NCUA Chairman Todd Harper was recently interviewed for an article in Credit Union Times. In that article he identified several concerning trends:
1. Lack of succession planning:
- He noted that lack of succession planning is often listed as the number one or two reason for credit union mergers, especially among small credit unions.
- In a 2023 review, they found that one in four credit unions either had no succession plan in place or had an inadequate succession plan.
2. Challenges with leadership transitions in small credit unions:
- Harper mentioned scenarios where long-serving managers retire, and boards realize they've been underpaying, making it difficult to attract new talent at market rates.
3. Risks associated with third-party vendors:
- Harper described this as a "growing regulatory blind spot."
- He noted that more than 90% of the credit union industry's assets are touched by third-party vendors.
- He cited a specific incident where a ransomware attack on a core processor vendor resulted in about 60 credit unions being unable to perform core services for weeks.
4. Cybersecurity vulnerabilities:
- Related to the third-party vendor issue, Harper expressed concern about potential large-scale cybersecurity incidents affecting major core processors.
5. Potential for financial losses due to vendor-related issues:
- Harper cited an inspector general report finding that between 2008 and 2015, nine Credit Union Service Organizations (CUSOs) contributed to material losses to the share insurance fund, causing losses at 24 credit unions, some of which failed. This resulted in the share insurance fund paying out $300 million.
6. Competitive disadvantage for credit unions:
- Harper pointed out that unlike banks, credit unions can't benefit from regulator examinations of vendors for due diligence purposes, putting them at a disadvantage.
7. Incentive-based compensation issues:
- While not specifically a trend in credit unions, Harper mentioned concerns about incentive structures that led to problems in other financial institutions, like those seen during the 2008 financial crisis and more recently with Silicon Valley Bank.
These trends highlight Harper's focus on improving credit union resilience, addressing cybersecurity risks, and ensuring proper oversight of the entire credit union ecosystem, including third-party vendors.
Note: these priorities and perhaps others not yet advertised will be revealed in NCUA's Budget documentation and should be out within 30 days.
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