As discussed at the NACUSO Annual Conference in May, NCUA reviews one third of its regulations every three years. There is a list of those regulations that will be reviewed this coming year. That can be viewed on NCUA’s website www.ncua.gov. Included in this year’s review will be the regulations governing, CUSOs, Incidental Powers, Privacy and Member Business Loans. If you have any thoughts on how these Regulations can be improved, please send them to NCUA by August 1st at firstname.lastname@example.org . We ask that you copy our General Counsel Guy Messick at email@example.com so that NACUSO can advocate on your behalf. Note that you will have the ability to comment on any proposed changes but this is your chance to help define the issues.
News & Highlights
The Securities and Exchange Commission (SEC) has issued a proposed rule (“Regulation B”) that would grant credit unions some of the exemptions from the broker-dealer registration requirements that banks currently receive and provide new exemptions for banks. These exceptions are provided under the Securities Exchange Act of 1934 “Exchange Act,” as amended by the Gramm-Leach-Bliley Act (“GLBA”). These exceptions and how the SEC proposes to treat credit unions under Regulation B are described below:
- First, the proposal would allow credit unions to enter into the same networking arrangements with broker-dealers that banks can. Currently, credit unions may enter into networking arrangements with broker-dealers under the conditions set forth in an SEC opinion letter (“Chubb letter”). However, banks can network with broker-dealers under the terms of the Exchange Act bank exception for third-party brokerage arrangements. This proposal extends that Exchange Act exception to include credit unions, and would thereby supercede the Chubb letter.
- Second, the proposal would permit credit unions to sweep deposit accounts into no-load money market funds under the same terms as banks can under the bank exception in the Exchange Act. The SEC states that the statutory exception is limited and should place financial institutions offering similar services on a more level playing field.
- Third, the proposal permits credit unions to buy and sell securities for investment purposes for themselves, or for accounts for which they act as trustee or fiduciary under the terms of the investments transaction exception in the Exchange Act.
The proposal would permit all credit unions, including federal- and state-chartered credit unions, as well as federally insured and privately insured credit unions to utilize the exemptions that are described above. Although the proposal would grant credit unions these three exceptions, it would not automatically give them any associated exemptions given to banks in the future. Moreover, the proposal does not grant credit unions all the exceptions that banks currently have. The SEC requests comments on whether all credit unions should be included in the current proposal, and asks for information on the regulatory oversight given all types of credit unions.
The proposal does not extend to credit unions an exemption to conduct safekeeping and custody activities because the SEC claims it did not find that credit unions engage in activities included in the safekeeping and custody exemption. Under this exception, a bank does not have to register as a broker, if it engages in certain specified types of safekeeping and custody services with respect to securities on behalf of its customers. The SEC invites comment on whether credit unions engage in these types of activities and what legal authority they use to do so. CUNA asked in its comment letter that credit unions be given this authority.
SEC has issued Regulation B and it amends a previous proposal (“Interim Rules”) that provided guidance on the bank exceptions for banks and thrifts under the Exchange Act.
Through the support of our members and partners, NACUSO raised approximately $273,000 in contributions toward its Advocacy Fund (and predecessor Legal & Litigation Fund) over the past 3 years. The goal of the two funds together are to enable NACUSO to conduct crucial advocacy work on behalf of CUSOs and their credit union owners / partners.
In keeping with our commitment to be fully transparent and to regularly communicate our usage of these dollars (we provided detail of how the funds were spent from 2014-2015 last year, which is also included in the attached Report), we would like to provide you with the following information, which was provided in detail to each contributor in the first quarter of 2017. NACUSO spent the following amounts from the Advocacy funds during 2016:
$24,000 Dollar Associates, LLC - paid for advocacy work with Congress and NCUA on CUSO issues $24,000 Messick & Lauer, P.C. - paid for advocacy work with NCUA and meetings with Congress on CUSO issues $ 718 Travel to Washington DC for meetings with Congress and NCUA $48,718 Total amount spent influencing Congress and NCUA for favorable CUSO environment
The remaining funds, out of the total $273,000 in combined contributions, equal $110,323. This represents the balance in Restricted Cash as of 12-31-16, as per the NACUSO Advocacy and Legal Fund Analysis report (click link below).
The NACUSO Board and its Legislative & Regulatory Advocacy Committee is continuing to prioritize the advocacy of a regulatory environment that is pro-CUSO and pro-collaboration within our industry. NACUSO needs your support for this initiative and to accomplish its purposes. While strategies may change over time based upon circumstances and opportunities to advance the cause of CUSOs, the necessity for funding of such initiatives is essential if NACUSO is going to remain in a position to impact the decision-making process for CUSOs and the credit unions that invest in, or utilize them.
For a summary of how NACUSO has worked to maintain an environment that is supportive of collaborative investment, the following report entitled NACUSO Working For You (see below) provides a summary of the work we have done on your behalf. To capsulize some of its key points, a summary of what we feel are the NACUSO “wins” this past year are:
- Effectively opposing the costly extension of Vendor Authority to NCUA.
- Worked with NCUA on the revised MBL Rule.
- Advocating for the expansion of CUSO powers to originate loans credit unions are authorized to make, to help bring scale and expertise benefits to credit unions in all loan categories.
- Encouraged NCUA to be transparent in its budget and rule making including the OTR calculation.
- Working with NCUA to minimize adverse impact of the CUSO Registry and to correct the acknowledgements initially in the Registry.
To emphasize the last bullet above, initially, in its first version of the CUSO Registry documentation that CUSOs were required to submit with their data to NCUA in 2016, the agency’s acknowledgement form required CUSOs – when submitting their data – to accept responsibility under regulatio
NACUSO Visits NCUA to Discuss the CUSO Registry and CUSO Reviews
On June 14, Jack Antonini, NACUSO President and Guy Messick, NACUSO General Counsel met with NCUA Staff on the results of the CUSO Registry and the thinking on how CUSO Reviews will be handled.
The CUSO Registry sign-up period and the follow-up by NCUA found there were approximately 900 CUSOs. NCUA believes that there are more CUSOs that have not reported. Under the NCUA Regulations (Part 712.1(d)), “A CUSO also includes an entity in which a CUSO has an ownership interest of any amount, if that entity is engaged primarily in providing products or services to credit unions or credit union members.” So these subsidiary CUSOs are considered CUSOs and required to make annual reports to NCUA. The NCUA staff believes that many CUSOs were not fully aware of this requirement and there are a number of subsidiary CUSOs that have not reported. NCUA will be following up with CUSOs to obtain these filings. NCUA is also scrubbing the data and asking for clarification if the data is indicating that there may have been a reporting error. (more…)
Through the support of our partners, NACUSO raised approximately $63,000 in contributions toward its Legal and Litigation Fund in 2014 with a primary purpose to develop strategies for the most effective way to seek the repeal and/or mitigation of the impact of the CUSO Rule that NCUA had adopted in November 2013. Subsequently, NACUSO established an Advocacy Fund to supplement the Legal and Litigation Fund. The goal of the two funds together were to enable NACUSO to coordinate legal decision making, with a crucial advocacy component that will have more impact than the always risky option of legal action. In total, $190,600 was contributed to the NACUSO Advocacy Fund. Combined these two related initiatives received total contributions from NACUSO partners of approximately $253,600 in 2014 and 2015.
In keeping with our commitment to be fully transparent and to regularly communicate our usage of these dollars, we would like to provide you with the following information. NACUSO spent the following amounts from the two funds during 2014 and 2015:
As most of you know, all CUSOs are obligated under the NCUA Regulations to register certain information directly with NCUA on an annual basis. Over 800 CUSOs did so in February and March. NCUA is now in the process of making sure all CUSOs have registered. Their new deadline is April 30. They are taking CUSO information from the credit union 5300 call reports and sending out letters reminding “CUSOs” that they have to register. Some credit unions may have incorrectly listed a company as a CUSO. Other credit unions list their CUSO but use an acronym for the CUSO instead of the CUSO’s full name. NCUA, not knowing better is sending letters to any and all companies listed on the call reports. (more…)
During the process of assisting with CUSO Registry questions, it came to our attention that in order to complete the CUSO Registry, CUSOs were required to agree to be bound by statutes that apply to credit unions and which imposed penalties that are not applicable to a CUSO. On behalf of NACUSO and the many CUSOs in this industry, Messick & Lauer (NACUSO’s General Counsel) have advocated and negotiated to revise this acknowledgement to more accurately describe the duty of CUSOs to respond to the CUSO Registry. It is a contractual duty with the credit union and not a direct regulatory obligation to NCUA. As NCUA continues to pay more attention to CUSOs, NACUSO will continue to take action to be the voice of CUSOs and to resist any attempts at regulatory overreach. The NCUA has changed the acknowledgement text. For your reference, the text of the previous and current CUSO Registry acknowledgments are below. (more…)
As part of the launch of the CUSO Registry, NCUA is hosting a free webinar on how to use the system on Thursday, February 11, beginning at 2:30 p.m. Eastern. Participants can Register Here for 2/11/16 Webinar