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NCUA Opens Door to Crypto for Credit Unions

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Official NCUA seal. (Source: NCUA)

The NCUA has told credit unions that they can use the technology behind cryptocurrency as long as they follow NCUA principles to ensure compliance with existing regulations and do not create undue risk.

NCUA President Todd Harper’s four-page letter sent Thursday to federally insured credit unions said the NCUA does not prohibit credit unions from using distributed ledger technology (DLT). ), which is used to support cryptocurrencies, “if deployed for permitted activities and in compliance with all applicable laws and regulations, including applicable state laws or supervisory authority requirements of State. “

“As with the development of any new product or service when deploying a platform, product or service using DLT as part of the underlying technology, credit unions must strike a balance appropriate between opportunity and risk,” Harper wrote.

“This letter also signals to the broader financial and technology communities that credit unions are a market to consider when designing products, considering partnerships or making investments,” he said. writing.

Todd Harper Todd Harper (Source: NCUA)

Harper’s letter followed a similar form to the December one, in which he said the NCUA would allow credit unions to hire third-party cryptocurrency vendors as long as they adhere to the same principles of security and soundness of the cryptocurrency. NCUA enforced in relationships with other vendors.

NAFCU had requested guidance on digital assets in a letter sent to NCUA last September. Greg Mesack, NAFCU’s senior vice president of government affairs, thanked the NCUA for “reducing regulatory uncertainty around digital assets.”

“There is undoubtedly a need for additional guidance from regulators on how credit unions can better embrace digital assets and emerging fintech,” Mesack said.

“We appreciate that the NCUA has responded to our call for a form-neutral approach to evaluating how credit unions use digital assets and related technologies,” he said. “We will continue to articulate the credit union industry’s perspective on this topic and encourage the NCUA to continue to build a strong regulatory framework for digital assets.”

Ryan Donovan, CUNA’s executive vice president and chief advocacy officer, also thanked NCUA for its guidance on distributed ledger technologies, “an issue that CUNA has repeatedly asked the agency to address.”

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“Many questions will likely persist regarding the ability of credit unions to participate in the digital currency space,” Donovan said. “We look forward to more detailed guidance from (the) NCUA on these matters as credit unions continue to explore the benefits of these technologies for their members.”

The most common distributed ledger technology is Blockchain, which supports Bitcoin and Ethereum. The two cryptocurrencies have traded wildly, especially since the start of 2021. Their values ​​tripled to quadrupled from January to November 2021, then plunged into a roller coaster that accelerated in April, wiping out all of Bitcoin’s gains since 2021 and almost all. of Ethereum by Thursday.

Harper’s letter began with the statement that the NCUA “supports federally insured credit union initiatives to better serve their members.”

“The rapid emergence of fintech is creating opportunities for credit unions to increase service speed, improve security, and expand products and services,” Harper wrote. “With that in mind, the board is exploring how the agency can clarify expectations around fintech adoption so as not to impede the safe, fair, and responsible engagement of federally insured credit unions.”

“As with the Internet in its early days, the NCUA recognizes that new technologies can transform the way credit unions conduct traditional financial services and operations,” Harper wrote. “As the DLT matures, the NCUA recognizes that implementation cases can grow rapidly as the technology spreads and credit unions become familiar with it.”

The NCUA listed several actions that credit unions should take “at a minimum.” They included:

  • The credit union’s board of directors is informed of the progress of the underlying technology, the goals of the technology, and how the use of DLT aligns with the credit union’s strategic planning goals and approved risk tolerances.
  • Credit Union staff and third parties who use and manage technology comply with applicable laws and regulations and act in a safe and sound manner.
  • Effective risk management practices are followed to identify, assess and mitigate the risks associated with the DLT and the specific activities for which it will be deployed.
  • Risk assessment and audit functions can validate and attest to the effectiveness of risk mitigation practices in accordance with internal policy and industry best practices.
  • Credit unions should identify, assess and mitigate the risks associated with DLT.