Credit unions want to get into crypto, but worry about regulatory roadblocks | Credit Union Journal

Visions Federal Credit Union wants to offer cryptocurrency services, but is wary of making the leap without regulatory guidance from the National Credit Union Administration.

“Having affirmation from [the] NCUA as to what is permissible will provide us the guidance to engage in these new opportunities.” said Cynthia Schroeder, senior vice president and chief information and innovation officer at the $5.4 billion-asset Visions.

Visions is building its cryptocurrency strategy as the NCUA develops rules for cryptocurrency and its underlying blockchain technology. These rules can’t come soon enough for the Endicott, N.Y.-based credit union. Other types of financial institutions have defined regulations already in place, but there is still time for credit unions to catch up. Visions is participating in a request-for-information process the NCUA began in July.

“Currently, we are in the ‘early mover’ stages of cryptocurrency, which means that there is still time for credit unions and regulators to begin to engage in crypto-related assets,” said Alenka Grealish, an analyst for the Boston, Massachusetts research and advisory firm Celent. Even cautious credit unions need to be proactive and “reach out to regulators and draft a plan to articulate the rules of engagement.”

Visions Federal Credit Union is building its crypto strategy, and has asked for guidance from the National Credit Union Administration on what rules it plans to set.

The infrastructure that many banks already have in place to support capital markets has allowed regulators to focus on enabling them to be custodians of digital assets, she said.

The Federal Deposit Insurance Corp. asked for input from banks on cryptocurrency in May, and is reportedly studying deposit insurance for stablecoins, a digital asset that is backed by traditional currency to mitigate pricing volatility. Federal Reserve chair Jerome Powell has expressed interest in regulating stablecoins, while the Biden Administration seeks to regulate cryptocurrency firms in its new appointment to the Consumer Financial Protection Bureau, Rohit Chopra.

Credit unions are waiting for specific rules from the NCUA, which earlier this year asked credit unions and other players in the digital asset market to comment on concerns about cryptocurrency and the blockchain technology that supports digital assets. To garner more responses, the agency extended its Sept. 27 deadline to Oct. 27.

The NCUA will use the input to develop more nuanced regulations to help credit unions expand into cryptocurrency and adapt to the ever changing market.

The commentary the agency has received suggests credit unions see blockchain and crypto as lucrative new markets, but are wary of running afoul of future regulation.

Many credit unions would feel comfortable venturing into blockchain and cryptocurrencies only if there is a regulatory framework to set guidelines of what is and is not allowed, said Jared Ross, president of the League of Southeastern Credit Unions and Affiliates, a trade group representing institutions across Alabama, Florida and Georgia.

“If there are no specific prohibitions then some credit unions may be willing to go out on a limb, but overall credit unions will be more comfortable venturing into a new technology or a new sector in the long run if they’ve got that guidance,” Ross said.

At present, Visions is exploring various proposals to allow its members to buy, sell and retain bitcoin using the credit union’s online and mobile banking channels.

To navigate its entry into digital assets and related technologies, the credit union formed an advisory panel of its leaders, as well as a sub-group aimed at educating both employees and members on these topics.

It is also working to create a network of credit union practitioners to gather feedback from experts on digital assets and related tech, with the goal of building best practices for crypto in the credit union industry.

“As practitioners, we are poised to identify what is the best case scenario and work to problem solve as a group,” said Schroeder. “Collaboration is what credit unions do well and we are pleased to help champion this effort.”

The risks inherent to crypto challenges, stem from the number of unknown variables surrounding distributed ledger technology and decentralized finance, Visions said in its response to the NCUA.

Technology companies that sell software to credit unions are also seeking regulatory clarity from the NCUA.

“The accelerated adoption of digital assets has allowed for financial transactions to be facilitated without or with porous frameworks of Know Your Customer, customer due diligence and anti-money-laundering in place, creating significant vulnerabilities in the system,” said Elizabeth Cronan, vice president of government relations at GeoComply, a Vancouver-based identity and fraud-monitoring software company.

The NCUA acknowledged that credit unions stand to benefit from participating in crypto and blockchain, but also face significant risks in doing so.

“Distributed ledger technology is lowering the costs of transactions and verifying ownership…and the widespread use of peer-to-peer lending and payment applications means that billions of dollars can cross the country or the world in seconds without a financial institution serving as an intermediary,” Todd Harper, NCUA board chairman, said in a speech.

In addition to recognizing the potential that these technologies hold, it’s also necessary to recognize the risks they pose to the credit union industry as a whole, Harper added.

Outside of the credit union industry, payment giants like PayPal and Visa have already begun to explore and launch crypto-focused services to cater to a larger consumer base.

PayPal’s Checkout with Crypto service, which debuted in March, allows consumers to purchase items from a network of online retailers using digital currencies. Once the payment is confirmed, PayPal converts the crypto into traditional currency.

Similarly, Visa’s crypto-linked payment cards offer consumers the ability to use Bitcoin and cash balances as funding for transactions on Apple and Google’s payment apps, ticket purchases for various transit organizations and payments with various vendors.

Credit unions aim to serve the same tech-savvy audiences that PayPal, Visa and others are targeting with these new services.

“For credit unions … a benefit [of engaging in blockchain and digital assets] is having access to the sector of members who are interested in these technologies,” Ross said. “Cryptocurrencies, distributed ledgers and blockchain are all new technologies, and they’re coming whether we are ready or not. I know credit unions want to remain relevant and to do that, this is an area that they should be paying attention to.”

Read More: Credit unions want to get into crypto, but worry about regulatory roadblocks | Credit Union Journal

2021-10-14 15:36:00

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