12 CFR § 712.3 - What are the characteristics of and what requirements apply to CUSOs?
(a) Structure. An FCU can invest in or loan to a CUSO only if the CUSO is structured as a corporation, limited liability company, or limited partnership. An FCU may only participate in a limited partnership as a limited partner. For purposes of this part, “corporation” means a legally incorporated corporation as established and maintained under relevant federal or state law. For purposes of this part, “limited partnership” means a legally established limited partnership as established and maintained under relevant state law. For purposes of this part, “limited liability company” means a legally established limited liability company as established and maintained under relevant state law, provided that the FCU obtains written legal advice that the limited liability company is a recognized legal entity under the applicable laws of the state of formation and that the limited liability company is established in a manner that will limit potential exposure of the FCU to no more than the amount of funds invested in, or loaned to, the CUSO.
(b) Customer base. An FCU can invest in or loan to a CUSO only if the CUSO primarily serves credit unions, its membership, or the membership of credit unions contracting with the CUSO provided, however, that with respect to any approved CUSO service, as set out in § 712.5, that also meets the description of services set out in § 701.30 of this chapter, this requirement is met if the CUSO primarily provides such services to persons who are eligible for membership in the FCU or are eligible for membership in credit unions contracting with the CUSO.
(c) Federal credit union accounting for financial reporting purposes. An FCU must account for its investments in or loans to a CUSO in conformity with “generally accepted accounting principles” (GAAP).
(d) CUSO accounting; audits and financial statements; NCUA access to information. A FICU must obtain a written agreement from a CUSO before investing in or lending to the CUSO that the CUSO will:
(1) Account for all of its transactions in accordance with GAAP;
(2) Prepare quarterly financial statements and obtain an annual financial statement audit of its financial statements by a licensed certified public accountant in accordance with generally accepted auditing standards. A wholly owned CUSO is not required to obtain a separate annual financial statement audit if that wholly owned CUSO is included in the annual consolidated financial statement audit of the investing FICU;
(3) Provide NCUA, its representatives, and the state supervisory authority having jurisdiction over any FISCU with an outstanding loan to, investment in or contractual agreement for products or services with the CUSO with complete access to any books and records of the CUSO and the ability to review the CUSO's internal controls, as deemed necessary by NCUA or the state supervisory authority in carrying out their respective responsibilities under the Act and the relevant state credit union statute;
(4) Annually submit, pursuant to NCUA guidance, a report directly to NCUA and the appropriate state supervisory authority, if applicable. A newly formed CUSO (including a pre-existing business which becomes subject to this regulation by virtue of a credit union investment or loan) must file a report within 60 days of its formation. The report must contain basic registration information, including the CUSO's legal name; tax identification number; address; telephone number; Web site; primary point of contact; services offered; the name(s) and charter(s) of credit union(s) investing in, lending to, or receiving services from the CUSO; and investor and/or subsidiary CUSO(s). In addition, for any CUSO engaged in complex or high-risk activities, the report must contain:
(i) For each credit union investing in, lending to, or receiving services from the CUSO:
(A) A list of services provided to each credit union;
(B) The investment amount, loan amount, or level of activity of each credit union;
(ii) The CUSO's most recent year-end audited financial statements; and
(A) For CUSOs engaged in credit and lending services:
(1) The total dollar amount of loans outstanding;
(2) The total number of loans outstanding;
(3) The total dollar amount of loans granted year-to-date; and
(4) The total number of loans granted year-to-date.
(B) Such information must be provided by loan type for each type of loan originated or serviced by the CUSO.
(5) For purposes of paragraph (d)(4) of this section, complex or high-risk activities include preapproved CUSO activities and services related to credit and lending, information technology, and custody, safekeeping, and investment management services for credit unions. Specific activities related to these categories include:
(i) Credit and lending:
(A) Loan support services, including servicing; and
(B) Loan origination, including originating, purchasing, selling, and holding any loan as described in § 712.5(q).
(ii) Information technology:
(A) Electronic transaction services;
(B) Record retention, security, and disaster recovery services; and
(C) Payroll processing services.
(iii) Custody, safekeeping, and investment management services for credit unions.
(e) Other laws. A CUSO must comply with applicable Federal, state and local laws.