Kansas CUSO Record Exams Aim for Congruency
That's how John Smith, administrator of the Kansas Department of Credit Unions, described the motivation behind inspection of a CUSO's books and records in the state. The measure recently made headway when the NCUA approved the Kansas State Supervisory Authority's request to exempt state-chartered, federally insured credit unions from NCUA rules on access to CUSO books and records.
"We just want this to be a coordinated effort," Smith explained. "Our regulations are very similar. The regulation is permissive for credit unions that want to provide services through a CUSO."
Under terms of this first exemption to the CUSO rule, NCUA examiners have co-extensive authority with Kansas state regulators and "unfettered access" to CUSO books and records if the NCUA determines it necessary, the NCUA said. Kansas examiners use and complete the NCUA's Automated Integrated Regulatory Examination System CUSO controls checklist, with some modifications, when examining state-chartered credit unions with CUSO investments or loans. The CUSO checklist is shared with NCUA when the completed examination is transmitted to the agency.
In turn, Kansas state-chartered credit unions must provide Kansas SSA examiners with access to all CUSO books and records, including an annual opinion audit, financial statements and any changes in the CUSO's organizational structure since the last examination.
Smith said Kansas has roughly 85 credit unions with some 30 of them having investments in or loans to CUSOs. In Topeka, several credit unions have formed a CUSO that offers mortgage-processing services among others, he noted. Still, many credit unions have partnered with national CUSOs. Kansas' statute limits the amount a credit union can invest or loan to a CUSO to, in the aggregate, 2% of the financial institution's unimpaired shares, reserves and undivided earnings. "Since [Kansas and NCUA] regulations are similar, I felt it made sense to have the ability to apply for a waiver," Smith said. "I had to ensure NCUA that their examiners would have access to CUSO records."
When Kansas conducts a CUSO review, its examiners are understandably in charge, Smith said. In the case of joint exams between Kansas and the NCUA, the regulators sit down once a year to determine which ones will be co-examined.
Almost 80% of Kansas credit unions are state-chartered and, therefore, "maintaining a strong and responsive dual chartering option and corresponding regulatory oversight is extremely important to them," said Haley DaVee, assistant vice president of legislative and public affairs, at the Kansas Credit Union Association. "The exemption reinforces continued oversight by our state regulator of CUSO's owned by Kansas chartered credit unions while at the same time preserving the coordination with NCUA to examine a CUSOs books and records," DaVee said.
Earlier this year, the KDCU wrote NCUA Region IV Director Keith Morton to officially request an exemption for Kansas state-chartered credit unions from NCUA rule Part 712(d)(3). Under the NCUA's amended final CUSO rule, effective June 29, 2009, all federally insured credit unions will be required to obtain for the NCUA access to the books and records of any CUSO with which the credit union has an outstanding loan, investment or contractual agreement for products and services.
However, in recognition of that fact that many state regulators already have expansive CUSO authority, and after an intense effort by the National Association of State Credit Union Supervisors, the final rule contained an exemption provision for states, according to NASCUS. Part 712.10 provides that the NCUA may exempt federally insured credit unions in a given state from compliance with ?712.3(d)(3) if the NCUA determines the laws and procedures available to the state regulator in that state are sufficient to provide the NCUA access to CUSO's books and records in conjunction with the state regulator.