DCUC Files Comments with Federal Financial Institutions Examination Council, Proposed Revisions to UFIRS/CAMELS Rating System
By DCUC Staff —
WASHINGTON, D.C. — This week, the Defense Credit Union Council (DCUC) filed comments in support of the Federal Financial Institutions Examination Council (FFIEC)’s proposed revisions to the Uniform Financial Institutions Rating System (UFIRS), commonly referred to as the CAMELS rating system.
DCUC expressed that the revisions would better align CAMELS ratings with the factors most relevant to an institution’s financial condition, risk profile, and safety and soundness. DCUC also commended the FFIEC for its emphasis on material financial risks over process-related issues that do not materially affect an institution’s safety and soundness, and greater specificity and transparency regarding the factors used to assign CAMELS ratings. Among the proposed revisions, DCUC supported: removing the “special consideration” given to the Management component when determining a composite rating; revising the Management component’s evaluation factors to emphasize the most material aspects of risk management, to include the proposed removal of factors related to management depth and succession, responsiveness to auditor and supervisory recommendations, and demonstrated willingness to serve the legitimate banking needs of the community; establishing a material financial risk threshold for assigning Management ratings of 3 or worse based on risk management weaknesses; and clarifying specialty review findings, of which DCUC believes should influence ratings only when reflecting material financial risks; DCUC recommended that the Management component expressly address emerging technology risks, including board and management oversight of cybersecurity, artificial intelligence governance, third-party technology risk, and data governance, and supported the proposed revisions to the composite rating definitions. “Under the proposal, [Ratings of 3 or worse] generally would be assigned when risk management weaknesses result in material financial risk to the institution. Institutions that have unreliable financial or regulatory reporting, have failed to safeguard assets, or are in significant noncompliance with law or regulation may also be assigned a Management component rating of 3 or worse…For credit unions serving military and veteran communities, supervisory resources are better directed toward risks that could materially affect an institution’s financial condition and its ability to serve its members than toward deficiencies that have little bearing on safety and soundness,” says Jason Stverak, DCUC Chief Advocacy Officer. DCUC welcomed the FFIEC’s move to replace broad language regarding risk identification with more specific component evaluation factors related to risk management, voicing that greater specificity would provide credit unions with clearer expectations and enable examiners to assess component ratings more consistently. Finally, DCUC supported the provision that would remove “but not limited to” language from CAMELS component descriptions and replace it with a general paragraph applicable to all components, allowing additional evaluation factors to be considered only when warranted by exceptional circumstances or evolving business practices. DCUC commented that requiring examiners to document the rationale for considering additional factors would provide greater transparency and predictability for credit unions.
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Originally reported by DCUC.