FCUs can serve as custodians for FDIC-insured accts, NCUA says

April 1, 2016

ALEXANDRIA, Va. (4/1/16)--Federally insured credit unions can serve as custodians of accounts insured by the Federal Deposit Insurance Corp., according to a letter published this week by the National Credit Union Association (NCUA).

In the letter (15-1124), NCUA General Counsel Michael McKenna responds to a question about whether a federal credit union (FCU) has the authority to act on behalf of its member by placing the member’s funds into an account insured by the FDIC, and if the credit union can serve as a custodian for that account.

“We believe that an FCU may, as an incidental powers activity, act in a ministerial capacity to effectuate the placement of funds from a member account held at the FCU to an account at a depository institution insured by the FDIC, provided the FCU is only following explicit instructions from the member and also satisfies the enumerated conditions,” McKenna wrote.

A federal credit union is authorized to engage in activities that are incidental to its business, defined as an activity that is “necessary or requisite to enable an FCU to carry on the business for which it is incorporated.”

According to McKenna, an FCU can perform the activity as an incidental powers activity only if:

  • The member’s funds to be placed in an FDIC-insured institution are first deposited in a share account at the FCU;|
  • The funds are placed in an FDIC-insured institution solely at the member’s discretion and in accordance with the member’s explicit written instructions;
  • The FCU performs all related custodial services consistent with the principles of sound custodial administration;
  • The FCU informs the member in writing that share insurance provided through the National Credit Union Share Insurance Fund only covers fund balances that remain in the share account at the FCU;
  • The FCU performs functions that are exclusively ministerial and custodial; and
  • The FCU does not provide any investment advice, take any discretionary action or perform any services that would require the FCU to act in the capacity of a broker-dealer or any other entity requiring registration, or otherwise engage in activities impermissible for FCUs.