September 28, 2021

NAFCU offers recommendations to NCUA on CU digital asset adoption

ncuaNAFCU Regulatory Affairs Counsel Dale Baker wrote to the NCUA Monday in response to a request for information (RFI) on how credit unions use digital assets and what risks such uses pose to credit unions, related entities, and the agency.

Digital assets, Distributed Ledger Technology (DLT), and decentralized finance (DeFi) applications have the potential for credit unions to reduce a wide range of expenses and provide members broader suites of products and services. However, broad adoption of these innovations may present unique fraud, theft, money laundering, tax avoidance and price manipulation risks.

“Credit unions have a proud history of innovating to not only better serve current members but to be better positioned to more fully engage the unserved and underserved,” wrote Baker. “However, the present regulatory uncertainty results in individual credit unions suffering millions of dollars in net share account outflows to largely unregulated, opaque entities and members being exposed to substantial risks that can be better monitored, assessed, and resolved by credit unions.”

Baker highlights recommendations to ensure the NCUA makes clear the opportunities and limitations already in place for credit unions to provide and facilitate the provision of digital asset financial service products to members.

“NAFCU asks the NCUA to promptly issue a Letter to Credit Unions confirming that a credit union may directly, or in partnership with a credit union service organization (CUSO) or other third-party vendor, host a digital wallet capable of holding digital assets that are not securities and that a credit union may engage a CUSO or other third-party vendor to facilitate a member’s buying, holding, selling, transferring, and exchanging of digital assets,” recommended Baker.

Baker further encouraged the NCUA to adopt a form-agnostic approach to assessing credit unions’ adoption of digital assets and related technologies, proposing “a digital asset adoption sandbox or pilot program” in which credit unions and the NCUA may explore more novel digital asset use cases without significant compliance risks.

NAFCU has been soliciting member feedback since the proposal in July, posting a NAFCU Network insight forum inviting members to engage in frequent discussions on digital asset usage. In addition, NAFCU President and CEO Dan Berger discussed this topic with NCUA Vice Chairman Kyle Hauptman at the 2021 Congressional Caucus.

The NCUA has extended the RFI’s comment period for an additional 30 days. Commenters may now submit RFI responses to the NCUA on or before October 27, 2021.