Fiscal board denies COSSEC request to be removed from list of covered entities
By The Star Staff
The Financial Oversight and Management Board has denied a request to remove the Public Corporation for Cooperatives Supervision and Insurance (COSSEC) from the covered entity category, arguing it still needs to work to achieve financial stability.
On Sept. 30, 2016, at its first public meeting in New York, the oversight board assumed control over 25 entities, including COSSEC, by designating them as covered territorial instrumentalities under the Puerto Rico Oversight, Management and Economic Stability Act (PROMESA). Some critics said the board’s designation of COSSEC as a covered territorial instrumentality was inappropriate because COSSEC does not receive funds from the commonwealth and had not issued bonds subject to the PROMESA restructuring processes.
However, the oversight board designated COSSEC as a covered entity to help it achieve fiscal responsibility. COSSEC is the entity in charge of overseeing credit unions, many of which had invested in Puerto Rico bonds and were at the verge of collapse.
In rejecting an appeal from COSSEC to remove it from the list of covered entities, the oversight board noted that the cooperative system is an integral part of Puerto Rico’s financial infrastructure. The oversight board said it firmly believes that the best interest of Puerto Rico continues to require COSSEC to remain a covered entity under PROMESA.
Although progress has been made to implement some elements of the COSSEC Certified Fiscal Plan, “there is still work to be done towards modernizing the system and ensuring it stays caught up on other financial services in Puerto Rico and in the U.S. mainland,” the oversight board told COSSEC officials.
Several key areas still require attention, the oversight board said. The board noted the financial implications associated with the ongoing dual functions of COSSEC, serving as both a regulator and an insurer of financial cooperatives. COSSEC’s governance structure must be reformed to ensure an independent board of directors, and financial cooperatives must transition their accounting standards from regulatory accounting principles to generally accepted accounting principles to be aligned with global best practices of the National Credit Union Administration (NCUA) and the Federal Deposit Insurance Corp., the board said.
Additionally, the oversight board said it is important to ensure adequate funding for COSSEC to cover cooperative capitalization under NCUA standards, and transfer the supervision of the non-financial cooperatives from COSSEC to the Cooperative Development Commission to decrease the workload of COSSEC examiners and accelerate the receiverships of insolvent and undercapitalized financial cooperatives.
The oversight board also considered recent lawsuits filed by cooperatives against COSSEC and the commonwealth alleging the inadequacy of the COSSEC Insurance Fund.
“We believe that both COSSEC and the government must continue to fulfill the reporting requirements set forth in the Fiscal Plan,” the board said.