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Letter to FCUs targets nondeposit investment sales
NCUA's guidance on federal credit union sales of nondeposit investments was updated Tuesday with agency Letter 10-FCU-03, which reflects past rulemakings on group purchasing and agency legal opinions since 1993.
The guidance in Letter 10-FCU-03 replaces guidance issued in NCUA Letter to CUs No. 150, from December 1993. It focuses on sales of nondeposit investment products to members through third-party brokerage arrangements, including:
- sales by a credit union service organization that is wholly or partly owned by an FCU;
- sales by a "dual employee" operating as both a credit union employee and an employee of a third-party broker; and
- sales resulting from an FCU bringing a registered third-party broker to its members through a networking agreement or other means.
The guidance points to federal credit unions' limited powers in this area; FCUs are not authorized under the Federal Credit Union Act to sell nondeposit investments directly to their members.
Third-party brokerage arrangements are the most common way for FCUs to offer nondeposit investment products to their members, the guidance notes, but FCUs must conduct due diligence in selecting an appropriate broker. This includes, for example, ensuring that the broker can provide the services members need and reviewing the broker's financial statements and capital adequacy.
"The credit union's directors should, as with any business activity, fully evaluate the risks involved with nondeposit investment activities, including legal risks, reputation risks and economic risks," the letter also states.
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