NCUA Dips Its Toes Into The cryptocurrency Waters

In late December, NCUA issued its most significant guidance to date on cryptocurrency, explaining in this letter to credit unions that federally insured credit unions can facilitate third-party relationships between cryptocurrency providers and their members pursuant to the incidental powers of federal credit unions. At the same time, however, it detailed some of the classic third-party considerations that credit unions must consider when establishing relationships offering non-depository financial products and reminded state-chartered institutions that NCUA’s green light is subject to state law.

In recent months, yours truly has used this space to urge NCUA to follow the lead of other financial regulators and detail the conditions upon which financial institutions can enter the cryptocurrency space. While a much more rigorous framework needs to be provided, this opinion letter clarifies that credit unions can start working with third parties who may be approaching them about marketing various cryptocurrency services. The good news is that credit unions can approach these discussions the same way they approach any other discussions with third parties, but the guidance makes clear that this is an area to handle with care. Credit unions are expected to adhere to a documented, rigorous third-party oversight process that demonstrates an awareness of the compliance and legal risks associated with cryptocurrency. 

Accordingly, I would pay special attention to these following reminders offered by NCUA:

When selling, advertising, or otherwise marketing uninsured digital assets to members, members should be informed that the products offered:

• are not federally insured;
• are not obligations of the FICU;
• are not guaranteed by the FICU;
• are or may be heavily speculative and volatile;
• may have associated fees;
• may not allow member recourse; and
• are being offered by a third party.

One final note: Don’t be penny wise and pound foolish. Have an attorney involved in the contract drafting process and make sure the credit union is adequately protected in the event that the crypto craze ends up being the modern day equivalent of the Tulip Frenzy.