NASCUS Urges NCUA to Leverage Existing Resources and Enhance Risk Focus for Supervision of CUSO Activities
Sept. 27, 2011 - NASCUS provided comments to the National Credit Union Administration (NCUA) on its proposed rule regarding Credit Union Service Organizations (CUSOs). While state regulators agree that there is potential for some CUSOs to expose credit union owners to material risk, NASCUS disagrees with NCUA's proposed approach to addressing those regulatory concerns.
NASCUS urges NCUA to reconsider this proposal and work with state regulators to enhance supervision by improving existing authority and monitoring programs, and minimize regulatory burden by adopting a targeted approach to CUSO oversight.
"From a holistic perspective, the fundamental problem with NCUA's proposed approach is that it focuses supervisory oversight on CUSOs," stated NASCUS. "The efforts of state and federal credit union regulators should focus on the credit union's relationship with its CUSO. NASCUS believes that existing rules and regulations directly applicable to federally insured credit unions provide ample authority to review relevant information on that relationship."
NASCUS stresses that the better approach to evaluating the credit union/CUSO relationship would be to emphasize credit union due diligence as part of the routine examination. "If during the course of an examination regulators conclude a more detailed review of the CUSO is necessary, then authority already exists at the state and federal level to obtain additional information as needed." The majority of state regulators have examination authority and/or access to CUSO books and records. Further, NASCUS illustrated its concern that by directly regulating CUSOs, credit unions will deemphasize third party due diligence.
Additionally, NASCUS explained that the proposed changes will unnecessarily drain the resources of both regulators and the industry by capturing information from CUSOs engaged in non-financial services which may have minimal balance sheet safety and soundness implications. For CUSOs engaged in a business that is regulated at the state and/or federal level, the proposal fails to consider that its reporting requirements may be redundant. Further, NCUA has suggested that the unreliability of Call Report data on CUSOs necessitates this proposal; however, NASCUS believes that with proper enforcement of Call Report data quality, state and federal regulators would be better equipped to target risk areas.
Further, NASCUS suggested NCUA fully exempt state-chartered credit unions in states where the state regulator exercises sufficient CUSO oversight to mitigate material risk. NASCUS also recommended NCUA reorganize their Rules and Regulations to ease regulatory burden by consolidating share insurance rules.
NASCUS is confident that NCUA and state regulators can develop a targeted CUSO supervision program that addresses legitimate regulatory concerns while preserving the benefits CUSOs provide the credit union system. To view our comment letter, click here.