The NCUA has asked credit unions for comment on the crypto. So far the crickets. | Journal of Credit Unions

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Regulators of credit unions who hope to establish ground rules for the use of blockchain technology and digital assets have asked the industry to comment on how this technology is used today. So far the response has been disappointing.

The National Credit Union Administration issued a request for information in July, calling on credit unions and other related entities to provide feedback on how distributed ledger technology and decentralized financial applications are viewed and used by the industry. The agency asked how blockchain can serve members and achieve business goals, as well as implementation barriers and risks the technology could pose to institutions. Comments in response to the RFI are received and published by the agency in batches on the government portal, with the frequency increasing as the deadline approaches which, in this case, is September 27.

We don’t want credit unions slowly following the Blockbuster Video path because they lacked the clarity that allowed them to compete with new fintech services and because their regulator crippled their ability to adapt. , says Kyle Hauptman, vice president of the National Credit Union Administration.

We want anyone who submits ideas on how the NCUA can provide the regulatory clarity that vendors and credit unions need to start working on new solutions, said Kyle Hauptman, NCUA vice president. In regulatory matters, early clarity is worth much more than late clarity.

Hauptman says cryptocurrency and blockchain technology could be part of the next iteration of what credit unions have been doing for years. Services such as payments, custody of assets, identity verification and more are all components of the day-to-day operations of these institutions and could potentially be migrated to distributed ledgers.

But without clear guidelines for integrating and operating blockchain technology, regulators fear that credit unions will be delayed in their efforts to adopt new technologies.

We don’t want credit unions slowly following the Blockbuster Video path because they lacked the clarity to compete with new fintech services and because their regulator crippled 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 over how best to regulate and govern new and unfamiliar concepts.

Sundie Seefried, the former CEO of Colorado Credit Union, a partner of $ 567 million in assets in Arvada, Colo., Has resigned his longtime position as head of the credit union to focus on managing its cannabis banking branch, Safe Harbor Financial. When she started her current role, she said there are parallels between cryptocurrency and cannabis when it comes to both consumer use and regulation.

I once told a regulator that I know you don’t like cannabis and crypto together, but you wouldn’t prefer someone who’s been through the cannabis industry to take high risk like crypto. rather than someone who hasn’t done something so complicated, Seefried said. Since a large portion of Safe Harbors pot banking customers are typically excluded from transactions through normal channels, Safe Harbor is in the early stages of researching how to securely plug into the crypto space. -currency and adapt blockchain technology to its business model.

As it gains a more complete understanding, Safe Harbor will integrate more cryptocurrency functions into its suite of services on offer. As we did with cannabis, we are moving into a test mode, said Seefried.

For the NCUA, the Request for Information is one of many initiatives underway to help better understand cryptocurrencies, distributed ledger technology, and other related applications. The agency announced during the 2021 National Association of Federally-Insured Credit Unions congressional caucus that it is setting up an innovation and access office to collaborate with fintech companies.

Additionally, a new position within the agency, Chief Financial Technology Officer, will help lead the NCUA’s efforts to draft legislation to guide credit unions on cryptocurrency and related technologies. With knowledge of blockchain technology and other related services listed as an asset to applicants, the person who will occupy the position will be the point of contact both on how the NCUA gives guidance or regulates on new technologies and on any interagency coordination with the Federal Reserve, FDIC and OCC.

Among the public comments for RFI, none left by credit unions supported the benefits of blockchain technology. The only credit union executive who has responded so far has raised concerns about the potential security risks lodged within the decentralized platforms.

Gary Rodrigues, CEO of Star One Credit Union, a $ 10.6 billion asset in Sunnyvale, Calif., Said his opposition to cryptocurrencies stems from the lack of official support. In what it sees as an alternative to distributed ledgers designed to handle payments, Star One is participating in the Federal Reserve’s FedNow pilot program, which allows institutions of all sizes to execute payments in real time.

It’s a great program and a competitive service that I think will replace some of the problems with cryptocurrencies and even some fintech solutions, Rodrigues said. For us, being able to ensure that payments and fund transfers are made between federally insured institutions adds a lot of convenience to our operation in terms of issues such as know your customer, anti-money laundering money and the Patriot Act. Just having the backing of the U.S. government adds a lot of credibility to a cryptocurrency that has no backing.

Other commentators were representatives of fintech companies seeking to allay these doubts and convince credit unions and other potential partners that their blockchain technology is safe and compliant with regulations.

One of those companies is FinClusive, a financial and regulatory technology company that has worked to build compliance features into its blockchain platforms to ensure data is protected and recorded accurately while complying with federal laws. and state.

On the regtech side, we provide a comprehensive anti-money laundering compliance workflow that covers Know Your Customer, Know Your Business, Enhanced Due Diligence and more, said Amit Sharma, CEO of FinClusive. As more and more community banks, regional banks and credit unions are eager to enter the space, we are able to enable them not only compliance, but also the ability to hire companies from financial technology and crypto companies.

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