Notice2021-15948
Request for Information and Comment on Digital Assets and Related Technologies
Primary source
Metadata and text below are from the Federal Register, a public-domain U.S. government work. Always verify the official published version before relying on it for any legal matter.
Published
July 27, 2021
Issuing agencies
National Credit Union Administration
Abstract
The NCUA Board (Board) is gathering information and soliciting comments from interested parties regarding the current and potential impact of activities connected to digital assets and related technologies on federally insured credit unions (FICUs), related entities, and the NCUA. The NCUA is broadly interested in receiving input on commenters' views in this area, including current and potential uses in the credit union system, and the risks associated with them.
Full Text
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<title>Federal Register, Volume 86 Issue 141 (Tuesday, July 27, 2021)</title>
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[Federal Register Volume 86, Number 141 (Tuesday, July 27, 2021)]
[Notices]
[Pages 40213-40216]
From the Federal Register Online via the Government Publishing Office [<a href="http://www.gpo.gov">www.gpo.gov</a>]
[FR Doc No: 2021-15948]
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NATIONAL CREDIT UNION ADMINISTRATION
[NCUA 2021-0102]
Request for Information and Comment on Digital Assets and Related
Technologies
AGENCY: National Credit Union Administration (NCUA).
ACTION: Notice; request for information and comment.
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SUMMARY: The NCUA Board (Board) is gathering information and soliciting
comments from interested parties
[[Page 40214]]
regarding the current and potential impact of activities connected to
digital assets and related technologies on federally insured credit
unions (FICUs), related entities, and the NCUA. The NCUA is broadly
interested in receiving input on commenters' views in this area,
including current and potential uses in the credit union system, and
the risks associated with them.
DATES: Comments must be received on or before September 27, 2021 to
ensure consideration.
ADDRESSES: You may submit comments by any one of the following methods
(Please send comments by one method only):
<bullet> Federal eRulemaking Portal: <a href="http://www.regulations.gov">http://www.regulations.gov</a>.
Follow the instructions for submitting comments for NCUA Docket 2021-
0102.
<bullet> Fax: (703) 518-6319. Include ``[Your name] Comments on
``Request for Information and Comment on Digital Assets and Related
Technologies.''
<bullet> Mail: Address to Melane Conyers-Ausbrooks, Secretary of
the Board, National Credit Union Administration, 1775 Duke Street,
Alexandria, Virginia 22314-3428.
<bullet> Hand Delivery/Courier: Same as mailing address.
Public Inspection: You may view all public comments on the Federal
eRulemaking Portal at <a href="http://www.regulations.gov">http://www.regulations.gov</a> as submitted, except
for those we cannot post for technical reasons. NCUA will not edit or
remove any identifying or contact information from the public comments
submitted. Due to social distancing measures in effect, the usual
opportunity to inspect paper copies of comments in the NCUA's law
library is not currently available. After social distancing measures
are relaxed, visitors may make an appointment to review paper copies by
calling (703) 518-6540 or emailing <a href="/cdn-cgi/l/email-protection#f8b7bfbbb5999194b8969b8d99d69f978e"><span class="__cf_email__" data-cfemail="0d424a4e406c64614d636e786c236a627b">[email protected]</span></a>.
FOR FURTHER INFORMATION CONTACT: Policy and Analysis: Scott Borger,
Senior Financial Modeler and Todd Sims, National Payment Systems
Officer, Office of National Examinations and Supervision, (703) 518-
6640; Legal: Thomas Zells, Senior Staff Attorney, Office of General
Counsel, (703) 518-6540; or by mail at National Credit Union
Administration, 1775 Duke Street, Alexandria, VA 22314.
SUPPLEMENTARY INFORMATION:
I. Background
NCUA Overview
The NCUA is an independent federal agency that insures shares at
FICUs, protects the members who own credit unions, and charters and
regulates federal credit unions (FCUs). The NCUA is charged with
protecting the safety and soundness of credit unions and, in turn, the
National Credit Union Share Insurance Fund (NCUSIF) through regulation
and supervision. The NCUA's mission is to ``provide, through regulation
and supervision, a safe and sound credit union system, which promotes
confidence in the national system of cooperative credit.'' \1\ The NCUA
also works to protect credit union members and consumers. Consistent
with these aims, the NCUA has statutory responsibility for a wide
variety of regulations that protect the credit union system, members,
and the NCUSIF.
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\1\ <a href="https://www.ncua.gov/about-ncua/mission-values">https://www.ncua.gov/about-ncua/mission-values</a>.
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Decentralized Finance, Digital Assets, and Related Technologies
Decentralized Finance (DeFi) is the broad category of applications
adopting peer-to-peer networks, Distributed Ledger Technology (DLT),
and related uses, such as smart contracts, to create digital assets
like cryptocurrency and crypto-assets, clearing and settlement systems,
identity management systems, and record retention systems.\2\ As noted,
DLT is the digital process to record transactions that are behind many
of these innovations. DLT consists of a shared electronic database
where copies of the same information are stored on a distributed
network of computers. This shared immutable digital ledger both ensures
the data cannot be altered and serves to add new information to the
database. Information is only added to the distributed ledger when
consensus is reached that the information is valid. As a result, any
attempt to modify the information on one computer will not impact the
information on other computers. ``Blockchains'' are one type of
distributed ledger. In a blockchain, a chronological record of all
transactions is created and stored on the ledger by sequentially
grouping all transactions together in blocks.
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\2\ There are a number of terms used to describe DLT-based
tokens, including virtual currencies, cryptocurrencies, crypto-
assets, utility tokens, and digital assets. There are a variety of
reasons these terms have evolved including the fact that these
digital tokens fail to exhibit the qualities of a currency, and
therefore, should not be confused by a term like cryptocurrencies.
The term DeFi recognizes that because DLT has been used to develop a
broader set of financial products beyond value transfer mechanisms,
DeFi encompasses a broader range of different digital and financial
products including settlement systems, security-like and equity-like
financial instruments, non-fungible tokens, and discount tokens.
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Digital assets can be transferred between two people without an
intermediary. However, as a practical matter, most members of the
public do not have a means of converting dollars into digital assets on
their own. Software developers and entrepreneurs have created exchanges
to facilitate the exchange of dollars for digital assets and digital
wallets to provide customers a convenient way to store their encryption
keys required to verify ownership of their digital assets. These
entities serve as intermediaries in the new digital ledger payment
systems.
Since the introduction of DLT, thousands of projects have used the
technology to lower the cost of verifying ownership, storing
distributed data, or tracking information. The projects have covered
everything from tracking ownership in national land registries to
tracking the history of a product in the food supply chain. While DeFi
offers a number of potential benefits and opportunities for the credit
union system, it also presents several risks, for example: (1) The
permanent nature of the transactions necessitates questions about
consumer recourse for fraudulent financial activities; (2) the ability
to source funds for new projects has the downside of individuals or
groups manipulating the price of tokens; (3) the storage of digital
assets poses risks of lost or stolen cryptographic keys; and (4) the
ability to transfer value through peer-to-peer networks creates
unregulated money transmitters that could provide liquidity to those
who want to launder money or participate in tax-avoidance schemes.
The NCUA is publishing this request for information with the aim of
engaging the broad credit union industry and other stakeholders and
learning how emerging DLT and DeFi applications are viewed and used.
The NCUA hopes to learn how the credit union community is using these
emerging technologies and gain additional feedback as to the role the
NCUA can play in safeguarding the financial system and consumers in the
context of these emerging technologies. The accelerating pace of change
information technology brings, coupled with the widespread diffusion of
computing power and the growing importance of networks, is raising new
opportunities and challenges. In order to continue to fulfill its
mandate to maintain a safe and sound credit union system and protect
credit union members, the NCUA is working to better understand the
implications of these changes and the associated benefits or challenges
that may exist.
II. Request for Comment
The Board seeks comments on the current and potential impact of
[[Page 40215]]
activities related to DLT and DeFi on the credit union system. The NCUA
is broadly interested in receiving input on parties' views in this
area, including current and potential uses. Commenters are also
encouraged to discuss any and all relevant issues they believe the
Board should consider with respect to these technologies and related
matters. The Board reiterates that this request for information does
not modify any existing requirements applicable to FICUs and does not
grant FICUs any new authorities or limit any existing authorities. The
request for information does not speak to the permissibility or
impermissibility of any specific activity.
Questions Regarding Usage and the Marketplace
1. How are those in the credit union system currently using or
planning to use DLT and DeFi applications?
2. What, if any, DLT or DeFi applications are those in the credit
union system currently engaging in or considering? Please explain,
including the nature and scope of the activity. More specifically:
a. What, if any, types of specific products or services related to
these technologies are those in the credit union system currently
offering or considering offering to members? Are credit union members
asking for specific products or services related to these technologies?
b. To what extent are those in the credit union system engaging in
or considering DeFi applications or providing services related to
digital assets that have direct balance sheet impacts?
c. To what extent are those in the credit union system engaging in
or considering DLT for other purposes, such as to facilitate internal
operations?
d. To what extent, if any, are those in the credit union system
aware of cross-jurisdiction or cross-border transactions related to DLT
and digital assets.
3. In terms of the marketplace, where do those in the credit union
system see the greatest demand for DeFi application services, and who
are the largest drivers for such services?
4. Are there new developments that might affect use of DeFi
applications by those in the credit union system in the future?
5. Are DeFi applications a competitive threat for those in the
credit union system?
6. What concerns, if any, do those in the credit union system have
related to current statutory or regulatory limitations on their ability
to utilize DeFi applications? Are there any changes that would
influence the credit union system's ability to utilize DeFi
applications?
7. Apart from anything listed in this Request for Information, what
other actions should the NCUA take? Please be as precise as possible,
including, but not limited to, necessary regulatory changes, additional
guidance, and legal opinions.
Operational Questions
8. What are the advantages and disadvantages of FICUs developing
DLT and DeFi projects through third-party relationships versus through
a credit union service organization (CUSO)?
9. How dependent will FICUs be on third-party software and open-
source libraries for their own DLT projects?
Questions Regarding Risk and Compliance Management
10. To what extent are existing risk and compliance management
frameworks designed to identify, measure, monitor, and control risks
associated with various DLT and DeFi applications? Do some DLT and DeFi
applications more easily align with existing risk and compliance
management frameworks compared to others? Do, or would, some DLT and
DeFi applications result in FICUs developing entirely new or materially
different risk and compliance management frameworks?
11. What unique or specific risks are challenging to measure,
monitor, and control for various DLT and DeFi applications? What unique
controls or processes are or could be implemented to address such
risks?
12. What unique benefits or risks to operations do FICUs consider
as they analyze various DLT and DeFi applications?
13. How are FICUs integrating, or how would FICUs integrate,
operations related to DLT and DeFi applications with legacy FICU
systems?
14. Please identify any potential benefits, and any unique risks,
of particular DLT and DeFi applications to FICUs and their members.
15. What impact will DLT and DeFi applications have on FICUs'
earnings? How will FICUs ensure they account for any negative impact,
such as potential lost interchange income as peer-to-peer transactions
grow?
16. How are those in the credit union system integrating these new
technologies into their existing Information Technology environment
securely, including existing cybersecurity functions and data privacy/
data protection policies? How are the risks in this area being
evaluated?
17. What considerations have commenters given to how to maintain
continued compliance with State and Federal laws and regulations that
may be applicable to various DLT and DeFi applications, including, but
not limited to, those governing securities, Bank Secrecy Act (BSA) and
anti-money laundering, and consumer protection? Have those obligations,
or uncertainty related to potential obligations, impacted commenters
DLT and DeFi activities? How do commenters' DLT and DeFi activities
address requirements in these areas?
18. How specifically do DLT and DeFi projects in the credit union
system address BSA and Know Your Customer (KYC) requirements?
19. How can FICUs address fraud and other consumer protections with
an immutable digital ledger? How can FICUs ensure continued compliance
with any applicable consumer protection requirements that may arise
with various DLT and DeFi applications, such as obligations related to
fair lending, electronic funds transfers, and funds availability?
20. If utilizing, or planning to utilize, any of these or related
technologies, what steps have been taken in providing the services and
what has been done to ensure the services are being utilized safely and
in compliance with all applicable laws and regulations? Please
describe:
a. The process for developing a sound business case and presenting
it to the board of directors for approval;
b. The process for ensuring the consideration of all of the risks
and risk categories;
c. The level of due diligence performed on any vendors or third
parties and whether the vendors were a new entry in the market or an
established technology provider;
d. The process for assessing the quality and level of internal
information systems and technology staff to support systems and
applications; and
e. The process for developing internal oversight of the program.
Questions Regarding Supervision and Activities
21. Are there any unique aspects the NCUA should consider from a
supervisory perspective?
22. Are there any areas in which the NCUA should clarify or expand
existing supervisory guidance to address these activities?
23. The NCUA's Part 721 application procedures may be applicable to
certain DLT activities.\3\ Is additional clarity
[[Page 40216]]
needed? Would any changes to NCUA's regulations be helpful in
addressing uncertainty surrounding the permissibility of particular
types of DLT activity, in order to support FICUs considering or
engaging in such activities?
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\3\ 12 CFR part 721.
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Questions Regarding Share Insurance and Resolution
24. Are there any steps the NCUA should consider to ensure FICU
members can distinguish between uninsured digital asset products and
insured shares?
25. Are there distinctions or similarities between stablecoins
(cryptocurrencies that are backed by a currency like the U.S. Dollar
and are designed to have a stable value compared to other
cryptocurrencies) and stored value products where the underlying funds
are held at FICUs and, for which pass-through share insurance may be
available to members in limited scenarios?
26. If the NCUA were to encounter any of the digital assets use
cases in the resolution process or in a conservatorship capacity, what
complexities might be encountered in valuing, marketing, transferring,
operating, or resolving the DeFi activity? What actions should be
considered to overcome the complexities?
Additional Considerations
Commenters are invited to address any other DLT and DeFi
applications or related information they seek to bring to the NCUA's
attention. Commenters are encouraged to provide the specific basis for
their comments and, to the extent feasible, documentation to support
any comments.
Authority: 12 U.S.C. 1756 and 1784.
By the National Credit Union Administration Board on July 22,
2021.
Melane Conyers-Ausbrooks,
Secretary of the Board.
[FR Doc. 2021-15948 Filed 7-26-21; 8:45 am]
BILLING CODE 7535-01-P
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</html>Indexed from Federal Register on July 27, 2021.
This is legal information, not legal advice. Laws vary by jurisdiction and change frequently. Always verify current law with official sources and consult a licensed attorney in your jurisdiction for advice on your specific situation.