While the National Association of Credit Union ServiceOrganizations said it is pleased that the NCUA was responsive tosome of the concerns expressed about the final CUSO rule, the groupcontinues to questions whether it's even needed.

On Thursday, the NCUA Board finalized a rule that would requireCUSOs and their subsidiaries to report information directly tothe NCUA and state regulators, as applicable.

“The new direct reporting requirement is unquestionably anadditional administrative step and burden that will have to be metgoing forward by the growing number of credit unions with ownershipinterests in CUSOs and the CUSOs themselves,” said NACUSO President/CEO Jack Antonini and NACUSO General CounselGuy Messick.

CUSOs that offer complex or high-risk services such as creditand lending, information technology, and custody, safekeeping andinvestment management services must report more detailedinformation, including financial statements and general customerinformation.

Any subsidiary in which a CUSO has an ownership interest in anyamount will be subject to the rule if the subsidiary is primarilyengaged in providing products or services to credit unions or theirmembers, the NCUA Board said.

A state-chartered credit union that is or would be rendered lessthan adequately capitalized by additional investment in a CUSO mustalso obtain approval from its state regulator and notify an NCUAregional director prior to making the investment.

Still, the new reporting requirement could potentially help theNCUA see how instrumental CUSOs have been.

“If it is handled properly and not expanded into an unwarrantedand statutorily unsubstantiated exam process that puts CUSOs at acompetitive disadvantage versus their non-CUSO competitors, itcould result in NCUA gaining a better understanding of CUSOs,”Antonini and Messick said.

They added, “And – if they look at the data with an open mind– the significant value they provide, it could be apositive step in helping NCUA recognize the importance of CUSOs tobuilding the net worth of credit unions so desired by theregulators in this tight margin marketplace.”

The NCUA said since 2008, nine CUSOs have caused more than $300million in direct losses to the Share Insurance Fund and led to thefailures of credit unions with combined assets of more than $2billion.

“Because we continue to see no compelling reason for such aregulation when less than two percent of credit union assets areinvested in CUSOs and therefore systemic risk is hardly in play,NACUSO feels the need to remind NCUA that – under the existingregulation – a CUSO agrees to permit NCUA to inspect its books andrecords as a condition of a credit union's investment,” Antoniniand Messick noted.

NACUSO said the NCUA already has the power to look at the CUSO'sbusiness information under the current rule. The new rule “hasadded the affirmative obligation on the CUSO to report certainbusiness information directly to NCUA. This is a substantiveexpansion of NCUA's authority over CUSOs.”

“We are pleased that NCUA has stated that it will be sensitiveto preventing the public disclosure of sensitive businessinformation such as customer lists and financial information, butwe still have serious concerns over the security of the informationand the need for it to be protected as confidential trade secretinformation and not released to competitors under the Freedom ofInformation Act,” NACUSO said. “We will continue to have ongoingdiscussions with NCUA on this specific concern.”

NACUSO said responsible and limited information gathering thatenables NCUA examiners to better evaluate the risk of CUSOinvestments on the balance sheets of the credit unions theyregulate and insure is not, within itself, bad publicpolicy.

“Utilizing data gathering to do an 'end around' on the lack ofstatutory regulatory and examination authority over CUSOs would bebad public policy,” NACUSO said.

The association said it will be watching closely NCUA's datagathering efforts to ensure that “they stay consistent with thestated limitations of this rule and do not evolve into defacto regulation and examination through the data gatheringprocess.”

Meanwhile, the National Association of Credit Union Supervisorssaid it is carefully reviewing the final CUSO rule after it raisedsubstantive concerns with the rule as proposed in 2011 and isevaluating how the final rule addressed those concerns.

NASCUS has said a better approach to evaluating the creditunion and CUSO relationship would be to emphasize credit union duediligence as part of the routine examination.

“If during the course of an examination regulators conclude amore detailed review of the CUSO is necessary, then authorityalready exists at the state and federal level to obtain additionalinformation as needed,” NASCUS wrote in its comment letter inAugust 2011.

NASCUS also suggested the NCUA fully exempt state-charteredcredit unions in states where the state regulator exercisessufficient CUSO oversight to mitigate material risk and the agencyreorganize their rules and regulations to ease regulatory burden byconsolidating share insurance rules.