New Legal Guidance Brings Crypto Companies Closer to Federal Reserve Accounts
On Monday, the U.S. Federal Reserve Board announced that it has finalized its guidance on the factors Reserve Banks should consider when reviewing applications for Federal Reserve accounts and payment services.
The guidance establishes a three-tiered review framework, with the level of due diligence depending on the risk level of the applicant.
The guidelines were first proposed in May 2021, with a supplemental proposal published in March, and the final guidelines, which take effect after publication in the Federal Register, are similar to them. In its statement, the Fed said:
“As a result of negotiations, the Federal Reserve (Fed) adopted the following guidelines in late 2014:
Institutions engaged in new activities for which the agencies are still developing appropriate supervisory and regulatory frameworks will be subject to the broader review.”
Refinements were also introduced in the framework “to provide more comparable treatment to institutions that are not federally insured and licensed under state and federal law.” Non-federally insured institutions that are licensed under federal law but do not have a holding company subject to Federal Reserve supervision are subject to the most rigorous scrutiny. Financial institutions need an account with the Federal Reserve to access global payment systems.
The Fed’s slow approach to granting crypto banks access to Federal Reserve accounts often referred to as “master accounts” has long caused consternation among crypto bankers.
Crypto institutions are closing in on Federal Reserve accounts
Wyoming introduced rules in 2019 that allow “blockchain banks” to exist. In June, Wyoming-based digital asset bank Custodia Bank filed a lawsuit against the Federal Reserve Board and the financial institution’s Kansas City branch, alleging that the 19-month wait to receive a principal account exceeded statutory response deadlines.
The Loomis/Gillibrand Act would create requirements for Fed responses to ledger requests. Fed Governor Michelle Bowman cautioned in a statement that the new guidance “is only the first step in ensuring a transparent process. […] There is a risk that this release will create an expectation that reviews will now be conducted on an accelerated timeline.”