NEWS, EVENTS, PUBLICATIONS & EMERGING ISSUES

SW&M EMERGING ISSUE
April 1, 2009

NO-LONGER PERMISSIBLE INVESTMENTS UNDER NCUA RULES AND REGULATIONS PART 703

In the current state of the economy, your Credit Union may find that previously highly-rated investments are being downgraded by the nationally-recognized ratings companies. This is important not only for the performance of your investment portfolio, but also in terms of regulatory compliance.

Federal credit unions are limited in their investments by Part 703 of the NCUA’s Rules and Regulations. One example of a permissible investment under Part 703 is Mortgage Related Securities, which must be rated in one of the two highest rating categories by at least one nationally recognized statistical rating organization. But what happens to your investment when it is downgraded and thereby becomes non-compliant?

Luckily, while your board may decide to sell the now-non-compliant investment, the NCUA’s regulations do not necessarily require divestiture. Instead Section 703.7 requires that a federal credit union’s directors receive notice of the non-compliance “as soon as possible, but no later than the next regularly scheduled board meeting.” The board must then decide the fate of the investment, and if it decides not to sell, it must include in its minutes a detailed explanation of that decision. Additionally, the credit union must notify its regional director in writing within five days after the board meeting.

You may wish to review your investment policies to ensure that these procedures, as well as guidelines for when divestiture will be recommended, are included. Further, a review of your investment policy against Section 703.3 would be well advised. If your Credit Union needs assistance with its investment policies or with any non-compliant investment, please do not hesitate to contact SW&M.

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