I would submit to you that credit union boards today have high concentrations of credit union members who have been directors of the credit union for a long time. Turnover on a credit union’s board is not usually a problem. I’m not saying that it doesn’t happen, but generally speaking, credit union directors tend to stick with it.
In the last few years, more regulations have come into being requiring director awareness and action. The Patriot Act and the increased regulatory focus on the Bank Secrecy Act are two areas where this is prominent. As with all credit union policies, the board of directors of the credit union needs to approve the credit union’s Bank Secrecy Act Policy. Moreover, the directors need to understand what it means.
There are plenty of new concepts: know your member, member due diligence, risk assessments as to member demographic and credit union geography. You might say: “well, we’ve always known our members.” To a certain extent that’s true for SEG based CUs. However, community credit unions may not have the same closeness and most credit union employees are not used to asking members probing questions about the source of the cash that the members are depositing.
If an examiner catches a director in the hallway and asks him or her about the credit union’s BSA policy, what will the response be? What should the response be? It should probably be something along the lines of: “Yes, I’m familiar with it. I’ve read it and we reviewed it and discussed it as a board before we approved it.”
How does a director help the credit union assess risk? The answer really is just in understanding what constitutes heightened risk. If the credit union has “a large and growing [member] base in a wide and diverse geographic area”, this indicates heightened risk, at least according to the FFIEC. Having “a large number of high-risk [members] and businesses” is high risk too. This includes “check cashers, convenience stores, money transmitters, casas de cambio, import or export companies, offshore corporations, PEPs, NRAs, and foreign individuals.” More obviously, a “large number of international accounts with unexplained currency activity” is going to show heightened risk. See generally: Bank Secrecy Act/Anti-money Laundering Examination Manual Appendix J. FFIEC.
The point is that in the past, a director never had to worry about such things. Hopefully, most directors today are aware of the move toward a risk-based model as to the degree that a credit union has to react in terms of policy to The Bank Secrecy Act and The Patriot Act.