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Washington
Fryzel re-emphasizes proper third-party due diligence
WASHINGTON (8/26/08)—The National Credit Union Administration (NCUA) continues to emphasize the importance of proper due diligence in setting up and maintaining third-party relationships in a recent Letter to Credit Union (08-CU-19). Chairman Michael Fryzel writes that third parties, including brokers and correspondents, “can and will continue to play an important and ever-increasing role in how credit unions operate.” “While a broker or correspondent can assist in facilitating transactions, credit union management is responsible for controlling the risk being added to the balance sheet,” Fryzel reminded credit unions. The NCUA letter said because credit union management retains fiduciary responsibility to members and the credit union in third party arrangements, it is imperative that credit unions keep in mind:
* Board-established lending policies and procedures should be established to fit the product—with risk tolerance levels based on management analysis, established regulatory thresholds, and sound business rationale; * Loan growth should be slow and controlled, activity should be within reasonable risk thresholds, and building a concentration in a particular loan type and/or in an unfamiliar geographic area should be avoided; and * Broker and correspondent relationships need to receive ongoing due diligence commensurate with the risk and complexity of those activities, regardless of whether the third party has a credit union affiliation, such as being part of a credit union service organization.
In his letter, Fryzel also calls attention to Letter to Credit Unions 07-CU-13, Evaluating Third Party Relationships, which provides significant detail on due diligence required prior to and during third-party arrangements. Use the resource link below to access the NCUA letters on due diligence, an agency-sponsored Webinar on the subject, and the NCUA’s AIRES questionnaire on due diligence.
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