NCUA Provides Guidance on Third-Party Digital Asset Service Providers

The National Credit Union Administration ("NCUA") provided guidance clarifying permitted activities and obligations with respect to relationships between federally insured credit unions ("FICUs") and the third-party providers of digital asset services. In a letter to credit unions, NCUA stated that the guidelines are intended to provide assistance to FICUs, bringing together vendors and members so that the parties are able to "negotiate and consummate transactions and other services related to digital assets."

Based on comments received from an NCUA Request for Information in July 2021, NCUA clarified that FICUs are not prohibited from partnering with the third-party providers of digital asset services that allow FICU members to "buy, sell, and hold uninsured digital assets with the third-party provider outside of the FICU." NCUA stated that FICUs "should fully evaluate the risks involved with digital asset activities, including legal risks, reputation risks, and economic risks." NCUA said it expects FICUs to (i) conduct proper due diligence, (ii) ensure compliance with consumer protection investor protection and anti-money laundering/terrorism finance laws, and (iii) provide adequate cybersecurity.

NCUA urged FICUs to evaluate their policies, procedures and agreements concerning the third-party provision of digital asset services to ensure appropriate internal controls and compliance with applicable law. NCUA also stated that FICUs should clearly disclose - when selling, advertising or otherwise marketing uninsured digital assets to members - that the products offered (i) are not federally insured, (ii) are not obligations of the FICU, (iii) are not guaranteed by the FICU, (iv) may be heavily speculative and volatile, (v) may have associated fees, (vi) may not allow member recourse and (vii) are being offered by a third party.

The NCUA added that it will provide further guidance on the rapidly evolving issues involving digital assets and distributed ledger technologies.