"This letter also signals to the broader financial and technology communities that credit unions are a market to consider when designing products, considering partnerships or making investments," he wrote.

Todd Harper (Source: NCUA)

Harper's letter followed a similar form as one in December, in which he said the NCUA would allow credit unions to hire third-party vendors for cryptocurrency as long as they abided by the same NCUA safety and soundness principles applied in other vendor relationships.

NAFCU had asked for guidance on digital assets in a letter sent to the NCUA last September. Greg Mesack, NAFCU's SVP of government affairs, thanked the NCUA for "for reducing regulatory uncertainties around digital assets."

"There is without a doubt a need for additional guidance from regulators on how credit unions can better adopt digital assets and emerging financial technologies," Mesack said.

"We appreciate that the NCUA heeded our call to adopt a form-agnostic approach to assessing how credit unions use digital assets and related technologies," he said. "We will continue to articulate the credit union industry's perspective on this topic and encourage the NCUA to continue building a sound digital assets regulatory framework."

Ryan Donovan, CUNA's EVP and chief advocacy officer, also thanked the NCUA for the guidance on distributed ledger technologies, "an issue CUNA has repeatedly asked the agency to address."

Ryan Donovan

"Many questions will likely persist regarding credit unions' ability to participate in the digital currency space," Donovan said. "We look forward to more detailed guidance from (the) NCUA on these issues as credit unions continue to explore the benefits of these technologies for their membership."

The most common distributed ledger technology is Blockchain, which supports Bitcoin and Ethereum. Both cryptocurrencies have traded wildly, especially since the start of 2021. Their values rose three- to four-fold from January to November 2021, then took a roller coaster plunge that accelerated in April, wiping out all of Bitcoin's gains since 2021 and nearly all of Ethereum's by Thursday.

Harper's letter started with the statement that the NCUA "supports initiatives by federally insured credit unions to better serve their members."

"The rapid emergence of financial technology is creating opportunities for credit unions to increase speed of service, improve security, and expand products and services," Harper wrote. "In this spirit, the board is exploring how the agency can provide clarity around expectations regarding financial technology adoption to not impede safe, fair and responsible federally insured credit union engagement."

"As with the internet at its inception, the NCUA recognizes that new technologies may transform how credit unions perform traditional financial operations and services," Harper wrote. "While DLT is maturing, the NCUA recognizes that cases for implementation may expand rapidly as the technology becomes more widespread and credit unions become more familiar with it."

The NCUA listed several steps credit unions should take "at a minimum." They included:

• The credit union's board of directors is notified of advancements in the underlying technology, the purposes of the technology, and how using DLT aligns with the credit union's strategic planning objectives and approved risk tolerances.
• Credit union staff and third parties using and managing the technology are complying with applicable laws and regulations and acting in a safe and sound manner.
• Effective risk-management practices are followed to identify, assess and mitigate risks associated with DLT and the specific activities for which it will be deployed.
• Risk assessment and audit functions can validate and attest to the effectiveness of risk mitigation practices in accordance with internal policy and industry leading practices.
• Credit unions must identify, assess and mitigate risks associated with DLT.