NCUA Board Proposes Expanded CUSO Regulations
July 21, 2011 - At the July National Credit Union Administration (NCUA) Board meeting, a proposed rule was approved for a 60-day comment period that expands the reporting requirements for credit union service organizations (CUSOs) of federally insured credit unions (FISCUs).
For several years, NCUA has expressed its concern about CUSO activity and its systemic impact on the credit union system. NCUA does not have direct authority to examine CUSOs or third party vendors; however, some states have oversight authority of CUSOs.
The proposal includes several new requirements. Two of the new requirements are existing requirements for federal credit union (FCU) CUSOs which are being extended to FISCUs. Currently only the provisions of NCUA’s rule requiring corporate separateness and access to CUSO books and records apply to FISCUs. Further, two requirements are new for federally insured CUs.
First, the rule would extend to FISCUs the existing limitations on the investments in a CUSO made by a less than adequately capitalized credit union. It would limit a “less than adequately capitalized” FISCU’s aggregate cash outlay to a CUSO, measured on a cumulative basis, to the permissible investment limit in the FISCU's state. Specifically, the proposal would require a FISCU to obtain written approval from the appropriate state regulator before making that investment. If the FISCU is less than adequately capitalized, it also has to submit a request to its NCUA Regional Office. The rule would also extend existing NCUA requirements for CUSOs to account for transactions according to Generally Accepted Accounting Principles (GAAP), prepare quarterly financial statements and obtain a financial statement audit to SCUs.
New requirements in the proposal include a requirement that CUSOs (for all FICUs) submit a financial report directly to their state regulator or NCUA and extends compliance with CUSO rules to all subsidiary CUSOs.
NASCUS is studying the proposed rule’s impact on state regulation and FISCUs and will prepare a summary of the proposed rule for NASCUS members. The proposed rule can be viewed at this link.