WASHINGTON–While a new report points out NCUA has been at the forefront of providing direction to its regulated credit unions when it comes to digital assets, other smaller banks and institutions—as well as lower-income Americans--are suffering due to a lack of direction, according to a recently released analysis.
The analysis, published by Forbes, observed that a new report by the U.S. Government Accountability Office has found there are significant gaps that raise concerns when it comes to consumer and investor protections related to blockchain and cryptocurrency.
“Moreover, when it comes to lack of clarity from Congress and regulators, most financial entities - across TradFi, fintech, crypto - are aligned in frustration,” reported Forbes in its review. “While the GAO report cites that blockchain technology can facilitate ‘faster, cheaper financial transactions,’ it also raises significant questions about risks. Yet, the small, legacy banks that serve mainstream consumers and are well-positioned to offer risk mitigation services, are also the most vulnerable to the consequences of Washington’s inaction and regulation by enforcement.”
Forbes stated that credit unions, community development financial institutions, and minority depository institutions are on the frontlines of crypto adoption, and that the earliest consumers of digital assets – communities of color, the working class, and young people – are most likely to patronize and trust these neighborhood establishments.
Credit to NCUA
The report gave credit to NCUA for issuing guidance to credit unions on both digital assets and distributed ledger technologies.
“NCUA’s efforts to provide rules of the road notwithstanding, new regulatory directives regarding decentralized finance for the other banking categories are much needed,” the report stated, adding that bank regulators did issue
guidance two years ago for community banks “entering into business arrangements with fintech companies to offer enhanced products and services to their customers, increase efficiency, and reduce internal costs.” But cryptocurrency was not expressly mentioned, the Forbes analysis added.
Struggling With Costs
The report further explained that many minority deposit institutions have struggled with the costs of the digital transformation process and the due diligence process related to partnerships with third parties, issues that are “compounded by the lack of clarity from regulators regarding who bears responsibility for given failures and what ‘reasonable due diligence looks like in terms of a paper trail when issues arise’. Consequently, banks that pursue digitalization are rendered more vulnerable to enforcement actions or other measures when issues arise since it makes it more difficult for banks to show that they conducted themselves in a blameless manner.”
‘Little Consequence’
Meanwhile, Forbes added, the nation’s big banks and Wall Street giants that “cater to high net worth individuals and accredited investors are entering the digital assets market seemingly with little consequence.”
“Conversely, the institutions that consumers who have been locked out of financial markets are likely to first turn to are neither equipped nor do they have the technological capabilities to offer digital assets,” the Forbes analysis added.
Recommendations for NCUA
The GAO report did offer this recommendation: “The Chairman of the National Credit Union Administration should jointly establish or adapt an existing formal coordination mechanism with CFPB, CFTC, FDIC, the Federal Reserve, OCC, and SEC for collectively identifying risks posed by blockchain-related products and services and formulating a timely regulatory response. To facilitate these objectives, this mechanism could include formal planning documents that establish the frequency of meetings and processes for identifying risks and responding to them within agreed-upon time frames.”
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