Compliance Center: NCUA Releases Regulatory Alert on IOLTAs and CUSO Registry Will Open in February

The National Credit Union Administration (NCUA) recently released Regulatory Alert 16-RA-02 which provided guidance to the enhanced share insurance coverage for IOLTA and other similar escrow accounts.

The purpose of the guidance is to clarify:

  • What an IOLTA is;
  • What “other similar escrow accounts” are;
  • What pass-through insurance is;
  • How the new rule works;
  • How prepaid cards are treated; and
  • How the provisions of the new rule interact with those share insurance provisions in Part 745 that were not revised in December 2015.

The Guidance also provides a chart which summarizes the changes.

ACCOUNT TYPE Coverage under the old share insurance rules (which continue in effect and coexist along with the new rule for IOLTAs and other similar escrow accounts)* Coverage under the new rule for IOLTAs and other similar escrow accounts*
IOLTAs Pass-through coverage for the client only if the client is a member of the credit union. Attorney’s membership status is not determinative. Pass-through coverage for all clients, so long as the attorney is a member of the credit union. Clients’ membership status is not determinative.
ESCROW ACCOUNTS Common escrow accounts not similar to IOLTAs: Pass-through coverage for the client only if the client is a member of the credit union. Escrow agent’s membership status is not determinative. Other similar escrow accounts: Pass-through coverage for all clients, so long as the escrow agent is a member of the credit union. Clients’ membership status is not determinative.
REAL ESTATE ESCROW ACCOUNTS Pass-through coverage for the client only if the client is a member of the credit union. Escrow agent’s membership status is not determinative. Pass-through coverage for all clients, so long as the escrow agent is a member of the credit union. Clients’ membership status is not determinative.
PREPAID FUNERAL ACCOUNTS Pass-through coverage for the client only if the client is a member of the credit union. Escrow agent’s membership status is not determinative. Pass-through coverage for all clients, so long as the escrow agent is a member of the credit union. Clients’ membership status is not determinative.

CUSO Reporting

The NCUA also issued Letter to Credit Unions 16-CU-02 which provides information about the upcoming initial registration period for the CUSO Registry. The CUSO Registry will be available for CUSOs to begin registering on February 1, 2016. CUSOs will have 60 days between February 1 and March 31 to register.

Regulatory requirements associated with NCUA’s CUSO rule became effective June 30, 2014. One of the primary changes to the rule requires all federally insured credit unions that invest in or lend to a CUSO to enter into a written agreement requiring the CUSO to submit annual reports directly to NCUA and the state supervisory authority, if applicable.

CUSOs will start providing their annual reports through the CUSO Registry in 2016. Once the deadline for CUSOs to register with NCUA has passed, field staff will check to ensure any CUSO a credit union has loaned to or invested in has registered with NCUA. In the event a CUSO fails to register, credit unions may not make additional investments or loans to the CUSO until the CUSO satisfies the annual registration requirement.

Are we required to implement policies and procedures specifically relating to safe deposit boxes and BSA monitoring? We have heard rumors that the NCUA is asking credit unions to produce and monitor reports that monitor safe deposit box activity.

Compliance Question of the Week

Are we required to implement policies and procedures specifically relating to safe deposit boxes and BSA monitoring? We have heard rumors that the NCUA is asking credit unions to produce and monitor reports that monitor safe deposit box activity.

Yes and no. Appendix F of the FFIEC BSA Manual does indicate that certain patterns of behavior/activity directly related to a safe deposit box can be considered suspicious. 

Appendix F – Other Suspicious Activity:

  • Customer visits a safe deposit box or uses a safe custody account on an unusually frequent basis.
  • Safe deposit boxes or safe custody accounts opened by individuals who do not reside or work in the institution’s service area, despite the availability of such services at an institution closer to them.
  • Customer exhibits unusual traffic patterns in the safe deposit box area or unusual use of safe custody accounts. For example, several individuals arrive together, enter frequently, or carry bags or other containers that could conceal large amounts of currency, monetary instruments, or small valuable items.
  • Customer rents multiple safe deposit boxes to store large amounts of currency, monetary instruments, or high-value assets awaiting conversion to currency, for placement into the banking system. Similarly, a customer establishes multiple safe custody accounts to park large amounts of securities awaiting sale and conversion into currency, monetary instruments, outgoing funds transfers, or a combination thereof, for placement into the banking system.
  • A safe deposit box opened on behalf of a commercial entity when the business activity of the customer is unknown or such activity does not appear to justify the use of a safe deposit box.
  • A customer accesses a safe deposit box after completing a transaction involving a large withdrawal of currency, or accesses a safe deposit box before making currency deposits structured at or just under $10,000 to evade CTR filing requirements.

Most credit unions will not have a way to produce a report that shows the frequency of access by each member to a safe deposit box. However, credit union staff generally know their members and can determine if a member is changing their routine, if the routine is suspicious to begin with, and if the situation should be monitored.

While it may not be feasible to create a report that documents safe deposit box activity, credit union staff should be trained around the red flags found in Appendix F of the BSA Manual. The red flags that are listed provide a great training tool and could be incorporated into procedures that discuss identifiable suspicious activity. Most importantly, credit union staff should be able to identify suspicious behavior and know when, how and to whom it should be reported. Branch staff is usually the best resource when it comes to identifying suspicious activity. Their training should be targeted to the situations they would most likely encounter, such as over the counter transactions, safe deposit boxes, and account opening.

Legal Briefs

National Credit Union Administration (NCUA)

The January issue of the NCUA Report has been released.

The NCUA issued regulatory alert 16-RA-02 which provides detailed information on the enhanced share insurance coverage for IOLTAs and other pass-through accounts.

NCUA Chairman Matz issued several statements at the January 21, 2016 NCUA Board Meeting. Her statements include the overhead transfer rate methodology, the federal credit union operating fee methodology, and the OMWI reporting structure.

The NCUA announced that has partnered with the U.S. Treasury Department’s Community Development Financial Institutions Fund to increase opportunities for credit unions to obtain the CDFI certification. 

Consumer Financial Protection Bureau (CFPB)

The CFPB announced that it is now accepting applications for its Advisory Board and Councils. The CFPB is filling seven seats on the Consumer Advisory Board and eight seats on the Credit Union Advisory Council.

Federal Reserve Board (FRB)

The FRB, FDIC, and OCC have released a joint interim final rule and request for comments that would extend the examination to no less than once per 18-month period for well-run institutions under $1 billion in total assets.

The FRB released its data report on Peak and Average Daylight Overdrafts and Related Fees.

FRB Services has released a FAQ on the upcoming Same Day ACH rule, effective September 2016.

Federal Trade Commission (FTC)

The FTC announced that it will host a webinar for consumers on Tax Identity Theft on Tuesday, January 26, 2016. The webinar aims to educate consumers on how tax identity theft occurs, best practices to minimize the risk, and what steps should be taken if a consumer does become a victim of this type of identity theft. 

Office of Foreign Assets Control (OFAC)

OFAC has updated the SDN list as of January 21, 2016. The last update prior to this was January 17, 2016.

Questions? Contact the Compliance Hotline: 1.800.546.4465, compliance@nwcua.org.

Posted in Compliance, NCUA.