NASCUS said the problem it has with the NCUA's CUSO proposal isthat the focus is on supervisory oversight of CUSOs rather thantheir relationships with credit unions.

“From a holistic perspective, the fundamental problem withNCUA's proposed approach is that it focuses supervisoryoversight on CUSOs,” wrote Brian Knight, NASCUS senior vicepresident, regulatory affairs and general counsel, in a Sept. 26comment letter to the NCUA. “The efforts of state and federalcredit union regulators should focus on the credit union'srelationship with its CUSO.”

Knight said the better approach to evaluating the credit unionand 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,” Knight wrote.

The trade association also said it believes with properenforcement of Call Report data quality, state and federalregulators would be better equipped to target risk areas.

The NCUA should fully exempt state-chartered credit unions instates where the state regulator exercises sufficient CUSOoversight to mitigate material risk, NASCUS said. The associationalso recommended the NCUA reorganize their rules and regulations toease regulatory burden by consolidating share insurance rules.