80.28%.
Commercial/MBL............ $16.31B................... $81.85B.................. 401.84%.
% CU involved in MBL.. 21.5%..................... 34.9%.................... 62.59%.
Credit Cards.............. $23.91 B.................. $66.03 B................. 176.16%.
% CU involved in CC... 50.6%..................... 62.5%.................... 23.51%.
Participation Loans....... $7.49B.................... $41.15B.................. 449.40%.
[[Page 39590]]
% CU involved in PL... 13.7%..................... 36.3%.................... 166.09%.
Student Loans \2\......... Not collected............. $5.47B................... Not available.
% CU involved in SL... Not available............. 13.2%.................... Not available.
Total Shares.................. $577.42B.................. $1,319.75B............... 138.02%.
Average Assets................ $78.06M................... $299.22M................. 283.32%.
Median Assets................. $11.95M................... $35.19M.................. 194.48%.
# Loans....................... 42.47M.................... 70.71M................... 66.49%.
# Shares Accounts............. 149.22M................... 223.0M................... 55.48%.
# Members..................... 84.5M..................... 120.39M.................. 42.47%.
----------------------------------------------------------------------------------------------------------------
\1\ Total real estate loans includes commercial/member business loans secured by real estate.
\2\ Non-federally guaranteed student loans as reported on the 5300 Call Report. The NCUA began collecting this
information with the March 31, 2011 Call Report. Credit unions reported a total of $1.02B non-federally
guaranteed student loans as of March 31, 2011. Since then, these loans have increased 536%.
Today, examiners request documentation and data electronically.
Documents requested typically include policies, board minutes, budgets,
business plans, audits, accounting records, and various reports. Data
requests typically relate to loans, shares, and investment portfolios.
The level of information requested has increased due to the increased
range of products and services most credit unions provide.
The agency recognizes that advances in technology may enable new
practices or approaches that would achieve the objectives more
efficiently or effectively and reduce the supervision burden for credit
unions. Technological advances and modern approaches to examinations,
including offsite examination procedures, may enhance the examination
experience for both credit unions and examiners, while supporting the
NCUA's mission of ensuring the safety and soundness of the credit union
community.
We also anticipate that moving offsite could save credit union
resources--such as staff time, money spent on manually preparing
examination materials, among others. Given the history of credit
unions, we anticipate that the savings to the credit union would be
passed on to members in the form of dividends, improved services or
that credit unions will use these resources to expand their reach to
new members. We would hope many of these new members would be those who
are currently not in the mainstream financial system.
Through existing modernization efforts, the NCUA has improved the
loan and deposit portfolio analysis tools examiners use to support a
more consistent analysis of risk within and across institutions in
order to mitigate losses to the National Credit Union Share Insurance
Fund. The NCUA is also replacing legacy systems and developing a
central user interface to help credit unions and examiners communicate
and share documents. The agency hopes to use its new systems to aid the
examination process by using vendors for analytics and reporting. This
will also provide the groundwork for exploration of future examination
and supervision using technology.
Request for Comment
The questions identified below are intended to prompt suggestions
to inform the agency's development of an examination program that
benefits all parties. The questions are not intended to limit
discussion; responders may explore any issue relevant to this
examination initiative. Commenters are also invited to report any
concerns, issues, or comments they have regarding the program.
Responses that contain references to studies, research, or data not
widely available to the public should include copies of referenced
materials. When responding, please provide a description of the
commenter's organization and its interest in this concept to help the
NCUA use the feedback for the future examination model.
Questions for Future Examination and Supervision Utilizing Digital
Technology
1. What capabilities can federally insured credit unions adopt to
facilitate the NCUA's transition toward more offsite exam work?
2. What capabilities do you recommend the NCUA adopt to be able to
conduct more examination work offsite?
3. How would such offsite capabilities increase the efficiency and
effectiveness of the exam and supervision process from the credit union
perspective?
4. Do you think the NCUA can do significantly more offsite work
without compromising its safety and soundness responsibilities?
5. What credit union data can be provided to examiners to
facilitate more offsite supervision and reduce time onsite during the
examination?
6. What credit union data is currently provided to other parties
that NCUA could potentially leverage to reduce the burden on credit
unions? To ease the administrative burden, should the NCUA ask third
party service providers for data on credit unions directly?
7. Are credit unions moving from a physical presence in member
services to more reliance on digital or mobile banking platforms? How
should the examination program evolve to accommodate these changes?
8. What other methodologies or approaches should NCUA include in
this exam study?
9. Would credit unions benefit from more clarity and consistency on
the timing and types of documents and data examiners need to conduct
examinations?
10. Would it be easier or less burdensome for credit unions to
provide documents and data to the NCUA on a more scheduled, flow basis
throughout the year so the time spent onsite would be more efficient
and the majority of the examination/supervision could primarily be
conducted offsite? If this process could lead to more frequent/offsite
contacts using technology and reduce the time and frequency of full-
scope onsite examinations, do you think this would be an improvement
and/or less burdensome than the current examination process or cause
more disruption?
11. What do you see as the most significant challenges facing the
NCUA's move to an offsite examination/supervision model that utilizes
technology?
12. What difficulties do you foresee with moving to a future
examination model for federal and state charted credit unions? How
could we better coordinate with the states in this approach?
[[Page 39591]]
13. What concerns do you have, if any, about a diminished NCUA
onsite presence, and can these be mitigated?
14. What impact, positive or negative, do you anticipate this
future examination program strategy will have on your credit union and
its operation?
15. Will moving offsite create any noticeable change in credit
unions' ability to provide services to members, particularly during
major disruptions, like pandemics?
16. Are there resiliency tests that can be performed by examiners
offsite that could not be performed when examiners are onsite? If so,
please detail them.
17. If rebuilding the examination process from scratch, how might
you redesign what is currently done today in order to reduce the burden
on credit unions and/or minimize time that examiners need to be onsite
at credit unions?
18. What new or emerging technologies could enable the NCUA to
examine a credit union with less time onsite?
19. Are video and telecommunications capabilities sufficient to
maintain good lines of communication between examiners and credit union
management and officials with reduced in-person meeting opportunities?
What other methods of communication or communication protocols would
support quality communications between the credit union and examination
staff?
20. What types of artificial intelligence and/or machine learning
techniques are you currently using or anticipate using?
21. Does the NCUA have regulations/policies that are sufficiently
flexible to allow you to leverage various technological advances such
as artificial intelligence, machine learning, process robotics,
Fintech, Regtech, and Suptech etc.?
22. Do the current regulations/policies create unnecessary hurdles
or burdens with respect to adopting technology? Are there ways we can
update our regulations/policies to help facilitate a greater use of
technology?
23. Do you feel comfortable using the NCUA's secure file transfer
portal as a means to transfer data electronically, including personally
identifiable information and confidential credit union data, to NCUA
staff? If not, please provide details regarding your concerns and
recommendations on ways the NCUA could mitigate these concerns.
24. What issues are unique to smaller institutions regarding the
use and implementation of innovative products, services, or processes
that the NCUA should consider? Additionally, by moving to an offsite
exam posture, will this negatively affect small credit unions that may
not have the technology required to transmit requested documentation?
Are you exploring any types of services, products or technologies to
offer to your members in the future?
25. With respect to the future examination model, should the NCUA
consider alternative exam approaches for smaller credit unions?
26. Are there better ways for the NCUA to support your financial
inclusion and financial education mission through the use of
technology? Additionally, are there better ways for the NCUA to use
technology to help low-income designated credit unions and minority
depository institutions to better serve their members?
27. Do you feel there are circumstances that would disqualify or
preclude a credit union from participating in this examination model
where the majority of work is completed offsite?
28. What documentation and measures should be collected and used to
assess a credit union's financial education efforts or programs?
29. Are there better ways for the NCUA to receive important
contextual information regarding how you serve the low-income,
underserved, and unbanked communities in your field of membership?
30. What baseline data protection and privacy safeguards would
enable credit unions to comply with consumer protection statutes and
federal/state law when sharing data for remote examinations?
31. How could an offsite posture affect the oversight of consumer
financial protection and BSA/anti-money laundering laws and regulations
at your credit union? What changes should the NCUA make to address your
concerns?
32. All technology is coupled with internal and external security
risks. As credit unions remain diligent in addressing these risks, what
can the NCUA do to support credit unions' security posture?
33. What cybersecurity challenges do you see with the NCUA moving
to this future examination model?
34. Are there digital banking activities or issues that are not
covered by this RFI that the NCUA should address?
35. In response to the pandemic, the NCUA moved to an offsite
posture. Did you participate in an exam during this time?
a. From your perspective, what has worked well?
b. What exam steps could continue to be completed offsite after we
return to an onsite posture?
c. Were there parts of the exam, during the offsite posture that
did not work well?
36. Are there issues the NCUA should consider in light of changes
in the banking system that have occurred in response to the COVID-19
pandemic?
Commenters are also encouraged to discuss any other relevant issues
they believe the NCUA should consider with respect to this examination
study.
By the National Credit Union Administration Board on June 25,
2020.
Gerard Poliquin,
Secretary of the Board.
[FR Doc. 2020-14129 Filed 6-30-20; 8:45 am]
BILLING CODE 7535-01-P
