RICHMOND, Texas — The National Association of CUSOs said it was cautiously optimistic about the revised CUSO rule NCUA handed down at its November meeting but continues to be concerned about potential "scope creep" in the future.
"We're still reviewing the final rule, but we appreciate what NCUA has done," NACUSO President Jack Antonini told Credit Union Journal. "We appreciate the fact that NCUA took a more targeted approach instead of applying this to all CUSOs, and we appreciate that they laid out the reasoning behind it. NCUA appears to be taking a reasonable approach to this. But we are still concerned about the potential for scope creep. We're not displeased with the rule, we're just cautious about it."
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CUSOs that engage in three high-risk business categories — credit and lending, information technology and custody, safekeeping and investment management — will also be required to report additional information, including audited financial statements and customer information, according to the revised rule.
"CUSOs are an essential part of the credit union system, but they also represent a significant potential risk that is not transparent," said NCUA Board Chairwoman Debbie Matz. "It is very important that NCUA have the information needed to assess that risk. Since proposing this rule two years ago, we have continued an open dialogue with stakeholders. We listened carefully and made substantial changes to reduce reporting burdens and target the final rule at CUSOs posing the most risk."
Since 2008, nine CUSOs have caused more than $300 million in direct losses to the Share Insurance Fund and led to the failures of credit unions with combined assets of more than $2 billion, according to NCUA.
NACUSO has long said that it understands why NCUA wants to take a closer look at CUSOs, but there is the question about NCUA's authority over CUSOs, as well as concerns related to privacy.
"We understand that because of the credit union-CUSO relationship, they have the authority to ask for this information, but we wish they had taken a little different approach," Antonini said. "If this was being done as part of the credit union examination process, it would be more clear where the authority derives from."
Moreover, handling it through the examination process would be a stronger measure of protection for the information being sought.
"Credit union exams are confidential," he said. "But because this information is being asked of the CUSOs directly, outside of the examination process, there's the possibility that a competitor could use the Freedom of Information Act to learn proprietary, competitive information."
NACUSO maintains that the agency has no statutory authority to directly regulate and examine CUSOs but recognizes that NCUA can request information on their CUSO investments. Going forward, the group will be keeping a watchful eye on the regulator's data gathering efforts to make sure those efforts "do not evolve into de facto regulation and examination" the group said in a statement.
