The U.S. Federal Reserve said on August 15 that it plans to publish guidelines for crypto firms to access Fed master accounts and payment services.
A master account allows financial institutions to be part of the global payments system without intermediary banks.
According to the press statement, the regulator said institutions offering new types of financial products have grown recently, and many are requesting access to master accounts. The regulator added that it will issue new guidelines to review these requests and ensure a transparent and consistent decision.
Vice-chair Lael Brainard said:
“The new guidelines provide a consistent and transparent process to evaluate requests for Federal Reserve accounts and access to payment services to support a safe, inclusive, and innovative payment system.”
The proposal for guidance started in 2021, with the Fed receiving nearly 300 public comments.
How will the guidance work
According to the press release, the Fed can modify the evaluation process for the applying financial institution depending on their level of risk.
Curious to hear what @GeorgeSelgin, @manmohanDCsingh, and @DavidBeckworth think of this new Tiered framework for granting a Fed Master Account. https://t.co/0cje7Bq0rm pic.twitter.com/rb01ITYzMj
— Matthew Pines (@matthew_pines) August 15, 2022
Tier 1 banks are federally insured institutions, while Tier 2 are not federally insured, but they are “subject to prudential supervision by a federal banking agency.”
The standard of review for the first two tiers is not the same as firms in Tier 3. These include firms that “engage in novel activities and for which authorities are still developing appropriate supervisory and regulatory frameworks.”
The press release stated that the final guidelines would ensure that non-federally insured institutions chartered under state and federal law have a similar review process based on the public comments.
Custodia sues Fed for delayed response
Wyoming-based crypto firm Custodia had sued the Federal Reserve over its delayed response on its master account application in June.
According to Custodia, the Fed adopted a procedure that allowed it “to act in complete secrecy, whenever and however they choose.”
The Fed response to the lawsuit is due on August 16.
Kraken had also requested access to the Fed master account. The crypto exchange and Custodia got routing numbers this year.