ARLINGTON, Va.–While August has long been a traditionally slow period in Washington for both lawmaking and regulatory oversight, that tradition is being bucked by development of new digital technologies, and that has credit unions interested in both what they should and can be doing now, as well as what oversight might lie ahead.
Ann Kossachev, director of regulatory affairs with NAFCU, said much of the feedback the trade group is getting from its member credit unions has to do with how to better innovate.
“They are looking for opportunities and avenues to partner with innovative companies, such as fintechs,” said Kossachev. “They are looking to find more solutions to better serve their members and for ways NCUA can help to facilitate that. Some of that is underway.”
As an example, Kossachev pointed to the recent request for information (RFI) from NCUA on digital assets.
“NCUA is really taking a close look at emerging and new technologies and how credit unions can better leverage those,” she said. Given the pace of change, staying abreast of developments in digital technologies is no easy task, acknowledged Kossachev, who said NAFCU does all it can to monitor what is coming to market. In addition to following the news, she said NAFCU also looks to other regulatory agencies for what they are doing or proposing to do.
A ‘Big Notice’
“Earlier this year in January, for example, the OCC issued a notice for custodial services for stablecoins,” said Kossachev. “That was a big notice and a big decision and its actions like that catch our eye so we know what direction other financial institutions are headed and what credit unions may need to be thinking about what NCUA may need to consider going forward so credit unions can remain competitive and stay innovative.”
There is plenty of related confusion and misunderstanding, agreed Kossachev, ranging from what does “cryptocurrency” even mean to how it is used to how it compares to stablecoins, which are pegged to some kind of fiat currency.
“How can all of that can be integrated into the existing financial services industry? How can (FIs) leverage opportunities and use the distributed ledger technology?” said Kossachev of the kinds of questions that are always seeking better answers. “It’s not just crypto that uses blockchain. There are other technologies that use blockchain, such as smart contracts, where there may be the opportunity for efficiency and to make the day-to-day a little simpler and faster for credit unions, and for members to get access to the products and services they need.”
Taking it Slow
For credit unions, getting a sense of direction remains a challenging task as they attempt to “figure out for themselves what makes sense from a business perspective and what is going to be most helpful for their membership. I don’t think any CU is going to over-invest in a new technology that they may not fully understand,” said Kossachev. “They are going to take it slow and make sure they have a clear business plan that makes sense for their membership.”
One area at which regulators, including NCUA and the CFPB, have been looking is artificial intelligence/machine learning. That has brought with it a new issue in that a technology that is supposed to resolve problems that may in fact create new ones due to inherent biases in the algorithms that may create discrimination and run afoul of fair lending laws.
“But there is a lot of opportunity there, as well, and the agencies are just looking for ways to bring a balance,” said Kossachev.
Horse Leaving the Barn, Or…?
Any question of regulation or oversight always brings with it the question of whether government can respond to developments in technology, if not in real time, at least in near real time?
“I think we’ve seen time and time again that regulators and lawmakers do tend to trail a little behind in regulation of emerging technologies,” said Kossachev. “I think that is just a testament to the efficiency of the private sector and how incredibly innovative some companies are. They are able to develop and implement technology quickly before lawmakers even know what to do with that. Perhaps there is an opportunity down the line for some public/private partnerships to develop a framework for regulating technologies in a more streamlined direction.”
Kossachev said NAFCU is hopeful NCUA will be “proactive and forward-looking” in finding additional means for credit unions to develop such partnerships.
“We very much appreciate the curiosity and support of the NCUA board,” said Kossachev. “All three members have been vocal about their interests in technologies and learning more.”