NCUA: Credit Unions Should Judge Individual Members in Risk Assessment

By David Baumann - July 12, 2022

Joint statement from NCUA and other financial regulators focuses on relationships with individual members opposed to member classes.


Credit unions should examine the risks posed by individual customers, rather than disqualifying an entire class of customers based on potential risk, the National Credit Union Administration (NCUA) said last week.

“It is ultimately each credit union’s decision to provide or maintain financial services to any customer,” agency chairman Todd Harper stated in a letter to credit unions. “The NCUA expects credit unions to assess the risks posed by each customer individually.”

The NCUA was joined by both banking regulators and the Financial Crimes Enforcement Network (FinCEN) in issuing the guidance. The joint statement is intended to clarify the agencies’ long-standing position that no single customer type automatically presents a high risk of money laundering, terrorist financing, or other illicit financial risk, Harper wrote.

Todd Harper NCUA

NCUA Chairman Todd Harper

The guidance states credit unions and banks should be able to understand the nature and purpose of customer relationships, and conduct monitoring to identify and report suspicious transactions, on a risk basis. And further, that not all customers of a particular type automatically represent a uniformly higher risk of money laundering and other illicit activity.

“The Agencies continue to encourage banks to manage customer relationships and mitigate risks based on customer relationships, rather than decline to provide banking services to entire categories of customers,” the regulators said.

Reaction From Credit Union Industry

Two credit union attorneys who have evaluated the guidance and the Harper letter said they do not necessarily cover new territory.

“There is nothing in either of them that signals a new approach or interpretation of existing regulations,” Henry Meier, senior vice president and general counsel at the New York Credit Union Association, wrote in his blog, “New York’s State of Mind.”

Meier, who emphasizes his blog represents his own views and not those of the association, said that some types of businesses do pose greater risks than others. For instance, he wrote, marijuana-related businesses are cash sensitive enterprises that may be legal or illegal depending on the THC level of a producer’s crop.

He added it is not clear why the guidance was necessary.

“Pure speculation on my part, but I can’t help but think that these regulators want to preemptively assure politicians on both the left and the right that they won’t be encouraging financial institutions to pick sides in the culture wars,” he wrote.

During the Obama Administration, conservatives criticized banking regulatory for allowing financial institutions to refuse to serve gun-related businesses. The NCUA has held it never was a party to that effort, which was known as “Operation Choke Point.”

The guidance is a reminder to credit unions of their responsibilities, Nick St. John, senior regulatory counsel at the National Association of Federally-Insured Credit Unions, said in his own analysis.

“The guidance reminds credit unions that risks posed by a specific customer can be mitigated through having a properly tailored BSA (Bank Secrecy Act) compliance program, properly assessing the risks posed by each specific customer and using CDD (customer due diligence) to mitigate those risks,” he wrote.

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