Connecticut Directors College and Executive Forum December 8, 2016 Regulatory Responsibilities of the Credit Union Board and Supervisory Committee Connecticut Directors College and Executive Forum December 8, 2016

DISCLAIMER The information contained in this presentation does NOT represent legal advice. It in no way is intended to represent a formal determination made by any regulatory agency on any specific matter. Issues at your credit union are fact specific and you should seek legal counsel or formal supervisory determination to guide any course of action. © 2015 NASCUS. All rights reserved.

© 2009 NASCUS. All rights reserved.

© 2009 NASCUS. All rights reserved.

© 2009 NASCUS. All rights reserved.

© 2009 NASCUS. All rights reserved.

Working together for a safe & sound credit union Supervisory Committee Board of Directors Members © 2009 NASCUS. All rights reserved.

The Board & the Supervisory Committee Culture of Compliance Sound Management Policies/Procedures The Supervisory Committee Annual Audit Reconciling Board Functioning Philosophical/abstract CT Common Law CT Law/Regulation NCUA Regulation © 2009 NASCUS. All rights reserved.

The Supervisory Committee CT Sec. 36a-451a. Supervisory committee. Members. Powers. Duties. “Oversee” Board/management Annual audit Evaluate internal controls/policies/procedures to ensure they safeguard against error, carelessness, conflict of interest, self dealing, and fraud Removal of directors or management for cause Membership (state law) – not less than 3 members, only 1 of which may be a director, and none may serve on credit committee, as an officer, or be regularly employed by the CU. Members appointed annually by Board. Note – While the Supervisory Committee retains the auditors or any other outside help, the Credit Union Board controls purse strings. © 2009 NASCUS. All rights reserved.

The Supervisory Committee: NCUA Part 741.202 & Part 715 ** 715.3 - Supervisory Committee responsible for ensuring that the board of directors and management of the credit union meet required financial reporting objectives & establish practices and procedures sufficient to safeguard members' assets. Internal controls are established and effectively maintained Accounting records and financial reports are promptly prepared and accurately reflect operations and results Relevant plans, policies, & control procedures properly administered & sufficient to safeguard against error, conflict of interest, self-dealing and fraud. Audit+ Verification © 2009 NASCUS. All rights reserved.

The Supervisory Committee: The Audit CU w/$300m+ assets must have annual financial statement opinion audit by an independent licensed public or certified public accountant CU w/-$300m assets shall have: An opinion audit of its financial statements ; or A procedures engagement performed by a qualified person; or comprehensive Supervisory Committee audit or internal audit NCUA Part 741.202 & Part 715 CU w/$500m+ assets must obtain an annual audit of its financial statements performed in accordance with GAAS by an independent person licensed by the CU’s State or jurisdiction CU w/-$500m assets shall have: Annual supervisory committee audit; or audit as prescribed by the State or jurisdiction in which the credit union is principally located © 2009 NASCUS. All rights reserved.

It’s Not Just Getting the Audit!!! File a written report at the CU HQ Present the report to the governing board at its next meeting Present a summary of the report to the members at the next annual meeting (or have outside auditor present) File a copy of the written report with the commissioner © 2009 NASCUS. All rights reserved.

And….There is More! Monitoring internal controls and policies & procedures Verification of member accounts once/2 years Complete minutes of all of your meetings Obligation to inform members of unsafe operating practices that board refuses to correct © 2009 NASCUS. All rights reserved.

The Board of Directors: Responsabilities Part 702.402 - declaration of the Statement of Financial Condition Part 702.403 – transfer from regular reserves to undivided earnings to pat dividends Part 741 Appendix B – approve IRR policy/implementation/controls/limits/nature and scope of risk at CU Part 702.503 – approve capital policy Part 702.504- approve capital plan Part 741.3 Criteria © 2009 NASCUS. All rights reserved.

The Board of Directors: Responsibilities $50million – board approved framework for managing liquidity $50m+ board approved funding plan (aka contingency funding plan or “CFP”)** $250m+ board approved CLF funding (Part 725) or access to Federal Reserve Discount Window** ** See LTCU 13-CU-10 (October 2013) Part 741.12 Liquidity and Contingency Funding Plans © 2009 NASCUS. All rights reserved.

The Board of Directors: Responsibilities Part 741.201 Minimum Fidelity Bond Requirements Part 713 Minimum Fidelity Bond Coverage The Board must annually review bond and other insurance coverage to ensure it is adequate © 2009 NASCUS. All rights reserved.

The Board of Directors: Responsibilities Part 701.21(d)(5) – no preferential loans to, guaranteed by, or endorsed by Director Part 723.3 Commercial Loans Establish commercial loan policy Review it annually Be briefed periodically Ensure proper staffing Part 741.203 Loan Policies © 2009 NASCUS. All rights reserved.

The Commercial Loan Policy: More Detail Type(s) of CLs * Trade area * Maximum amount of assets, in relation to net worth, allowed in secured, unsecured, and unguaranteed CLs of any type * Limit aggregate $ amount of CLs to any 1 borrower(s) to greater of 15% NW or $100k * Loan approval processes * Approval authority * Underwriting standards * Level and depth of financial analysis necessary * Methods to be used in collateral evaluation, for all types of collateral authorized, including loan-to value ratio limits * Risk management processes * Use of loan covenants * Frequency of borrower and guarantor financial reporting * Periodic loan review * Use of a credit risk rating system * Process to identify, report, and monitor loans approved as exceptions to the credit union’s loan policy © 2009 NASCUS. All rights reserved.

The Board of Directors: Responsibilities Part 701.32 Payment on Shares by Public Units & Non Members CU Board must approve plan if CU intends to apply for waiver of the 20% of total shares limit on public/non-member deposits Part 741.204 Public Deposits © 2009 NASCUS. All rights reserved.

The Board of Directors: Responsibilities For conversion or termination of share insurance (ie going to private insurance) must comply with the detailed disclosure/notice/ballot and member vote rules prescribe by NCUA For merger with another FICU must certify member vote Part 741.208 Mergers of Federally Insured Credit Unions: Voluntary Termination or Conversion of Insured Status. © 2009 NASCUS. All rights reserved.

The Board of Directors: Responsibilities Part 748 Appendix A requires CU Board to oversee the 748 security program Part 748.1 requires CU Board to accept SAR reports from management Part 748.2 BSA obligations Approve written policy Review CU BSA risk assessment Obtain annual training in BSA Part 741.214 Report of Crime or Catastrophic Act and Bank Secrecy Act Compliance. © 2009 NASCUS. All rights reserved.

The Board of Directors: Responsibilities Part 749.2 - The CU Board is responsible for establishing a vital records preservation program within 6 months after the CU receives its share insurance certificate. *** OK so that was long time ago and your CU did that…but have you reviewed it lately? §741.215 Records Preservation Program © 2009 NASCUS. All rights reserved.

Contact Me Brian Knight Email: brian@nascus.org Direct dial: 703.528.8689 Follow NASCUS on Twitter! @TheNASCUS On the World Wide Web: NASCUS.org © 2015 NASCUS. All rights reserved.

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