NCUA on FICUs' Use of Distributed Ledger Technologies

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The National Credit Union Administration's (NCUA) Letter to Credit Unions 22-CU-07 released this week states the agency supports initiatives by federally insured credit unions to better serve their members, as the rapid emergence of financial technology is creating opportunities for credit unions to increase speed of service, improve security, and expand products and services.

In this spirit, the NCUA Board is exploring how the agency can provide clarity around expectations regarding financial technology adoption to not impede safe, fair, and responsible federally insured credit union engagement.

This letter clarifies certain expectations for credit unions contemplating the use of new or emerging distributed ledger technologies (DLT). The NCUA does not prohibit credit unions from developing, procuring, or using DLT. DLT used as an underlying technology by credit unions is not prohibited if it is deployed for permissible activities and in compliance with all applicable laws and regulations, including applicable state laws or state supervisory authority requirements. As with the internet at its inception, the NCUA recognizes that new technologies may transform how credit unions perform traditional financial operations and services.

The letter also reiterates the importance of sound governance and planning related to deploying new technologies like DLT.1 While DLT is maturing, the NCUA recognizes that cases for implementation may expand rapidly as the technology becomes more widespread and credit unions become more familiar with it. For this reason, this letter provides areas for credit unions to consider when evaluating whether to use DLT. The NCUA also recognizes that the specific application of DLT may necessitate additional due diligence by credit unions, and approaches that vary with some of the more general guidance provided in this letter. As such, the NCUA expects that this letter may generate follow-up inquiries where additional guidance is requested and prudent. This letter also signals to the broader financial and technology communities that credit unions are a market to consider when designing products, considering partnerships, or making investments.

As with all new and emerging technology, the NCUA expects credit unions to exercise judgment, apply sound risk-management practices, and conduct necessary due diligence when choosing a platform, product, or service. When considering DLT, credit unions should first evaluate the permissibility of the activity itself and then assess the opportunities and risks relative to the activity. Finally, given the emerging nature of DLT and its potential use by credit unions, considerations introduced in this letter should not be construed as all inclusive.

The letter details:

  • Governance, oversight and planning.
  • Risk and risk-mitigation strategies.
  • Information and cybersecurity risk.
  • Legal and compliance risk.
  • Strategic and reputation risk.
  • Liquidity risk.
  • Third-party risk.

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