DFS Issues Preparedness Mandates

March 11, 2020 at 10:07 am 1 comment

New York’s Department of Financial Services issued two separate guidance and “request for assurance” notifications yesterday mandating that institutions it regulates provide within 30 days a report to the department outlining the steps it is taking in response to the coronavirus outbreak. One of the documents assesses the potential financial impact of COVID-19, while the other deals with steps that are being taken to modify operations in response to the outbreak.

DFS expects to receive a written explanation responding to a series of questions including:

1.Assessment of the credit risk ratings of the customers, counterparties and business sectors impacted by COVID-19;

2.Assessment of the credit exposure to customers, counterparties and business sectors impacted by COVID-19, arising from lending, trading, investing, hedging and other financial transactions, including any credit modifications, extensions and restructurings (including capitalizations of interest);

3.Assessment of the scope and the size of credits adversely impacted by COVID-19 that currently are in, or potentially may move to, non-performing/delinquent status, including consideration of stress testing and/or sensitivity analysis of loan portfolios and the adequacy of loan loss reserves;

4.Assessment of the valuation of assets and investments that may be, or have been, impacted by COVID-19;

5.Assessment of the over-all impact of COVID-19 on earnings, profits, capital, and liquidity (including impact on loan-to-deposit ratio) of your institutions; and

6.Assessment of reasonable and prudent steps to assist those adversely impacted by COVID-19. See DFS Guidance to New York State Regulated Banks, Credit Unions and Licensed Lenders Regarding Support for Businesses Impacted by the Novel Coronavirus.

The other guidance includes a separate set of questions:

1.Preventative measures tailored to the institution’s specific profile and operations to mitigate the risk of operational disruption, which should include identifying the impact on customers, and counterparts;

2.A documented strategy addressing the impact of the outbreak in stages, so that the institution’s efforts can be appropriately scaled, consistent with the effects of a particular stage of the outbreak, which includes an assessment of how quickly measures could be adopted and how long operations could be sustained under different stages of the outbreak;

3.Assessment of all facilities (including alternative or back-up sites), systems, policies and procedures necessary to continue critical operations and services if members of the staff are unavailable for long periods or are working off-site, including an assessment and testing as to whether large scale off-site working arrangements can be activated and maintained to ensure operational continuity. This would also include an assessment and testing of the capacity of the existing information technology and systems in light of a potential increased remote usage;

4.An assessment of potential increased cyber-attacks and fraud;

5.Employee protection strategies, critical to sustaining an adequate workforce during the outbreak, including employee awareness and steps employees can take to reduce the likelihood of contracting COVID-19. See New York State Department of Health website: https://health.ny.gov/diseases/communicable/coronavirus/ and CDC Interim Guidance for Businesses and Employers to Plan and Respond to Coronavirus Disease 2019: https://www.cdc.gov/coronavirus/2019-ncov/specific-groups/guidance-business-response.html;

6.Assessment of the preparedness of critical outside-party service providers and suppliers;

7.Development of a communication plan to effectively communicate with customers, counterparties and the public and to deliver important news and instructions to employees, along with establishing forums for questions to be asked and addressed;

8.Testing the plan to ensure the plan policies, processes and procedures are effective; and

9.Governance and oversight of the plan, including identifying the critical members of a response team, to ensure ongoing review and updates to the plan, including the tracking of relevant information from government sources and the institution’s own monitoring program.

Entry filed under: Compliance, New York State. Tags: , .

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Authored By:

Henry Meier, Esq., Senior Vice President, General Counsel, New York Credit Union Association.

The views Henry expresses are Henry’s alone and do not necessarily reflect the views of the Association. In addition, although Henry strives to give his readers useful and accurate information on a broad range of subjects, many of which involve legal disputes, his views are not a substitute for legal advise from retained counsel.

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