<p>ALEXANDRIA, Va. – If the number of credit unions and industry groups offering their input on revamping NCUA's investment activity rules are any indication, the scope of regulation may open up the doors for access to more heady instruments and greater flexibility. More than 40 credit unions and industry groups submitted comment letters on 12 CFR Part 703 of NCUA's investment and deposit activities rule, said Cherie Umbel, NCUA's director of regulatory affairs, and at press time, more postmarked letters were still arriving. CUNA, at the very least, urged the agency to give credit unions more flexibility and responsibility with any of the proposed investment activities. "NCUA is undoubtedly concerned that credit unions have the expertise, internal controls and risk management structure necessary to safely engage in additional investments," CUNA wrote. "We agree the agency should develop guidelines that would help credit unions develop processes and procedures for mitigating and managing additional risk and that during the examination process, risk management policies should be evaluated. We do not agree that the agency should require an FCU to apply for each new authority." Instead, CUNA supports a notice process under which a FCU would notify its regional office that it is proceeding with a new investment authority and a brief summary of its risk management capabilities that would include call report and last examination data. "The regional office could then intervene only if there are substantiated concerns that the FCU does not have the capacity to manage the risk it is attempting to assume," CUNA wrote. In that same area, CUNA felt that credit unions should be allowed to evaluate the practices of a safekeeper and whether the individual should be independent from a broker with NCUA's guidance on assessing whether the risks involved can be managed. NAFCU, meanwhile supports NCUA's safekeeper proposal adding that "any increased cost of engaging a safekeeper in this new manner will not be an impediment to federal credit union operations" and the benefits would "outweigh any increased expense." Both CUNA and NAFCU support the addition of many of NCUA's proposed investment instruments including asset-backed securities and the purchase of commercial paper with CUNA suggesting the treating of participations as either a loan or an investment. Indeed, CUNA is already working with NCUA and the House Financial Services Committee on the increased authority to invest in CUSOs and other expanded investments activities, said Mary Dunn, CUNA's associate general counsel and senior vice president. For its part, NAFCU recommended the addition of financial futures or interest rate swaps to the investment arena to reduce FCUs' interest rate risk exposure. "Such credit unions should be allowed to purchase principal-only (PO) stripped mortgage-based securities to hedge interest rate risk as the value of the instrument moves positively to a rate increase," NAFCU wrote. Currently, an FCU may delegate discretionary control of investments to an investment advisor, so long as the aggregate amount does not exceed 100% of the FCU's net capital at the time of the delegation. While CUNA supports NCUA guidelines to follow in exceeding the cap, it does not agree that a prior approval process, "which diverts agency resources, is necessary" but favors a system that would require a FCU to notify the regional office of its intentions and provide a very brief explanation of how it is meeting the agency's guidelines. NAFCU tied its support for discretionary control back to RegFlex, saying those FCUs that are eligible for that program are already exempt from the 100% cap. The industry group "supports allowing this cap to be raised for non-RegFlex eligible federal credit unions provided that the federal credit union meets defined minimum criteria and receives prior approval from NCUA before engaging in a delegation that exceeds the one hundred percent aggregate cap," the comment letter stated. Last October, NCUA requested comments and suggestions on expanding 703 in the areas of broker requirements and safekeeper requirements, expanded investment authorities, limitations on accounts under discretionary control of an investment advisor, investment credit ratings, borrowing repurchase agreements, variable rate investments, and purchasing options to offer equity-linked certificates of deposit. NCUA staff will review and summarize all comments, propose a draft of regulation and submit it to the board. If approved, the proposal will be sent out for comment during a 60 to 90-day period. -</p> <p>[email protected]</p>