ARLINGTON, Va.—The increasing use of digital assets is also increasing risk to the credit union system, NAFCU told NCUA.
The trade association expressed its letter in response to a request for information (RFI) over how credit unions use digital assets and what risks such uses pose to credit unions, related entities, and the agency. The agency has just extended the comment period.
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, NAFCU stated. However, the trade group cautioned, broad adoption of these innovations may present unique fraud, theft, money laundering, tax avoidance and price manipulation risks.
‘Regulatory Uncertainty’
“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 NAFCU Regulatory Affairs Counsel Dale 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 offered recommendations to ensure 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.
Letter to CUs Requested
“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.
In the letter, 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.
Comment Period Extended
Meanwhile, the NCUA has announced it is extending by 30 days the comment period to offer input on the effects of activities connected to digital assets and related technologies. The original comments deadline had been Sept. 27.
All three members of the NCUA board have stressed in public comments that they are seeking input on various digital technologies, including distributed ledger technology and decentralized finance, or DeFi.