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NCUA issues NAFCU-sought Letter to Credit Unions on key digital assets issue
The NCUA Thursday issued a Letter to Credit Unions providing clarity on the authority of credit unions to establish relationships with third-party providers that offer digital asset services to federally-insured credit union (FICU) members. According to the Letter, this includes third-party provided services to allow credit unions members to “buy, sell, and hold uninsured digital assets” with the third-party providers. Digital Assets are one of the terms used to describe distributed ledger technology (DLT) based tokens.
This move follows NAFCU's letter to the NCUA sent Wednesday, urging the agency to ensure credit unions are not left behind as financial regulators work on creating federal digital asset regulation and legislation. NAFCU also responded to NCUA’s request for information (RFI) in September on how credit unions use digital assets and what risks pose to credit unions, related entities, and the agency. The association called on the NCUA to issue guidance for credit unions on how a “credit union may facilitate members’ buying, holding, selling, transferring, and exchanging of digital assets through a third-party broker-dealer.” NAFCU has served as a leader on the issue of digital assets, working to ensure credit unions are on the same level playing field with banks.
In the Letter to Credit Unions, the agency notes is not prohibiting credit unions from engaging with third-parties to facilitate “member relationships” but they are expounding on particular due diligence requirements which should govern such relationships. For instance, when describing contractual agreements, the NCUA recommends that FICUs identify “specific laws, regulations, and any other limitations or requirements, including qualitative considerations, that will expressly govern the selection and marketing of products a third party may offer.” This analysis is similar to what the NCUA has described in prior letters governing sales of nondeposit investments. When making qualitative considerations credit unions should include an analysis of “the level of complexity and volatility in the digital assets the FICU will permit the third party to offer members.”
Of note, the NCUA states that when selling, advertising, or otherwise marketing uninsured digital assets to members, members should be informed that the products offered:
- are not federally insured;
- are not obligations of the FICU;
- are not guaranteed by the FICU;
- are or may be heavily speculative and volatile;
- may have associated fees;
- may not allow member recourse; and
- are being offered by a third party.
NAFCU will continue to engage the NCUA, Treasury, and other federal financial regulators to call for credit unions to be granted the ability to engage with digital assets on equal footing with banks.