CUNA Regulatory Comment Call

June 12, 2002

SEC Requests Comments on Allowing Credit Unions to Offer Sweep Accounts Without Registering As a Broker-Dealer



Under the 1934 Act, entities acting as “brokers” or “dealers” must register with the SEC and join a self-regulatory organization (SRO). “Brokers” are defined as entities engaged in the business of effecting transactions in securities for the account of others, and “dealers” are defined as entities that buy and sell securities for their own account.

As part of the registration process, broker-dealers are required to pay substantial fees and to pass qualification tests covering substantive aspects of the securities business, which are supplemented by continuing education requirements. Broker-dealers are also under a duty to supervise their employees to prevent violations of federal securities laws. SRO rules also subject broker-dealers to possible enhanced supervision or prohibitions from continued work in the securities business if abuses are committed.

Until the GLB Act was enacted in 1999, banks were not covered under the broker-dealer definitions and were not required to register with the SEC. The GLB Act removed this exemption and replaced it with a number of functional exceptions for certain bank securities activities.

The SEC issued interim final rules last year that were intended to clarify these functional exceptions. Although not required under the GLB Act, these exceptions will also apply to thrifts, but not to credit unions. Prior to the GLB Act, credit unions and thrifts were not covered under the exemption that was provided for banks.


Evangelical Christian Credit Union (ECCU), a California state-chartered credit union, submitted a request last year for permission to offer sweep account services, in which members would have the option of instructing the credit union to invest account balances automatically in a no-load money market mutual fund, without the need to register with the SEC as a broker-dealer. Such arrangements will be permissible for banks and thrifts under the interim final rules that were issued last year. Sweep accounts were also part of a notice issued last year by the SEC. CUNA’s comment letter urged SEC to exempt sweep accounts, among other activities, for credit unions.

At a Commission meeting held on June 12, 2002, the SEC unanimously agreed to issue a notice in the Federal Register for the purpose of soliciting public comment on this issue. The notice will request comment on whether ECCU should receive the exemption from the broker- dealer registration requirements, as well as whether all federally-insured credit unions should receive a similar exemption. The Federal Register notice will also request comment on whether this issue should be considered in connection with interim final rules that were issued last year. These rules will not be finalized until May 2003, at the earliest.

The exemption for sweep accounts is one of the twelve exemptions that banks and thrifts will receive under the interim final rules. In our comment letter in response to these rules, CUNA requested similar exemptions for credit unions, especially for activities such as sweep accounts, third-party brokerage arrangements, and safekeeping and custodian activities, which are significant activities that credit unions are currently engaged. Click here for a copy of the comment letter.

CUNA’s Governmental Affairs Committee recently appointed a task force, chaired by John Franklin, charged with the responsibility of analyzing the issue of broker-dealer registration exemptions as they may apply to both credit unions and credit union service organizations (CUSOs). The task force will work with the SEC to review all of the twelve exemptions that banks and thrifts will have under the interim final rules to determine which exemptions, in addition to sweep accounts, that credit unions should now have, along with a process for obtaining additional exemptions, based on future activities.


Eric Richard • General Counsel • (202) 508-6742 •
Mary Mitchell Dunn • SVP & Associate General Counsel • (202) 508-6736 •
Jeffrey Bloch • Assistant General Counsel • (202) 508-6732 •
Catherine Orr • Senior Regulatory Counsel • (202) 508-6743 •