NCUA Reminds SEC CUs Can Serve as Safekeepers and Custodians of Some Investment Accounts

ALEXANDRIA, Va. – NCUA has reiterated its support of extending the safekeeping and custodial exemption to federal credit unions under the SEC’s broker/dealer exemption proposal and its support for earlier, similar rules go back more than three years. NCUA Chairman JoAnn Johnson recently reminded the SEC of a comment letter the regulator sent to the Commission in 2001 voicing its support of the same exemptions the current Regulation B proposal is advocating. Johnson said FCUs are authorized to engage in certain securities-related safekeeping and custodial activities such as serving as custodians of self-directed IRAs and Keogh accounts that contain securities. “NCUA firmly believes credit union custodianship of self-directed IRA/Keogh accounts does not raise investor protection concerns,” Johnson wrote in a Sept. 1 comment letter. “This is a financial service that credit unions are able to provide safely and soundly and an investment alternative for retirement planning that credit union members should be able to obtain from their chosen financial institution.” Johnson cited the SEC’s concern that it has no evidence that credit unions engage in the activities included in the safekeeping and custody exemption. “NCUA understands from this that Commission staff wants to know, before relief is granted, that credit unions not only have the authority to engage in securities-related custodian and safekeeping activities but also that credit unions are currently exercising this authority,” Johnson said. Johnson added the Commission staff’s position places credit unions in the “awkward situation of demonstrating, before the Commission will except them from a broker/dealer activity requiring registration, that they are currently engaged in that activity in violation of the Commission’s registration requirement.” To eliminate the back and forth compliance, NCUA is urging the SEC to employ the same standard of review for the safekeeping and custody exception as it does for the other credit union exceptions approved in proposed Regulation B. CUNA predicted the “heavier” regulatory channels broker/dealers will encounter if the SEC’s proposal is not adopted. “Inequities will arise among different types of financial institutions offering brokerage services, and the regulatory burden will grow heavier for broker dealers, unless regulations proposed by the SEC are adopted which provide limited exemptions for credit unions from broker requirements,” said Juri Valdov, CUNA vice chairman and chairman of the CUNA Brokerage Activities Task Force (CUNA BATForce). CUNA told the SEC that its proposal is a “reasonable approach” to provide the limited exemptions for credit unions. More specifically, CUNA said it supports the networking authority for credit unions as proposed-but does not support placing additional limitations on credit unions that do enter into such arrangements with broker dealers. CUNA said the exemptions should be extended to all credit unions regardless of their insurance provider, Valdov said, adding it also agrees with the SEC’s Chubb letter, which addressed the conditions under which a networking arrangement could be established without the institution having to register as a broker/dealer but thinks it should be superseded. “Because we are not aware of problems arising from such arrangements with credit unions, we do not think any additional limitations on credit unions that enter into networking arrangements with broker-dealers are appropriate,” Valdov said. CUNA also supports the sweep account exemption that would allow credit unions to move funds from deposit accounts into no-load money market funds. “We agree that investor protection issues do not arise and there would be few, if any, incentives for abuse with these accounts,” Valdov wrote. “Similarly, we agree that securities transactions that credit unions enter into for investment purposes for themselves and as a trustee or fiduciary should be permitted without dealer requirements being triggered.” NASCUS also weighed in on the SEC’s proposal arguing its case that all exemptions should be extended to all credit unions including state-chartered credit unions. In a Sept. 1 comment letter, NASCUS President/CEO Mary Martha Fortney wrote state-chartered credit unions are examined and regulated by their state credit union regulator to the same extent of FCUs. All state CU regulators, with the exception of one, use the Automated Integrated Regulatory Examination System (AIRES) examination platform, which is also used by their federal counterparts, Fortney said. In the one state not using AIRES, state CU examiners use the FDIC’s examination platform. NASCUS also supports extending the exemptions to CUSOs and credit unions regardless of their share insurance provider. “Limiting the exemption strictly to federal credit unions will unbalance the dual chartering system that has been fundamental to the credit union movement since 1934,” Fortney wrote. SEC’s Regulation B proposal would extend networking, sweep accounts and trust and fiduciary exemptions to credit unions. The comment period ended on Sept. 1 and the SEC is expected to adopt a final rule by the end of the year. Meanwhile, both WesCorp and Evangelical Christian Credit Union also wrote the SEC supporting the safekeeping exemption and extending all 11 exemptions to state-chartered, privately-insured CUs, not just FCUs. [email protected]