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TORONTO, Canada – There’s still no official word from the Securities and Exchange Commission on whether the agency will decide CUSOs must discontinue receiving commissions from the sale of mutual funds and other securities, but it’s only a matter of time before the SEC will formally announce what CUSOs have expected to hear, says NACUSO General Counsel Guy Messick. “It’s going to come out and there will be no grandfather clause,” Messick told attendees at the association’s Fall Leadership Conference here. Although the SEC hasn’t yet issued a final regulation removing the CUSO license exemption they’ve had since 1993 under the Chubb Securities Letter, Messick told Credit Union Times “the SEC is moving in that direction.” Messick, along with representatives from other credit union trade associations, plan to meet with the SEC in mid-October to learn more about when the SEC intends to issue the final rule. The removal of the CUSO exemption and the approval by the NCUA of Incidental Powers regulation will mean that federal credit unions will be able to directly contract with broker/dealers and receive full commissions, instead of having to go through CUSOs. State-chartered credit unions will be treated the same as long as their state regulator has approved Incidental Powers – Messick advised SCCUs to check with their regulator to ascertain whether they have Incidental Powers. CUSOs operating in states without approved Incidental Powers will be able to continue doing business as they have been. “It’s clear the SEC wants all new programs to be in credit unions, not CUSOs,” said Messick. Still, credit unions will have choices on how they want to continue to sell investment and insurance products: federal credit unions can continue to sell funds through their CUSO, but the CUSO will have to be registered with the NASD and licensed by the SEC; FCUs can move both the investment and insurance programs inside the CU; or the CU can move the investment program inside the CU but keep the insurance side in the CUSO. Messick advised those credit unions that opt to bring the investment program over to the CU side as a dual employee program – investment representatives are hired by the CU as CU employees -to review their liability insurance coverage and revise the policy where necessary to make sure it covers dual employee programs. FCUs that also decide to handle their own insurance program are permitted by NCUA under GCO #01-0869 to have employees licensed to receive referral commissions. Messick advised credit unions to “keep the insurance in the CUSO in order to serve non-members,” but in the end, he said, credit unions will have to select the structure that’s most suitable for them. “It’s clear that because of the NCUA’s Incidental Powers regulation and the language of the Chubb letter that the SEC has determined on initial review that CUSOs are no longer in compliance with the Chubb letter,” Messick said. . He stressed though that, “The SEC will not take any action against any existing CUSO for sharing commissions since this is an inadvertent consequence of incidental powers and the SEC realizes that there is no safety and soundness issue at hand.” NACUSO estimates that 60% of CUSOs – about 400-500 CUSOs – are involved in investment services. -

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