NCUA to Modernize Exam Platform
WASHINGTON - Larry Fazio, director of the NCUA Office of Examination and Insurance, said the federal agency will be modernizing AIRES, its technology platform used to conduct exams that will feature a new portal that enables examiners and credit unions to exchange information.
Fazio also explained new exam procedures for small credit unions with up to $50 million in assets during his presentation at a breakout GAC session Tuesday focused on examiner priorities and credit union exam concerns. He also highlighted some improvements that resulted from a new policy involving exam findings and documents of resolution that was implemented last year.
“There are a lot of technological things we got to do to make AIRES happen,” Fazio said. “One of the things we are trying to fast-track is the portal that would allow examiners and credit unions to share information back and forth in a secure way and in a much more convenient and facilitated way.”
Fazio said the AIRES revamp may take up to two years to complete, but he hopes the new portal will be up and running sooner. He did not say when the portal may go live.
The goal of the AIRES modernization project will be to facilitate more up front interactions with credit unions electronically so that the exam process is much more effective and efficient, Fazio said during the breakout session that discussed examiner priorities and credit union exam concerns. Upgrading the AIRES system could also mean examiners would only need to visit a credit union when they were required to meet with credit union executives.
“Most of it (the exam) should be able to be done off-site electronically through a much more secure portal and an information exchange process, so (there will be) more to come on that,” Fazio said. “Stay tuned. I’m pretty excited about that one in particular.”
He said the NCUA will be looking at building AIRES in a way that is modular and takes advantage of off-the-shelf products.
“Instead of reinventing the wheel, we want to use some of the same technologies that credit unions use to look at the risk of credit union portfolios and do it in amore automated way,” he said.
Fazio also discussed NCUA’s new exam procedures for small credit unions that manage up to $50 million in assets. Examiner training for this new process is expected to be completed by the end of March.
“We’ve really narrowed the scope of the exam down to record keeping, internal controls and fraud red flags to really target some of the issues that tend to get smaller credit unions in trouble,” he said. “Going forward, we hope that will also make the exam process for small credit unions more effective and efficient.”
The new exam process also will require examiners to take a deeper look at red flag issues. The depth of those exams will determine the areas of concern.
Since implementing a policy last year on exam findings and DOR, Fazio reported the NCUA has seen an 18% drop in DORs. However, he could not say whether the current policy is solely responsible for the reduction.
The current policy requires exam findings and DORs to be kept completely separate.
He said when examiners identify an issue, they need to decide how material it is, and that some findings are issues than can be corrected by the credit union and require no follow-up from examiners. DORs are more significant issues because they can threaten the safety, soundness and viability of the credit union, he said.
“If findings are not resolved and are minor, they won’t be elevated to DOR,” he said. “However, if it represents some systematic weakness in management or some other concern then it might be elevated to a DOR.”
DORs also can be issued by examiners when there are major or systematic violations of regulations or bank secrecy act violations. Examiners are required to follow up on DORs to ensure they have been resolved.
Fazio also reminded credit unions that NCUA’s current policy also requires examiners to cite a regulation, act or other authoritative policy when they issue DORs.
“They can’t say it’s a best practice or something the credit union down the street does,” he said.
Examiners are allowed to share best practices with credit unions informally, but they are not allowed to include them in the exam report or classify best practices as DORs, he said.
Currently, about 52% of federal credit unions have not been issued DORs, while 48% of federal credit unions have been issued DORs, according to the NCUA.
Fazio also noted examiners are undergoing extensive training to learn how to communicate with credit union management teams, though he said the effects of that training will take some time.
“There should be no surprises,” he said. “You shouldn’t show up at a joint conference and be surprised by something an examiner brings to the table with the board of directors.”