(Bloomberg) — Credit unions are looking for approval to hold digital assets like Bitcoin directly, after a federal regulator clarified they can provide cryptocurrency services to customers by partnering with third parties.
The National Credit Union Administration (NCUA) said in a letter published last week that credit unions with federally insured deposits can team up with third-party crypto service providers to allow their members to buy, sell, and hold digital assets–as long as certain conditions are met. The guidance is indicative of a broader trend toward the traditional financial services industry increasingly embracing digital assets as the space grows and matures.
The federal regulator’s recent letter confirms what many credit unions thought should be possible under existing rules, giving them the assurance they may need to move forward with partnerships, said Lance Noggle, senior director of advocacy for payments and cybersecurity at the Credit Union National Association.
Ultimately credit unions would like to be able to offer those products and services directly in the same way that banks can, Noggle said.
The Office of the Comptroller of the Currency, which regulates national banks, in July 2020 gave banks the green light to offer custody services for cryptocurrency–though more recently it said they must first get written permission from their supervisory office.
Without similar guidance, credit unions risk losing members to banks and seeing their industry “start to shrivel” because they can’t offer financial products and services that people want, Noggle said.
Ann Kossachev, vice president of regulatory affairs for the National Association of Federally-Insured Credit Unions, said her trade group is also seeking explicit approval for credit unions to offer cryptocurrency custody services.
But even if more financial institutions get permission to offer those services, some may decide the task is too complex and stick with specialized crypto providers.
Custody of Bitcoin and other digital assets isn’t the same as traditional assets, said Christian Catalini, the founder of the MIT Cryptoeconomics Lab. “If you’re custodying Bitcoin and somebody steals those Bitcoins, it’s much harder to claim them back.”
Clear Path for Partnerships
Noggle said his trade group will continue to work with the regulator in the hopes that more can be done to allow credit unions to provide cryptocurrency custody services.
But in the meantime, last week’s guidance should make credit unions more comfortable partnering with crypto firms if they were on the fence before.
“It’ll help credit unions that have been kicking the tires move ahead and have a bit of a road map of what the regulator will expect,” Noggle said.
Patrick Sells, chief innovation officer at Bitcoin servicer NYDIG, said his firm was already working with credit unions before the NCUA’s announcement and expects that by next summer a couple hundred will roll out Bitcoin products to their customers.
He’s expecting those numbers will rise now that the federal regulator has made it “abundantly clear” those partnerships are permitted.
NCUA said credit unions considering third-party arrangements should “fully evaluate the risks involved with digital asset activities, including legal risks, reputation risks, and economic risks.”
It also stressed that credit unions have a responsibility to safeguard their members’ assets.
(Updates with comment from Patrick Sells of NYDIG in 13th paragraph)
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