Credit union regulators hoping to set ground rules for the use of blockchain technology and digital assets have asked the industry to comment on how such technology is used today. So far, the response has been underwhelming.
The National Credit Union Administration released a r
“We want anyone to submit ideas about how the NCUA can give the regulatory clarity that vendors and credit unions need to start working on new solutions,” said Kyle Hauptman, vice chairman of the NCUA. “When it comes to regulation, early clarity is worth a lot more than late clarity.”
Hauptman says cryptocurrency and blockchain technology could be part of the next iteration of what credit unions have been already doing for years. Services like payments, custody of assets, verification of identity and more, are all components of these institutions’ day-to-day operations and could potentially be migrated to distributed ledgers.
But without clear guidelines for the integration and functioning of blockchain technology, regulators are concerned that credit unions will be delayed in their efforts to adopt the new technologies.
“We don't want credit unions to slowly go the way of Blockbuster Video because they didn't have the clarity that allowed them to compete with new financial technology services and because their regulator hamstrung their ability to adapt,” Hauptman said.
Before cryptocurrency was the topic of conversation, however, cannabis and its impact on the credit union industry occupied a similar position in debates on how best to regulate and govern new and unfamiliar concepts.
Sundie Seefried, the former CEO of the
“I once told a regulator that ‘I know you don’t like cannabis and crypto together, but wouldn’t you rather have someone who has been through the cannabis industry going into a high risk like crypto rather than someone who hasn’t done something as complicated,’ ” Seefried said. Since a large portion of Safe Harbor’s pot banking clients are typically excluded from conducting transactions using normal channels, Safe Harbor is in the beginning stages of researching how to safely branch into the cryptocurrency space and adapt blockchain technology to its business model.
As it gains a more complete understanding, Safe Harbor will incorporate more cryptocurrency functions into its suite of offered services. “Like we did with cannabis, we're moving into a test mode,” Seefried said.
For the NCUA, the request for information is one of several initiatives in the works to help get a firmer grasp on cryptocurrencies, distributed ledger technology and other related applications. The agency announced during the National Association of Federally-Insured Credit Unions' 2021 congressional caucus that it is establishing an Office of Innovation and Access to collaborate with fintech firms.
Additionally, a new position within the agency, financial technology officer, will help lead the NCUA’s efforts for drafting legislation to guide credit unions on cryptocurrency and related technologies. With a knowledge of blockchain technology and other related services listed as a plus for applicants, whoever occupies the role will be the point person on both how the NCUA puts guidance or regulation around new technology and any interagency coordination with the Federal Reserve, the FDIC and the OCC.
Among the public comments for the RFI, none left by credit unions were in favor of the benefits that come with blockchain technology. The one credit union executive who has responded so far voiced concerns about potential security risks housed within decentralized platforms.
Gary Rodrigues, CEO of the
“It’s a really great program and a competitive service that I think will replace some of the problems that cryptocurrencies and even some fintech solutions have,” Rodrigues said. “For us to be able to ensure that payments and transfers of funds are made between federally-insured institutions, adds a lot of comfort to our operation in terms of issues like know-your-customer, anti-money-laundering and the Patriot Act. Just having the backing of the U.S. government adds a lot of credibility when compared to a cryptocurrency that has no backing.”
Other commenters were representatives of fintech firms looking to assuage such doubts and convince credit unions and other potential partners that their blockchain technology is safe and complies with regulations.
One such firm is FinClusive, a financial and regulatory technology company that has worked to integrate compliance features into its blockchain platforms to ensure data is protected and accurately recorded while abiding by federal and state laws.
“On the regtech side, we provide a full-stack workflow of anti-money laundering compliance that covers know-your-customer, know-your-business, enhanced due diligence and more,” said Amit Sharma, FinClusive's CEO. “As more community banks, regional banks and credit unions are eager to get into the space, we are able to enable them with not only compliance but also the ability to engage fintech companies and crypto companies.”
