NEWPORT BEACH, Calif. – If 2001 was the year NCUA's approval of expanded incidental powers for federal credit unions made CUSOs sit up and reevaluate their evolving role in the CU industry, then 2002 can be considered the year the Securities and Exchange Commission put CUSOs on notice that the SEC was questioning whether to extend the license exemption applied to CUSOs under the Chubb Securities Letter of 1993 and allow CUSOs providing broker/dealer services to receive commissions from the sale of mutual funds and other securities. In June, CUNA named South Carolina League President/CEO John Franklin to head up a seven-person "CUNA CUSO Broker Activities Task Force" (or "CUSO BATForce") and charged it with developing a solution to deal with the issue of registration for credit union and CUSO broker-dealer activities. Throughout the year, NACUSO and CUNA held a series of meetings with Katherine McGuire, chief counsel, division of market regulation for the SEC, and her staff, on the issue. At press time there was still no word on whether the agency would extend the license exemption, and if not, what the time table would be. Banks lost their broker-dealer license exemption with the passage of the Gramm-Leach-Bliley Act. The dealer portion of the SEC regulation overseeing banks goes into effect in February 2003, and the broker portion is effective in May. NACUSO General Counsel Guy Messick said the SEC "hasn't benchmarked credit unions and we don't want to press them on that." Though the SEC jury is still out and there's no official word yet from the agency, some financial services CUSOs and financial management experts are saying federal credit unions' expanded incidental powers essentially makes the SEC's decision "a done deal." "It's a no-brainer because of expanded incidental powers," said Steve Benton, senior vice president for the financial institutions division of Financial Network Investment Corp. He said FNIC has had discussions with all of its credit union accounts, and several of their CU clients already realized the need to bring their investment services under the CU's roof and have started the process. "While some credit unions that formed CUSOs expressly to handle these type of services have to take a gulp and question whether they're comfortable enough with this type of business to bring it into the credit union, for other credit unions the switch can be done within 24 hours," said Benton, provided the CUSO's securities reps weren't previously working as employees of the credit union. In the latter scenario, said Benton, the SEC decision "may cause these credit unions some heartburn." CUSO Financial Services, meanwhile, has also been helping credit unions deal with the possible ramifications of the SEC's potential not to extend CUSOs' broker/dealer license exemption. In September, the company released BD Build, a product designed to help CUSOs become licensed broker/dealers. It includes information on handling the complexities of registering with the SEC, National Association of Securities Dealers (NASD), Municipal Securities Rulemaking Board (MSRB), and regulatory agencies on the state level. Despite the uncertainty caused by the pending SEC announcement, Seyfert pointed out that any decision will not affect the insurance side of financial services CUSOs' business. -


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