From cybersecurity threats to evolving regulations, credit unions face risk management challenges that require robust oversight and strategic decision-making. Board members’ understanding of their primary responsibilities in risk management is essential to ensuring their credit unions’ long-term stability and success.
The board plays a vital role in establishing the credit union's strategic direction, setting risk culture expectations, approving the risk governance framework and policies, and monitoring and challenging leadership on credit union activities. By effectively fulfilling these responsibilities, the board sets the tone for a strong risk-management culture throughout the organization.
One of the board's primary duties is to ensure that the credit union develops and implements an effective risk-governance framework. This involves setting the credit union's risk appetite, approving capital adequacy requirements, overseeing the risk management program, and approving key plans, policies, and procedures. The board must strike a balance between encouraging growth and innovation while maintaining a prudent approach to risk-taking.
To effectively oversee risk management, the board should comprise individuals with a diverse set of skills, knowledge, and experience. This allows the board to understand the risk exposure of various credit union activities and ensure that executive management can implement strategies and policies within approved risk tolerances. Ongoing education and training are essential for board members to stay informed about emerging risks and best practices in risk management.
In their Risk Management Components document, National Credit Union Association (NCUA) says, "In providing active oversight, the board of directors challenges decisions made by the executive management team that could cause the credit union's risk profile to exceed its risk appetite or jeopardize its safety and soundness."
This requires a proactive approach, asking tough questions, and seeking clarification when necessary. By fostering a culture of transparency and accountability, the board can help ensure that the credit union remains resilient in the face of evolving risks.
For board members seeking to deepen their understanding of risk management, the upcoming Compliance & Risk Council Conference in Chicago, September 24-26, 2024, will provide fresh perspectives and practical insights for navigating the complex world of credit union risk management.
By staying informed, asking tough questions, and fostering a culture of accountability, board members can help their credit unions remain resilient and successful in the face of evolving risks.