REGULATORY FRAMEWORK AND REQUIREMENTS
An overview of the legal and regulatory framework that governs credit union operations, as well as the specific regulatory requirements for directors.
UNDERSTANDING REGULATORY ISSUES & COMPLIANCE
Law and regulation govern nearly every aspect of credit unions, ranging from their organization, to the content included in product advertisements. The various requirements imposed by law and regulation generally are designed to protect the safety and soundness of credit unions (member deposits), but they also are designed to protect the public in other areas, such as lending and privacy, to name a few. Another broad category of laws and regulations relate to the role credit unions play in preventing financial crimes, such as money laundering, and the prevention of terrorist financing. Adhering to the many laws and regulations imposes a significant compliance burden on credit unions, resulting in many staff hours being expended to both comply with and to monitor compliance. In accordance with law, federal and state regulators regularly examine credit unions for compliance with the laws and regulations.
Chartering: State and Federal Charters
Credit unions may be chartered either by the federal government or by state governments. However, not all states offer a state-specific charter, such as Delaware. The availability of both types of charters ensures and drives innovation in the credit union system.
- The Dual Chartering System – Benefits of the State Charter (WA Dept. Of Financial Institutions)
- NASCUS Quick Guide: The Advantage of a State Charter (NASCUS)
- Benefits of the Credit Union Dual Chartering System (CUNA)
- Preserving Dual Chartering and Charter Choice (CU Management)
Federal and State Regulators
The National Credit Union Administration (NCUA) is the primary regulator for federally chartered credit unions. State regulators in Idaho, Oregon Arizona, Wyoming, Colorado and Washington regulate state-chartered credit unions. NCUA also regulates many of the activities of state-chartered credit unions that are federally insured by the National Credit Union Share Insurance Fund. Two other federal agencies – the Consumer Financial Protection Bureau (CFPB) and the Federal Reserve Board (FRB) – also regulate the activities of financial institutions, including credit unions. Specifically, the CFPB regulates in the areas of consumer protection, and the FRB regulates in many areas, but of importance to credit unions, it oversees payment systems, reserve requirements, and funds availability.
- Mission and Vision with Overview of the Agency – National Credit Union Administration (NCUA)
- About The Bureau – Consumer Financial Protection Bureau (CFPB)
- Credit Union Section – Idaho Department of Finance
- Credit Unions – Oregon Division of Financial Regulation
- Credit Unions – Washington Department of Financial Institutions
- Board of Governors of the Federal Reserve System – Federal Reserve Board
- GoWestWeb Training – Compliance-related Webinars
FINANCIAL LITERACY REQUIREMENT
Federally Chartered Credit Unions
- Under §701.4(b)(3) of NCUA’s Rules and Regulations, federal credit union directors have a duty to: “At the time of election or appointment, or within a reasonable time thereafter, not to exceed six months, have at least a working familiarity with basic finance and accounting practices, including the ability to read and understand the Federal credit union’s balance sheet and income statement and to ask, as appropriate, substantive questions of management and the internal and external auditors.”
State Chartered Credit Unions
- Idaho, Oregon, Arizona, Wyoming, Colorado and Washington statutes and bylaws do not impose any financial literacy requirements on directors.
Benchmarking is an important tool for measuring a credit union’s performance to ensure its financial goals and performance metrics are met. Setting benchmarks internally enable board members and management to evaluate the credit union’s performance from quarter-to-quarter or year-to-year. For an added dimension and greater perspective, credit unions may also compare their performance with other credit unions by using peer-to-peer analysis. NCUA and CUNA each offer peer analysis tools.
NCUA’s tool is called a Financial Performance Report or FPR. It can be found by searching for a specific credit union using the Agency’s “Research a Credit Union” function. Once you have selected a credit union, you may then request an FPR covering a period of time (quarterly or annually). It will include data points for various metrics ranging from performance ratios to information from the credit union’s income statement, which you have selected. NCUA’s FPR tool will then generate a report which will then be sent to you via email. The report will contain peer data based on other credit unions comparable in size.
CUNA’s tool is called a Peer Comparison Report. It helps you track your credit union’s quarterly operating and financial results and measure your performance against six peers. You can select which peers to compare against or you can let the generator choose for you. To access this report, you will need to visit the CUNA site (select “Individual Credit Union Data and Statistics”), download the Excel spreadsheet called “Peer Comparison Report,” and enter a few data points. Once complete, you can generate a 10-page customized peer analysis report in PDF format.
- 15 Ratios Every Board Member Should Know (creditunions.com, powered by Callahan & Associates)
BANK SECRECY ACT TRAINING REQUIREMENT
Federal credit unions (12 CFR §748.2), federally insured credit unions (12 CFR §741.214), and privately-insured credit unions (12 U.S. Code §1953; §1958) are required to maintain a Bank Secrecy Act (BSA) Compliance Program. Responsibility for ensuring that the credit union maintains a BSA Compliance Program falls upon the credit union’s board of directors, which is ultimately responsible for compliance with all Bank Secrecy Act requirements. One mandatory component of the Compliance Program is annual training. Therefore, the board, along with all staff members, must receive annual training on BSA requirements that is appropriate for their positions.
Request an In-person Onsite Bank Secrecy Act (BSA) Training for Your Board and Staff: Your Association provides BSA trainings for boards and staff to satisfy annual BSA training requirements. The trainings – one for board members and one for staff members – are designed to provide each audience with the information commensurate with their roles. To receive additional information about these training options, please contact, David Curtis.
CONTACT OUR COMPLIANCE DEPARTMENT
The Association’s full-time staff of compliance experts and robust suite of online resources are available to provide immediate assistance to credit unions on any compliance-related issues.
Calls and emails to the GoWest Compliance Team are acknowledged as soon as possible during regular business hours, with responses to questions provided within one business day. Some complex inquiries may require additional time to resolve. For questions on compliance matters, please email the Compliance Team, fill out the question form, or call the hotline at 1.800.546.4465.