NCUA Requirements & Guidance (Test 1) Flashcards
The Central Liquidity Facility was established to address the economic conditions of the 1970s and to lend money to credit unions under certain circumstance. What are the three circumstances listed in this book?
Short-term adjustment credit to help meet temporary requirements for funds; seasonal credit to help meet seasonal needs for funds; and protracted adjustment credit to help meet needs in unusual or emergency circumstances of longer-term nature
Federal Credit Unions are subject to what kinds of federal, state, or local taxes under the Federal Credit Union Act?
FCUs are exempt from federal and state income taxes and franchise taxes but are subject to the same real property taxes and personal property taxes that are imposed on other businesses.
Because state-chartered credit unions are not “federal instrumentalities” what tax are they subject to that federally chartered credit unions are not?
Unrelated business income taxes (UBIT)
NCUA Rules and Regulations
NCUA directives that govern a particular topic and have a substantial impact on credit union operations
Interpretive Rulings and Policy Statements
provide NCUA interpretations on what a law means on a particular subject generally requiring credit unions to comply and follow the guidance provided in them
Letters to Credit Unions
issued by the NCUA board to provide clarifying information about credit union compliance, issue warnings, or announce changes in accounting rules, operating fee assessments or examination procedures and generally sent to all federally insured credit unions
Regulatory Alerts
Advise federally insured credit unions about regulatory changes affecting their compliance requirements
Legal Opinion Letters
written responses to inquiries made to NCUA representing their legal staffs interpretation of the law and regulations that are posted on the NCUA website but not sent directly to credit unions
The Federal Credit Union Act gives the NCUA authority to issue regulations and other guidance to direct the operations of federal credit unions and federally insured state-chartered credit unions. What is the difference between a “final regulation” and an “interim final regulation”?
A final regulation is issued after an official “notice and comment period” of 30 days to 120 days giving credit unions at least 30 days before compliance is mandatory. An “interim final regulation” is issued because of a pressing agency concern such as a safety or soundness problem or the enactment of as new law.
What is required for Share Insurance?
Minimum fidelity bond and insurance
If a state-chartered credit union has federal share insurance, NCUA has the right to examine the credit union, but in most cases the NCUA relies on the state regulator to actually do the examination
True
Civil Money Penalties
a three-tier penalty program against federally insured credit unions or institution-affiliated party ranging from $5,000 to $1 million a day
Conservatorship
the NCUA Board takes immediate control of a federally insured credit union with no notice or hearing required
Order for Special Reserves
the NCUA Board requires a federal or federally insured state-chartered credit union to maintain special reserves to protect the interests of the members
Termination of Insurance
applies only to FISCUs and could mean the involuntary liquidation of the credit union
Involuntary Liquidation
the authority to close an insolvent federal credit union eliminating that credit union as a legal entity
When NCUA is faced with liquidating a credit union or merging it with another healthy credit union, what is the agency’s preference?
NCUA will usually pursue a merger or purchase and assumption when a federal credit union cannot feasibly continue operating
Business Judgment Rule
Creation of court rulings stating that directors aren’t liable for honest mistakes of judgment if they acted with due care, without COI, in good faith, in furtherance of CU purpose
What are the 4 types of Federal Charters?
Single Occupational Common Bond, Single Associational Common Bond, Multiple Common Bond, Community
What does NCUA define as immediate family?
Spouse, Child, Step-Child, Sibling, Step-Sibling, Grandparent, Grandchild, Adoptive relationships
What is the difference between a “call report” and a “financial performance report”?
Call reports - the Financial and Statistical Report - NCUA requires all federally insured credit union to submit a summary of their financial and statistical data quarterly
Financial Performance Report - a report drawn from the call report data providing credit unions a five-year review of the data and showing how the credit union’s peers are performing
Letters of Understanding and Agreement
agreements between the credit union and the regulator that require the credit union to take specific corrective action
Cease and Desist Orders
prohibits a credit union from engaging in an activity described in the order and/or requires the correction of a condition resulting from a violation
Removal and Prohibition Orders
an order to remove a credit union board member or employee after a notice and hearing and an order to ban credit union officials and employees as well as affiliated parties from serving or being employed by any federally insured financial institution
Single Occupational Common Bond
Single occupational sponsor such as ABC Corporation
Single Associational Common Bond
Single associational sponsor such as University of Baltimore Alumni Association
Multiple Common Bond
More than one group, all have common bond (no mileage test); people work in/live/headquartered in (USAA, Navy Federal)
Community
Persons organizations within a well-defined community, neighborhood, or rural district (SECU)
What percentage of CUs insured shares must be with NCUSIF?
1%
What are the 3 requirements NCUSIF requires of CUs?
- Official advertising statement in marketing pieces
- Must provide copies of NCUA brochure Your Insured Funds at each branch office
- Display NCUSIF sign at each teller station in main office and at each branch office
What should be included in board minutes?
- Committee Reports
- Policy Changes
- Voting Records
- Action taken on problems in audit findings
- Financial condition of CU
What are the two standards by which a director’s conduct is measured?
Duty of Care & Duty of Loyalty
Duty of Care
Must act with due care while developing policy and monitoring credit union operations
Duty of Loyalty
Directors are prohibited from using their position as director to gain personal advantage
What are NCUA’s 3 eligibility requirements for FCU board membership?
- Must be a member of FCU
- Cannot have any convictions for dishonesty or breach of trust
- Bylaws allow board to set minimum age requirement
Name one mandatory committee that a FCU must maintain
Supervisory Committee
Name some responsibilities of the Board of Directors.
a. Maintain general direction and control of CU
b. Meet Monthly and Maintain Meeting Minutes
c. Approve P&Ps
d. Elect Officers
e. Appoint Credit committee/Mgr or loan officers
f. Appoint Supervisory committee
g. Appoint Membership Officer & other committees per bylaws
h. Hold annual meeting for members and maintain minutes
Can a CU’s CEO/Manager serve on Board of Directors?
Yes
What specific groups are named in the bylaws that must have access to CU’s books and records?
a. Members of Board of Directors
b. Supervisory Committee
c. Credit Committee
d. Nominating Committee
e. Executive Committee
How often must a FCU store their records?
Every 3 months
How can a FCU expel a member?
There must be a 2/3 vote of the members of the FCU present at a special meeting called for that purpose BUT the member must have an opportunity to be heard
What are the requirements of NCUA’s investment regulation per Section 703? (MC QUESTION)
a. That federal credit unions have written investment policies which specify and control the investment activities the credit union will undertake.
b. That those responsible for the investment function have sufficient knowledge to understand the risks involved.
c. That investment risks be reported in a level of detail appropriate for the level of risk assumed.
d. All of the above
What must the investment policy address?
a. How the FCU will manage the interest rate risk
b. How the FCU will manage liquidity risk
c. How the FCU will manage credit risk, including specifically listing institutions, issuers, and counterparties that may be used, or criteria for their selection, and limits on the amounts that may be invested in each
d. How the FCU will manage concentration risk, which can result from dealing with a single or related issuers, lack of geographic distribution, holding obligations with similar characteristics like maturities and indexes, holding bonds having the same trustee, and holding securities loans having the same originator, packager or guarantor
Which people associated with FCU are prohibited from reaping any personal gain from investment activities of the CU?
a. Directors
b. Investment Committee members
c. Senior Employees
d. Investment Officer
e. Family members of all of the above
What does NCUA expect a CU to analyze about the broker-dealers and safekeepers it relies upon?
- Background
- Enforcement history
- Financial condition
- Other relevant information
What are some permissible investments?
- Loans for members
- Capital stock of Central Liquidity Facility
- Shares, CD’s of Corp. CUs, CUs, Banks
- Securities guaranteed by Fed Govt.
Name two impermissible investments for FCUs.
- Stocks and bonds of publicly traded companies
- For FCU serving natural persons beyond those authorized by the law
What specific groups are named in the bylaws that must have access to CU’s books and records?
a. Members of Board of Directors
b. Supervisory Committee
c. Credit Committee
d. Nominating Committee
e. Executive Committee
Can Corporations, Partnerships, Associations, and other nonnatural-person legal entities qualify for membership in a federal credit union?
Yes (but business entities have to be specifically listed in CU’s charter)
What forms are used to add new groups to a FCU’s single or multiple group charter?
a. Form 4015-EZ (0-3K People)
b. Form 4015-A (3K+ People)
c. Form 4015 (5K+ People)
If a multiple group FCU wants to add an underserved area to their FOM, what must they do?
a. Obtain permission from NCUA
b. Develop a business plan specifying how it will serve the community
c. Maintain an office or facility in the area or have a pre-existing service facility within close proximity to the area (determined on a case-by-case basis.)
Is an FCU serving one company subject to any geographic restrictions?
a. No (as long as the members are part of the chartered company)
Can a single common bond CU that serves a MFG Co.’s employees add as a “select group” the employees of the local pizza parlor?
a. Not unless it can convince the NCUA that it is very closely related to the company’s operations
In FCUs who appoints the supervisory committee and determines the number of committee members and their term of service?
a. The Board of Directors
What two requirements must be met to serve on the supervisory committee?
a. Bondable
b. Member of CU
What are two basic responsibilities of the supervisory committee?
- Ensure that the financial statements accurately and fairly present the financial condition of the CU
- Ensure that management practices and policies safeguard members’ assets
The supervisory committee is responsible for following up with management to ensure that problems identified in the audit report are corrected.
[True/False]
a. True
How often does the Federal Credit Union Act require the supervisory committee to verify the passbooks and accounts of credit union members?
a. At least once every two years (from time to time)
What three methods does the NCUA allow for verifying accounts?
a. Controlled Verification
b. Statistical Method
c. Nonstatistical Method
The NCUA’s Rules and Regulations require the supervisory committee to retain records of each verification of members accounts for 6 months. [True/False]
a. False
Controlled Verification
Includes 100% of members’ share and loan accounts
Statistical Method (For Verification)
includes a sampling of accounts that either provides a random sampling which is representative of the population from which it was selected, or sufficient accounts in both number and scope on which to base conclusions concerning management’s financial reporting objectives
Non-Statistical Method (For Verification)
a sampling that can only be done by an independent certified public accountant (CPA), choosing sampling methods consistent with generally accepted auditing standards (GAAS), with documentation recorded and available to NCUA upon request
Why does NCUA Field of Membership manual have population limits for a community?
To prevent the member from proving there is a well-defined local community
What is NCUA’s policy on overlaps and exclusionary clauses?
a. Overlaps of groups under 3K is an incidental overall and no overlap analysis will be done
b. OA will be done for a group of 3K+ people
c. Exclusionary clause can be removed if a FCU applies to the regional office
d. NCUA has authorized FCUs to serve the same community, so overlaps are typically not protected
If a multiple group FCU wants to add an underserved area to their FOM, what must they do?
a. Obtain permission from NCUA
b. Develop a business plan specifying how it will serve the community
c. Maintain an office or facility in the area or have a pre-existing service facility within close proximity to the area (determined on a case-by-case basis.)
Is an FCU serving one company subject to any geographic restrictions?
No (as long as the members are part of the chartered company)
In FCUs who appoints the supervisory committee and determines the number of committee members and their term of service?
The Board of Directors
What two requirements must be met to serve on the supervisory committee?
- Bondable
- Member of CU
What are some basic responsibilities of the supervisory committee?
- Ensure that the financial statements accurately and fairly present the financial condition of the CU
- Ensure that management practices and policies safeguard members’ assets
- Verification of accounts
The supervisory committee is responsible for following up with management to ensure that problems identified in the audit report are corrected.
[True/False]
True
How often does the Federal Credit Union Act require the supervisory committee to verify the passbooks and accounts of credit union members?
At least once every two years (from time to time)
Why does NCUA feel it is extremely important that a federal credit union maintain “corporate separateness” from its CUSO by setting it up as a separate entity
NCUA wants to limit the credit union’s liability of the credit union for any problems that may arise with the CUSO’s operation
If the credit union plans to wholly own the CUSO, it does not have to set up a separate company but can run the CUSO as a department of the credit union. [True/False]
False, the credit union must set up the CUSO as a separate legal entity
The Federal Credit Union Act states that a CUSO must “primarily serve” the needs of its member credit unions. What is meant by “primarily serve”?
The CUSO’s primary business must be with the CUs that invest in or loan to the CUSO and the individual members of those credit unions. There is no strict rule, but NCUA examiners generally use a 50% or greater standard to determine primarily serves.
How does NCUA regulate CUSOs?
NCUA indirectly regulates CUSOs by limiting the activities they can become involved in
What activities does NCUA authorize CUSOs to be involved in?
- Checking and currency services
- Consumer mortgage loan services
- Electronic transaction services (EFT. ACH)
- Financial counseling services (IRA)
- Insurance brokerage or agency
- Loan support services (Collections, RE Servicing)
- Record retention, security, and disaster recovery services
- Shared credit union branch operations
- Student loan origination
What are some of the good judgment rules a CU can establish to maintain the separate entity requirement between CUSO and CU?
a. Credit union board members should make up only a minority of the CUSO board
b. The CUSO board and the credit union board should meet at different times
c. Shared employees should have different job descriptions from each organization with time spent working for the CUSO well documented
d. CUSO use of credit union facilities and support structure should be governed by a written agreement and paid at market rates.
What is the order of action steps taken by NCUA if a CU is not being operated correctly?
Findings (Noted Observation)
Document of Resolution (Pattern of behavior or more extreme observation; contains expected corrections)
Letter of Understanding and Agreement (Contract between NCUA and Board of Directors)
Cease and Desist (Major issue IMMEDIATE STOP)
CMP (FINES for conduct)
Conservatorship
Liquidation (CU unable to survive)
State CUs ONLY
Special Reserves
Cancellation of Insurance
State charters refer to State Laws. What is the exception to this?
Share draft authority
How does the relationship between owners and beneficiaries of trusts determine insurance?
If the Owner has more than one trust with the same beneficiaries, they are NOT separately insured.
