They are more content with reinventing the wheel and spending than learning from the industry
In a recent letter to federally insured credit unions, McWatters and the NCUA outlined some examination modernization initiatives. My first reaction was one of bewilderment at several of their statements given my interactions with both NCUA personnel and state regulators in the last few months.
We have been in multiple conversations and presentations with various NCUA staff and administrators for several years about exam innovation and implementation strategies. There has not been a single case in which we were not politely heard out and then, just as politely, blown off. They seem to feel that collaboration with those they regulate would be a waste of their valuable time and unlikely to add any value to their own intellectual and institutional superiority. From my many meetings and contacts with NASCUS leadership, it is certainly clear that the NCUA holds its state regulatory peers in the same regard.
At a recent update on the ESM initiative they revealed that a major component of their initiative, the Credit and Deposit Analytics Solution, would be delayed due to a lack of off the shelf vendors with a ready to use analytical tool that meets their specs. Their research of their fellow FI federal regulators has revealed that those organizations have built their own custom software for this purpose and that the NCUA will, of course, follow their banking cousins and pursue this custom build path as a new strategy.
Not having been allowed to see the 2017 RFP for this entire project, we don’t know in any detail what the specs for this tool are, but we had shared and shown both McWatters and the Exam Flexibility Committee chaired by Keith Morton, back in 2016, the earliest versions of Analytics Booth (then My CU Today), which we were told did represent the kind of analytics capability they would be needing in the future. Since then, when I bring it up I’m rebuffed. Now I don’t know if we even would want to be federal contractor, but you’d think they would at least reach out to learn more about our efforts. Personally, I think they like spending our members’ money more.
At the same time, we showed them what we had done with Wisconsin regulators to facilitate a test of remote examination tactics by using Virtual StrongBox. Few know that the agency has been on the hook for a September 2015 recommendation of the Inspector General to start using a secure FTP in their examination protocol. Even though their response to the IG in 2015 was that they would have such a tool by year-end 2015 and then later by year end 2016, it has yet to be implemented. The letter described above promises a release of a secure FTP later this year after further testing. Imagine that your credit union had an outstanding audit exception for close to three years! Especially one concerning data security! I’ll believe that they have a working model to move member data securely when I see it.
I congratulate Keith Morton on his test of virtual examination strategies in Region 4, but really, a reduction of onsite exam time by 35% should be unacceptable. There should be no excuse for not being able to remotely review everything from high-level institutional data to individual digitized records like member loan files.
Lastly, unless something has changed in the last three weeks, my contacts with NASCUS have indicated that to this point they have had no formal or continuous input into the ESM initiative (including the AIRES re-write) and any development of FLEX, the Office of National Examinations and Supervision (ONES) Data-Driven Supervision or Virtual Exam Protocols. There was a joint meeting of NCUA and NASCUS regulator board members at the NASCUS State Summit just 3 weeks ago. I’ll be checking if, as the letter might suggest, there has been a long and deep working relationship between the parties, when it has seemed to be 180 degrees opposite of that type of brotherhood.
We’ll be continuing to watch this activity closely and as NCUA makes changes to their exam protocols, we will be making sure that credit unions can leverage those changes to lower their cost compliance. I’m calling on credit unions to let their representatives know about your concerns regarding this waste of money in the name of progress. Tell Me Why I’m Wrong.