Is your risk management plan…risky?

In a constantly changing world, one thing remains true: consumers continue to recognize credit unions as trusted financial partners, through good times and bad.

The risk of standing still

We can't put this well-earned trust at risk. If your credit union's operational risk management plan is not keeping up with the increasing expectations from consumers who depend on us, will you be prepared for the outcome?

Credit union risk staff play a critical role in identifying and preparing credit unions for the dangers, hazards, and potential disasters that may interfere with their organization's operations. Risks that could erode that trust we have worked so hard to earn.

A strong ERM framework goes beyond meeting regulatory requirements

Bank failures and cybersecurity threats are happening, all while natural disasters are increasing. Much of this is outside of our control but there are opportunities to take back that control.

Organizations use different tools and functions to identify, manage, and assess these risks. An Enterprise Risk Management (ERM) plan can help establish a structure and process to identify both risks and opportunities.

The NCUA's Rules and Regulations Section 704.21 requires corporate credit unions to develop and follow an ERM policy. Natural person credit unions may not be required to develop a formal ERM policy but should still have sound practices sufficient to manage risk.

With the rapid developments in Artificial Intelligence (AI), credit unions have opportunities to take advantage of new technologies to better streamline processes. However, this also requires thoughtful evaluation and consideration of the role of AI within your ERM strategy. 

The NCUA has a new resource to help credit unions explore options, make responsible decisions, and leverage opportunities for the future to go beyond just checking a regulatory box. An ERM plan can, and should, be a strategic approach allowing credit unions to think holistically about how ERM can be applied across their entire organization.

Key components of effective risk management

A comprehensive ERM framework should address multiple risk categories that credit unions face today:

• Operational risks: cybersecurity threats, data breaches, system failures, and business continuity disruptions. With the rise of remote work and digital banking, these risks have evolved significantly since 2020.
• Credit risks: lending portfolio management, concentration risk, and changing economic conditions that could impact member repayment capabilities.
• Strategic risks: competitive pressures, regulatory changes, reputation management, and technology disruption that could affect long-term viability.
• Compliance risks: regulatory adherence, fair lending practices, and evolving consumer protection requirements.

Building your ERM foundation

Developing an effective ERM framework isn’t about creating another binder on the shelf. It’s about embedding risk awareness into the everyday culture of your credit union. A strong foundation starts with four core elements that create both structure and accountability.

1. Risk assessment and identification
   An ERM framework begins with a clear understanding of what you’re up against. Regular, structured risk assessments help identify both traditional risks (like loan portfolio or fraud) and emerging threats (such as AI misuse or natural disasters). Credit unions should also stress test critical functions such as payments, lending, and member communication to ensure your team isn’t just identifying risks but preparing for the real-world impact of those risks.
2. Risk appetite definition
   Defining your credit union’s risk appetite means clarifying how much risk you’re willing to accept in pursuit of growth and innovation. For example, your institution may be more willing to take on lending risk to serve underserved members, while being less tolerant of cybersecurity threats. Establishing these boundaries up front gives leaders a clear framework for decision-making and helps allocate resources to the areas of greatest importance.
3. Governance structure
   Risk management works best when it’s everyone’s responsibility. That requires clear roles and responsibilities across the organization. Boards and leadership teams should set the tone with policy and oversight, while management implements processes and procedures. Front-line staff play a critical role too, as they are often the first to spot unusual activity, member concerns, or gaps in processes.  
4. Monitoring and reporting
   An effective ERM framework relies on ongoing monitoring of key risk indicators. Automated dashboards and regular reporting to leadership and the board keep everyone informed and ready to respond. Predefine your triggers within the action plan to ensure that when a risk threshold is crossed, the response is quick, coordinated, and in alignment with your overall strategy.

The competitive advantage of proactive risk management

The goal isn’t to eliminate all risk. It’s to understand it, manage it, and take action before it becomes a crisis. In today’s environment where cybersecurity threats evolve daily, regulations shift quickly, and member expectations rise constantly, waiting is no longer an option.

Credit unions that fail to make ERM a strategic priority risk falling behind, losing trust, and missing opportunities. Those that act now, however, will not only protect their members but also gain the resilience and agility to lead in uncertain times. The time to strengthen your ERM framework is not tomorrow. It’s today.