Dear Board of Directors and Chief Executive Officer:
On November 21, 2013, the NCUA Board adopted changes to the regulations that address federally insured credit unions’ responsibilities when involved with a credit union service organization (CUSO).
Table: Summary of Primary Changes to CUSO-Related Rules
|Credit Unions||Rule Element||Credit Union Action (Required by June 30, 2014)|
|New for all Credit Unions||CUSO Subsidiaries – clarifies applicability of the regulations to CUSO subsidiaries.||None|
|New for all Credit Unions||CUSO Registry – requires credit unions to ensure that the CUSOs with which they do business agree to provide certain information directly to NCUA and the state supervisory authority, as applicable, on an annual basis.||Amend written agreement between credit union and CUSO|
|New for all Federally Insured, State-Chartered Credit Unions*||CUSO Accounting – requires credit unions to ensure that the CUSOs with which they do business agree to comply with generally accepted accounting principles and obtain a financial statement audit.||Amend written agreement between credit union and CUSO|
|New for all Federally Insured, State-Chartered Credit Unions*||Less than Adequately Capitalized Federally Insured, State-Chartered Credit Unions – added preapproval process for federally insured, state-chartered credit unions that are, or would be rendered, less than adequately capitalized by an additional investment in a CUSO.||None|
- Account for all transactions in accordance with generally accepted accounting principles;
- Prepare quarterly financial statements; and
- Obtain an annual financial statement audit of financial statements by a licensed certified public accountant in accordance with generally accepted auditing standards.7
1 Current information is incomplete primarily because NCUA collects information from credit union clients rather than directly from each CUSO. According to NCUA records, of the 4,189 federal credit unions that filed a 5300 call report as of June 30, 2013, more than one third (1,413) reported at least one interest in a CUSO; a total of 3,275 CUSO interests were reported. Further, of the 2,492 federally insured state-chartered credit unions that filed a 5300 call report as of June 30, 2013, 46.6 percent (1,161) reported an interest in at least one CUSO; a total of 2,836 CUSO interests were reported.
2Credit unions currently report certain CUSO data in the CU Online profile and in response to 5300 call reports.
3The final regulations also include some technical and administrative revisions to the rule text.
4The provision will not apply to third parties with whom a CUSO contracts or otherwise does business where they do not have an ownership interest.
5See NCUA Rules & Regulations - Section 712.3(d)(4)
6See NCUA Rules & Regulations - Section 712.3(d)(1) and Section 712.3(d)(2)
7A separate audit is not required for a wholly owned CUSO if it is included in the consolidated audit of the investing credit union.
8See NCUA Rules & Regulations - Section 712.2(d)(3). Conditions for recapitalization of CUSOs previously applied only to federal credit unions (FCUs).