Accounting topics to watch
- Current expected credit losses (CECL) methodology
- The CECL methodology requires enhanced documentation and ongoing monitoring.
- As you implement the new CECL standard, it’s important to formally document your methodology and approach. It’s also a good idea to perform sensitivity testing and model validation and to involve auditors early in the process to avoid letting any issues take hold.
- Troubled debt restructuring (TDR)
- TDR is a thing of the past, but the new process requires disclosures for certain modifications to borrowers experiencing financial difficulty.
- Effective upon adoption of CECL, these disclosures are required only for the following contractual changes:
- Principal forgiveness
- Interest-rate reduction
- Other-than-significant payment delay
- Term extension
- Any combination of these
- Allowance for credit losses (ACL) accounting for acquired financial assets
- Under a proposed Accounting Standards Update, the ACL recognized for purchased financial assets is established by grossing up the carrying amount of the acquired assets. This is only if either they were acquired as part of a business combination, or the assets are deemed “seasoned.” The proposed scope of acquired assets includes credit cards, home equity lines of credit, and other revolving arrangements with active borrowing privileges.
- A comment period about possible changes is open.
- Credit union-owned life insurance policies
- Recent discussions address a “Guaranteed Investment Protection Rider” that protects against the risk of loss between employee loan amount and cash surrender value.
- Issued by different counterparty to insure loss exposure
- Used when loan to employee is nonrecourse
- Questions arise with regard to whether the credit union should write the loan down to cash surrender value or continue to carry the loan at full amount.
Regulatory updates: National Credit Union Administration (NCUA) supervisory priorities
- Interest-rate risk
- Liquidity risk
- Credit risk
- Cybersecurity risk management
- Fraud prevention and detection
- Succession planning
- Post-exam surveys
Consumer compliance updates
- Compliance and legal functions should be made aware of any new or existing fintech relationships.
- Fair lending compliance, including data analysis of all loan portfolios, should be prioritized to support fair lending risk assessments.
- In light of recent enforcement actions, credit union leaders should assess their overdraft programs for a complete understanding of any potential blind spots.
- A second-line compliance testing function should be built out to cover consumer protection risk.
Cybersecurity topics to watch
- Threats will continue to evolve in creative ways.
- Controls will continue to require a human element.
- Information security and cybersecurity programs should be built based on established frameworks including:
- National Institute of Standards and Technology (NIST)
- Federal Financial Institutions Examination Council (FFIEC)
- NCUA Automated Cybersecurity Evaluation Toolbox (ACET)
- Gramm-Leach-Bliley Act (GLBA)
- Center for Internet Security (CIS)
- Critical Security Controls
Cyber Risk Institute (CRI) Profile
- Use various resources to stay up to date on latest developments.
