NCUA’s latest letter to credit unions (18-CU-01) provides an update on five Examination Modernization Initiatives designed to improve and modernize how the agency conducts examination and supervision.
The NCUA board approved five initiatives to modernize agency examinations: the Flexible Examination Pilot Program (FLEX); Office of National Examinations and Supervision (ONES) Data Driven Supervision; the Shared NCUA-State Regulator Federally Insured, State-Chartered Credit Union (FISCU) Program; the Enterprise Solution Modernization Program (ESM); and the Virtual Examination Program.
FLEX is evaluating conducting offsite certain existing exam procedures. In 2017, the NCUA tested the pilot with five examiner groups in 28 credit unions located in a variety of geographical locations.
Preliminary results from the pilot show costs savings to the NCUA, realized in part by reducing travel time and costs for examiners. In designated reviews, over 35%
However, the pilot identified the need for the NCUA to have a secure file transfer portal to support much of this work being done offsite efficiently. The secure file transfer portal was fully deployed in July, 2018, and is currently being tested.
ONES Data- Driven Supervision:
The continuous supervision model will use data-driven analytics to monitor and identify credit union risk and support the transition to credit union-driven stress testing. This work may lead to analytical advancements that can be adapted for use in the supervision of some or all other insured credit unions.
Shared NCUA-State Regulator FISCU Program:
The Joint NCUA-State Supervisor Working Group is developing a pilot program to explore and evaluate the effectiveness of the alternating examination concept. A pilot will allow the NCUA, state regulators and stakeholders to evaluate benefits and challenges prior to finalizing a decision on an alternating exam program.
Such a pilot will need to run about three years in order to evaluate one full alternating exam cycle.
This effort will replace legacy applications such as the examination system (AIRES) and the Call Report data collection tool (CU Online).
ESM is providing the essential upgrades to the NCUA’s technology foundation to support the FLEX and Virtual Exam programs with:
- More efficient ways to securely communicate with credit unions.
- Updated tools such as workflow management, data integration, document management, and customer relationship management capabilities.
- A flexible framework that will allow for integration of new solutions so the NCUA’s supervisory systems can evolve with changes to regulations, data and analytical needs, and activities credit unions engage in.
The first of a series of technology upgrades from ESM are scheduled to begin in 2019.
Virtual Examination Program:
The virtual exam should lead to greater use of standardized interaction protocols, advanced analytical capabilities and subject matter experts. This should result in more consistent and accurate supervisory determinations, provide greater clarity and consistency with respect to how the agency conducts supervisory oversight, and reduce coordination challenges between agency and institution staff.
The virtual examination team will deliver to the NCUA board by the end of 2020 a report discussing alternative methods identified to remotely analyze aspects of the financial and operational condition of a credit union.
The agency’s goal is to transform within the next five to ten years the examination and supervision program into a predominately virtual one for credit unions that are compatible with this approach.