Credit Union Compliance: Key Regulations & How to Build a Compliance Program

March 8, 2023

Credit unions, as member-owned non-profit financial institutions, stand out by offering enhanced customer service and reduced fees to members. And while most credit unions are subject to the same laws as other financial institutions, they have their own set of compliance rules in some places.

Since they operate slightly differently from traditional banks, many jurisdictions implement specific compliance regulations for credit unions to keep them compliant and ensure consumers - and the market - remain safe.

To help credit unions understand what regulations matter, we cover the following topics:

By the end, you’ll know what regulations you need to follow and how to build your compliance program.

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What is Credit Union Compliance?

Credit union compliance refers to the processes and procedures related to maintaining AML compliance at a credit union. While credit unions are subject to the same regulations as other financial institutions, due to the nature of how they are set up and operate, they are sometimes also subject to their own regulations - and regulatory bodies.

3 Key Credit Union Regulations + Regulators

Regulations vary depending on the jurisdiction an organization is operating in; however, these regulations are typically aiming to do the same thing - implement and enforce regulatory measures for credit unions to ensure proper compliance and consumer protection. While each nation carries this out in its own way, it usually involves the same regulatory framework.

Typically, there are regulations (laws that organizations are required to follow) and regulators (government agencies responsible for enacting and enforcing regulations). In some regions, there are also associations that support member organizations with regulatory compliance, ensuring teams follow guidelines and best practices for their organization, service, and end-users.

Some countries have no special regulations or regulators directed specifically at credit unions; instead, credit unions fall under the same regulations (and regulatory bodies) as other financial institutions.

Below, we cover the core regulation, regulator, and association responsible for overseeing and supporting credit unions in the United States. It’s important to note that credit unions are also responsible for following basic AML and financial compliance requirements, as outlined under the Bank Secrecy Act (BSA), Anti-Money Laundering Act (AMLA), and the USA Patriot Act.

1. Federal Credit Union Act

In the United States, credit unions largely fall under the jurisdiction of the Federal Credit Union Act. Introduced in 1934, the legislation’s primary objectives are to provide access to credit and encourage saving by establishing a national network of non-profit, cooperative credit unions.

The Act aims to streamline regulatory requirements and enable enforcement action through the national regulatory body - currently the National Credit Union Administration. Through this act, credit unions are able to provide a variety of financial services, promoting healthy competition in the financial market and keeping costs low for consumers.

2. National Credit Union Administration

The National Credit Union Administration (NCUA) is the main independent federal authority in the United States, charged with overseeing federal credit unions. Specifically, it regulates, charters, and supervises federal credit unions and acts as an insurer for deposits.

When it comes down to it, credit unions are governed by many of the same consumer protection laws as other financial institutions, so they also need to be aware of these other requirements.

3. Credit Union National Association

The Credit Union National Association (CUNA) is a trade association for federally chartered and state-chartered credit unions in the United States. They support member credit unions with various services, such as regulatory advocacy, political lobbying, professional skills development, and financial services management.

CUNA advocates on behalf of credit unions, and supports credit unions with compliance and operational efforts, helping these organizations adhere to compliance standards and keep end-users safe.

5 Steps to Building a Credit Union Compliance Program

Credit unions, like any other financial institution, face several financial crime risks such as money laundering, fraud, and embezzlement. It’s crucial for teams to develop a strong compliance framework to mitigate and minimize such risks.

Here are a few steps to building a successful Credit Union compliance strategy.

1. Hire A Chief Compliance Officer

First, it’s essential to appoint a chief compliance officer to lead the compliance operations, including developing and enforcing policies and programs. They are responsible for establishing internal controls for the organization and then making sure those controls are followed.

Typically, this individual will work closely with executives, engineers, and product development teams to make sure compliance operations meet the needs of the organization. They’ll also be responsible for managing the risk and compliance team and are, therefore, a critical component of an effective credit union compliance program.

2. Use Regtech to Improve Efficiency

While credit unions are typically smaller than traditional banks and major financial institutions, they face the same threats.

The difference is that credit unions often have fewer resources at their disposal, making it harder to keep up with regulatory compliance requirements. This includes fewer compliance officers to manage consistently changing regulations, fewer engineering resources to make the necessary updates to technology.

While some of these companies see compliance infrastructure as an unnecessary expenditure, they are often using cumbersome methods that end up costing them more in the long run. The fact is, Regtech solutions that would automate regulatory compliance processes and empower teams to manage their compliance program can cut down on necessary resources and improve operations.

3. Establish Clear Policies

Any good compliance framework requires clear internal policies that define how the organization handles compliance; this is no different for credit unions.

Policies need to be clearly defined and understandable so that anyone can digest this information and act on it. It needs to be written and accessible so that all team members can review it when needed, and use it to ensure they follow proper procedures. Without access, teams will struggle to follow the policy and stay the course.

These policies need to be reviewed and updated on an ongoing basis to make sure they abide by rules set out by the National Credit Union Administration, the BSA, and FinCEN. In addition, your organization must ensure these policies are highly robust, providing detailed instructions and guidance for team members.

4. Perform Proper Customer Due Diligence

Credit unions, like other financial institutions, are subject to AML compliance obligations. A main component of this is verifying users are who they claim to be via Know Your Customer processes.

Many fraudsters intentionally seek out credit unions, expecting them to have weaker security measures and fraud protections than traditional banks. When onboarding new users, make sure proper customer due diligence procedures are being followed, including (when necessary) enhanced due diligence.

Ensure all KYC processes are implemented in the user onboarding experience, and that all AML compliance requirements are met.

5. Train Staff on Procedures

Even the best credit union compliance program will fail if staff aren’t trained to execute it effectively.

All employees should receive fundamental training, with additional specialist training provided to individuals with compliance-specific roles. Any effective AML compliance plan needs to have clearly defined training instructions and policies that ensure staff can carry out their duties properly.

Training must be provided when new staff join your team, and that staff are updated on changes periodically. Ensure resources are made available and accessible to staff so that they can follow the training they’ve been provided closely.

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Ensure Credit Union Compliance with Unit21

With the proper program in place, credit unions can decrease the risk of compliance failures and deter unlawful behavior. The right tools can simplify much of this process, and offer tailored service through customizable rules.

Learn how Unit21 can help keep your credit union compliant by scheduling a demo today!

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