Tag: ncua

US Credit Unions Gain Access to Partner with Crypto Assets Service Providers

The United States National Credit Union Administration (NCUA) has granted domestic credit unions that are under the aegis of the Federally Insured Credit Unions (FICUs) the permission to enter into business partnerships with third-party digital currency trading platforms.

As contained in a letter addressed to the credit unions, the NCUA said its aim is to eliminate all lack of clarity in the designated model in which the credit unions operate.

“The purpose of this letter is to provide clarity about the already existing authority of federally insured credit unions (FICUs) to establish relationships with third-party providers that offer digital asset services to the FICUs’ members, provided certain conditions are met. This includes third-party provided services to allow FICU members to buy, sell, and hold uninsured digital assets with the third-party provider outside of the FICU. Digital assets are one of many terms used to describe distributed ledger technology (DLT) based tokens,” the NCUA letter reads.

Following the new clarity provided, the NCUA said it is not prohibiting business associations with cryptocurrency-based firms to work under the new change and it said it will be approving all forms of proposed partnerships between its members and crypto firms in the near future.

The NCUA also said in the letter that it plans to establish a more robust guideline that will give clearer direction to credit unions in the country as it relates to Digital Assets service providers.  

“A [union’s] relationship with third parties offering [crypto-related] services and related technologies will be evaluated by the NCUA in the same manner as all other third-party relationships,” the regulator said, adding that “This includes a FICU exercising sound judgment and conducting the necessary due diligence, risk assessment, and planning when choosing to introduce or bring together an outside vendor with its members. FICUs should establish effective risk measurement, monitoring, and control practices for such third-party arrangements.”  

With this prompt, industry participants will not need to operate in a vacuum or do anything that will be against the law, the way the SEC is accusing Ripple of trading XRP coin as a security, stirring a lawsuit.

Consumer Caution: Payment Apps and the Risk of Uninsured Deposits

In the evolving landscape of financial services, nonbank payment app companies are revealing significant gaps in deposit insurance coverage compared to traditional bank and credit union accounts. These companies, often regulated as money services businesses (MSBs), are required to register with the U.S. Department of Treasury but are not subject to the same federal oversight as their traditional counterparts. Consequently, consumer deposits in these apps might lack crucial protections.

Payment apps have emerged as convenient alternatives to traditional banks, offering services such as payment transfers and stored value services that resemble deposit accounts. However, critical differences emerge when scrutinizing deposit insurance coverage. Traditional banks and credit unions provide depositors with Federal Deposit Insurance Corporation (FDIC) or National Credit Union Administration (NCUA) insurance, which safeguards deposits up to $250,000 in the event of institutional failure. On the other hand, deposit insurance for payment apps only applies if funds are deposited at an FDIC-insured bank or an NCUA-insured credit union.

Moreover, some payment apps, which often invest user funds and do not pay interest on balances, may lack transparency about where consumer funds are held and whether they are insured. Additionally, they might impose pre-conditions for deposit insurance, which can be difficult to verify. Importantly, deposit insurance does not protect against the failure of the nonbank company itself.

Furthermore, these companies might invest customer funds in risky non-deposit products, posing a risk of insolvency if investment values decline or if customers demand their funds all at once. In such cases, consumers may face significant delays in accessing their funds during bankruptcy proceedings.

Regulatory bodies, including the Consumer Financial Protection Bureau (CFPB) and the FDIC, have raised concerns about potential consumer confusion, leading to advisories against deceptive representations involving FDIC’s name, logo, or deposit insurance. The FDIC also proposed an update to rules regarding signage to clearly indicate where uninsured products are offered.

Consumers are advised to be aware of these risks when maintaining balances in nonbank payment apps. To minimize these risks, transferring balances back to federally insured accounts is recommended. Regulatory bodies will continue to monitor this growing segment of the payments ecosystem and consider further protective measures.

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