NASCUS: Leave Issue of Nondeposit Investment Product Sales to State Regulators for Certain Credit Unions

ALEXANDRIA, Va. – State-chartered, federally-insured credit unions should be exempt from NCUA’s proposal regarding the sales of nondeposit investment products, NASCUS said. While NCUA intends its Proposed Interpretive Ruling and Policy Statement No. 05-1 to help credit unions conduct third-party brokerage activities in a manner that is legal, protects members from potential securities fraud and abuse, and minimizes safety and soundness concerns for the credit union, the component that addresses a proposed limitation of income from sales to non-members of 5% can not be applicable to state-chartered federally insured credit unions, NASCUS wrote in a July 25 comment letter to NCUA. “In the state system, various states legislatures have chosen to allow credit unions to serve non-members to varying degree,” wrote Brian Knight, NASCUS vice president, regulatory affairs. “Those decisions are beyond NCUA’s authority to curtail without a clear demonstration of overriding safety and soundness concerns.” In regards to NCUA’s proposed oversight of sales programs and compliance, NASCUS questions its validity. “While it may be good practice for a credit union to attempt to tailor offerings to its membership, NASCUS questions regulatory directives that trespass on purely business decisions,” Knight said. “Are credit unions qualified to judge the best investment opportunities for their individual members? It would seem that credit unions are relying on the broker’s expertise to guide the members to the optimum investment opportunities. NCUA should also “more clearly articulate” its concerns regarding dual employees, NASCUS suggested, saying “it seems impractical that dual employees may not reference their employment with the credit union.” “This provision runs contrary to trends of product integration and may confuse credit union members,” Knight said. “Further, this provision may actually weaken credit union diligence. An investment services manager may be hired for their very expertise and the credit union may rely on that individual to help the credit union set policy. NASCUS said it believes state regulatory agencies are better positioned to make determinations as to appropriate broker dealer practices within state-chartered credit unions than is NCUA. “As a chartering entity, if NCUA is concerned with securities practices in federal credit unions, then the agency should promulgate federal credit union rules and regulations to address those concerns,” Knight offered. “Unless a clear and convincing safety and soundness concern is demonstrated for all insured credit unions, NCUA should defer to state regulator expertise in these matters.” [email protected]