ALEXANDRIA, Va.(12/28/07)—On a number of occasions during 2007, the National Credit Union Administration (NCUA) has identified credit union due diligence for third-party relationships as a topic of key interest. The agency has wrapped up the year by posting examiner guidance on the subject. The supervisory letter, “Evaluating Third Party Relationships,” is a summation of guidance on the use of third-party vendors to leverage their ability to provide services to members or customers. Although posted to the NCUA website in late December as Letter to Credit Unions No. 07-CU-13, the guidance to the agency field staff was distributed in October. That is the same month that the agency said an increase of seven full-time equivalent employees would be necessary in 2008, in part, because of plans to increase monitoring of credit union practices that raise potential for safety and soundness issues—including third-party relationships and outsourcing. The NCUA letter recognizes that credit unions use third parties for many types of services, including lending programs, regulatory compliance and electronic delivery. The agency endorsed the value of such relationships, and stated that it does not intend to stifle innovative use of the arrangements to meet members’ needs. “NCUA’s goal is to ensure credit unions clearly understand risks they are undertaking and balance and control those risks considering the credit union’s safety and members’ best interest,” wrote David Marquis, director of the NCUA’s office of examination and supervision. However, the guidance also states that even with proper due diligence procedures, a credit union can only mitigate, rarely eliminate, risks associated with outsourcing. It states that when examiners evaluate third-party arrangements, they should ensure a credit union has addressed the following areas in a way that is commensurate with their size, complexity and risk profile:
* Risk assessment and planning; * Due diligence; and * Risk management, monitoring and control.
The letter expands upon the agency’s expectation of the steps to be taken in each of these areas, and also includes a list of the numerous previous letters NCUA has issued on the importance of risk assessment and due diligence. The Credit Union National Association is studying all guidance on third-party relationships and soon will issue an analysis for credit unions.