IOLTA summary outlines key questions for new rule
Dec. 24, 2015 -- Four key questions about the NCUA’s new rule on pass-through share insurance for certain escrow accounts (including Interest on Lawyer Trust Accounts, IOLTAs, and “other similar escrow accounts”) are outlined in a NASCUS summary of the regulation.
NCUA amended its share insurance regulations to reflect enactment of the Credit Union Share Insurance Parity Act (IPA), which required the agency to provide enhanced, pass-through share insurance for accounts, and which is “intended to ensure insurance parity for similar accounts under NCUA and Federal Deposit Insurance Corporation (FDIC) regulations.
The final rule, adopted by the NCUA Board Dec. 17, is effective Jan. 27 (30 days after publication in the Federal Register).
The four questions in the NASCUS summary address:
- What escrow accounts should be included in the category “other similar escrow accounts” and provided pass-through share insurance under the IPA?
- Whether prepaid card programs, such as payroll cards, should be considered IOLTAs or “other similar escrow accounts” for share insurance purposes?
- What recordkeeping requirements must be satisfied to receive share insurance on IOLTAs and “other similar escrow accounts”?
- Does the enhanced share insurance coverage provided by the IPA affect Bank Secrecy Act (BSA) requirements for insured credit unions?
However, with regard to the fourth question, the summary notes that the Federal Financial Institutions Examination Council (FFIEC) has warned financial institutions of additional risks that may be related to servicing accounts established and maintained by professional service providers such as attorneys, accountants and other third parties that act as financial liaisons for their clients. IOLTAs, the summary points out, fall within this category of accounts.
The FFIEC advised financial institutions that these accounts may be more vulnerable to potential money laundering abuse because institutions have no direct relationship with or knowledge of the beneficial owners of the accounts, the summary states. The exam council also counselled financial institutions to ensure they have effective due diligence programs in place to monitor such accounts.
See the NASCUS summary for further details.