ALEXANDRIA, Va. (2/15/11)—The National Credit Union Administration (NCUA) has clarified that its letter to credit unions 10-FCU-03, which advised federal credit unions to carefully review the financial statements and capital adequacy of eligible third party brokers and perform needed background checks on brokers, does not require credit unions to back specific financial instruments. The NCUA issued its clarification in the form of a letter to the National Association of Credit Union Service Organization's (NACUSO). NACUSO had recently written to the NCUA out of concern that the letter “represented a set of new requirements that would extend potentially far beyond what the previous guidance encompassed in this arena and create the possibility of unreasonable compliance burden and liability for credit unions.” The group said that while credit unions are able to examine the track records of brokers, requiring credit unions to select individual investment products “is a risk that NCUA should not compel credit unions to take.” NCUA General Counsel Bob Fenner in the NCUA’s response said that said that letter No. 10-FCU-03 “is not intended to require [federal credit unions] to select, authorize, or restrict each specific investment product that will be offered to its members. However, Fenner said, a credit union’s policies should reflect a prudent analysis of the types of products that brokers may offer to that credit union’s members. In addition to performing due diligence reviews, the NCUA guidance, which was issued in December, recommended that directors of federal credit unions adopt written policies and procedures concerning third party brokerage arrangements to ensure compliance with applicable law and regulation and to ensure consistency with these guidelines. Credit unions should consider engaging legal counsel to evaluate their policies, procedures, and contractual agreements, the NCUA added. Federal credit unions should also outline, in writing, the duties and responsibilities of each party in a third party brokerage arrangement, according to the NCUA. NACUSO encouraged credit unions to take the NCUA’s guidance, alongside other advice, “into consideration to implement polices that will protect the credit union from liability in offering investing services in affiliation with a broker/dealer.” For the NACUSO and NCUA releases, use the resource links.