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ARLINGTON, Va. – Unlike their federal credit union counterparts that will have the choice, should the SEC decide not to extend CUSOs’ broker/dealer exemptions, of whether to license their CUSOs or roll the securities services’ back under the credit union umbrella, state chartered credit unions may not have the same options depending on their state’s incidental powers rules and can’t afford to wait for the SEC to announce its decision before lobbying their state regulator and legislature to extend their incidental powers to include securities activities. “Clearly in those states that do not currently allow state-chartered credit unions to engage in broker/dealer transaction services, those credit unions will need some type of regulatory or legislative remedy that will allow them to do so,” said Brian Knight, NASCUS Director of Legal and Policy Analysis. Knight pointed out that states vary on the broker/dealer activities they allow credit unions to participate in, depending on the service. Texas, for example, allows SCCUS do be involved in some security action and third-party broker dealers, but it prohibits municipal securities. Oregon also allows for third-party broker dealers, but disallows trust activities. Wisconsin meanwhile allows for trust arrangements and sweep accounts, but other activities have to be handled through a CUSO. “There’s no blanket answer that says this state allows securities activities and this state doesn’t. It depends on the activity,” said Knight. In June, following the SEC’s May 18th issuance of an interim final rule defining the functional exception that “banks” enjoy from the SEC oversight in their capacities as a securities “broker” or `dealer,” NASCUS sent out a fax survey to state regulators to discern which states allow their SCCUs to engage in securities activities. NASCUS gave the state regulators a range of broker/dealer activities and asked them to indicate whether state-chartered credit unions in their respective states were allowed to participate in them. Among those that responded, some indicated that their state did not allow broker/dealer activities at all. At least one other responded that although the law is unclear, state law provides that “credit unions may undertake with the approval of the department other activities which are not inconsistent with law or regulations either directly, through a subsidiary corporation or in cooperation with other credit unions.” NASCUS Vice President of National Advocacy Jonathan Lindley said the level of interest among state-chartered credit unions about the SEC’s pending decision has mostly come from large SCCUs with more than $100 million in assets. That doesn’t surprise him, he said, because they’re the ones that tend to be more aggressive and are either whole or part owners of financial services CUSOs and stand to be impacted most from the SEC decision. “State-chartered credit unions have to work this issue at two levels,” Lindley advised, “the SEC/federal level and the state legislative and regulatory level. At the federal level, state-chartered credit unions can always engage in securities activities by registering as a broker/dealer. The question is how much a credit union wants to get involved in the costly process. On the state level, there is a separate set of concerns centered on what do state law and regulations allow a state-chartered credit union to engage in not withstanding what the federal law allows.” Lindley said he’s talked with several state regulators on the issue. Some, he said, made it clear to him that they “need to be satisfied that the credit union has the on-going capability to perform the securities function before we can allow them to do so.” Other regulators, Lindley said, told him they were “willing” to allow state-chartered credit unions to engage in securities activities, “but they’re not hearing any interest from credit unions that they want to do this,” he said. “It comes down to how hard state-chartered credit unions are willing to pester their state regulator and legislature for securities activity authority,” said Lindley. “Some state-chartered credit unions are very vocal, but some aren’t.” Lindley said state-chartered credit unions “have to get out of the mindset that all they have to do is take deposits and lend money. They have to keep pushing ahead and understand what their competition is doing.” -

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