Hot Topic: Digital Assets

By Dale Baker, NAFCU Regulatory Affairs Counsel

As we move toward an increasingly digital world, it is clear that—irrespective of individual opinions about the value, propriety, or legality of cryptocurrencies, stablecoins, central bank digital currencies (CBDCs), and non-fungible tokens (NFTs)—digital assets and related technologies are demanding significant attention from stakeholders across the broader economy, from individuals, institutions, regulators, and legislators.

While the Financial Crimes Enforcement Network’s (FinCEN) early guidance and law enforcement work predates the roughly 14-year-old Bitcoin blockchain, most federal regulators began weighing in only a year or two ago. In July 2021, the NCUA issued its Digital Assets and Related Technologies Request for Information (RFI). The RFI encouraged broad comment, but requested respondents pay particular attention to how federally insured credit unions (FICUs) use and may use digital assets and what risks such uses pose to credit unions, the credit union system, and the NCUA. Among other recommendations, NAFCU encouraged the NCUA to confirm that FICUs may, under an exercise of their incidental powers, directly or indirectly host digital asset wallets for members and partner with digital asset service providers that, in turn, enable FICUs’ members to buy, sell, and hold digital assets.

The NCUA’s digital assets Letter to Credit Unions, issued in December 2021, delivered on that later ask and described FICUs’ incidental authority to “establish relationships with third-party providers that offer digital asset services to the FICUs’ members” as “already existing.” In the letter, the NCUA clarified that neither the Federal Credit Union Act nor the agency limits the types of services FICUs may introduce to their members through third parties and that the NCUA will evaluate these relationships “in the same manner as all other third-party relationships.”

The letter also echoes NCUA Chairman Todd Harper’s comments at NAFCU’s 2021 Congressional Caucus. Given digital assets’ rapid evolution and proliferation, effective regulation demands both nimble regulatory responses and constant, bottom-up dialogue. Put simply, digital assets and related technologies are, in large part, driven by grassroots activity and engagement. So, credit unions must engage their members on digital asset issues and frequently keep the NCUA and other regulators apprised of member demands and concerns.

Alongside more exotic digital asset ideas lie CBDCs, digital assets backed by the full faith and credit of an issuing government and designed to maintain a one-to-one value with traditional fiat. President Biden’s recent Executive Order is fueling further federal research into a potential digital U.S. dollar. And the Treasury has already made clear its preference that traditional financial institutions play a leading role in any digital U.S. dollar ecosystem—just as they do in the traditional fiat master and retail accounts system. Therefore, all credit unions should, separate from other digital asset discussions, endeavor to understand and evaluate their potential role in intermediating a digital U.S. dollar. Offering members access to third-party brokerage services is a business decision. Intermediating the flow of U.S. dollars that begins with Federal Reserve master accounts is, quite simply, a fact of credit union life.

As digital asset developments arise, NAFCU will keep you informed. Prominent NAFCU Services partners Q2, MasterCard, and Wolters Kluwer, among others, are already exploring ways in which they may help credit unions explore and implement digital asset solutions for their members.

Readers interested in a more in-depth review of digital assets and related technologies’ early evolution and regulation may read NAFCU’s recently released Digital Assets Issue Brief online.

NAFCU has a complimentary, member-only online community exclusively for those responsible for cybersecurity & IT at NAFCU member credit unions. Learn more about the NAFCU Cybersecurity and IT Network at