Mutual funds that credit unions buy must follow the same investment guidelines as credit unions, federal regulators said last week.
In a letter sent to all federally insured credit unions, National Credit Union Administration Chairman Norman E. D'Amours said the agency came out with the policy because monitoring mutual funds has become more difficult and examiners have applied different standards in the field.
Now, all funds that federal credit union invest in must state in their prospectuses that they do not buy investments dis-allowed by credit unions.
The policy change will be effective Jan. 1, 1995, "to minimize hardship to" federal credit unions "and give funds time to revise their prospectuses," the letter said.
Previously, credit unions could invest in mutual funds that had the power to buy prohibited instruments. But a credit union had to "sticker" the prospectus with a statement saying fund investments had to meet credit union regulations.
When a credit union wasn't able to get a prospectus stickered, examiners reacted differently. Some recommended divesting; some recommended obtaining assurances that the credit union would be told before the fund made an impermissible investment or transaction; some recommended monitoring the transactions.
That's changed, Mr. D'Amours said.
"A fund authorized to purchase CMOs [collateralized mortgage obligations] and Remics [real estate mortgage investment conduits] without restriction is an impermissible investment ... even though the FCU [federal credit union] has evidence that the fund purchases only" permissible securities, the letter said.