NCUA Chairman Todd Harper will testify before the Senate Banking Committee today, along with other federal financial regulators. The hearing is titled, “Oversight of Regulators: Does our Financial System Work for Everyone?”
Harper will request the Congress enact legislation to provide the agency examination and enforcement authority over third-party vendors, including credit union service organizations (CUSOs).
Under current authority NCUA may only examine CUSOs and third-party vendors with their permission. Vendors can also ignore the agency’s recommendations to implement appropriate corrective actions to mitigate identified risks.
In contrast federal banking agencies have much broader authority.
The use of third party vendors continues to increase.
"the top five credit union core processor vendors provide services to approximately 87 percent of total credit union system assets. Additionally, the top five CUSOs provide services to nearly 96 percent of total credit union system assets. A failure of even one of these vendors represents a significant potential risk to the Share Insurance Fund and the potential for losses from these organizations are not hypothetical. "
Harper concludes that NCUA has a regulatory blind spot:
"...the NCUA requests the comparable authority as our counterparts on the Federal Financial Institutions Examination Council to examine third-party vendors. I look forward to working with this Committee on legislation to close this growing regulatory blind spot. "
It is easier for banking regulators to gain access to third party vendors
NCUA can access via some state regulators (who have broader authority) and by asking. Vendors usually agree
NCUA can (and does) create pressure on third party vendors by requiring massive levels of third party due diligence, which is how they are now forced to "skin the cat"
If NCUA fails to ask for this authority and then something blows up - NCUA can be blamed. By asking for the authority and continually being denied - if something blows up NCUA can say - we asked for broader authority as a defense...
What if NCUA gets the authority? The NCUA budget could go through the ROOF! With NCUA being the only banking regulator who has to perform a public budget briefing - they are under more budget pressure and scrutiny than other similar agencies. Can they really afford to get this authority? I don't think they have the appetite to expand the budget if they get the authority. Getting authority and then doing little or nothing with it is a recipe for disaster.
See the hearing here:
Find Harper's written testimony here: