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Federal Reserve: New guidelines for crypto banks released

The Federal Reserve released formal guidelines Monday afternoon to oversee the process by which “institutions offering new types of financial products or with new charters” could be granted “master accounts,” a key financial status that allows direct payments with and access to the Fed.

A master account allows financial institutions to be part of the global payment system without intermediary banks.

According to the press release, the regulator said that institutions offering new types of financial products have recently expanded 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.

The guidance was first proposed in May 2021, with a supplemental proposal issued in March, and the final guidance, which takes effect after publication in the Federal Register, is “substantially similar” to it. The Fed said in a statement that:

“Institutions that engage in new activities and for which authorities are still developing appropriate supervisory and regulatory frameworks would be subject to further review.”

New guidance that will provide a consistent and transparent process

Custodia, a crypto bank founded by former Morgan Stanley CEO Caitlin Long, sued the Federal Reserve in June, citing a 19-month delay in the Fed’s processing of the bank’s master account application. The Fed’s master account application documents cite a typical turnaround time of five to seven business days.

The delay is likely due to the Fed’s uncertainty about how to grant traditional banking powers to cryptocurrency-native institutions like Custodia and Kraken, which has yet to receive a response to its master account application. In January, Federal Reserve Chairman Jerome Powell explained the delay by the “extremely precedent-setting” nature of such a decision.

However, the Fed hopes that the guidelines released today will streamline the application review process for “new” institutions like Custodia and Kraken.

The new guidelines provide a consistent and transparent process for evaluating applications for Federal Reserve accounts and access to payment services to support a safe, inclusive, and innovative payment system,Fed Vice Chair Lael Brainard said in a statement.

The guidance establishes a tiered framework that organizes applicant institutions according to their perceived level of risk:

  1. Tier 1: federally insured applicants,
  2. Tier 2: institutions that are not federally insured but are still “subject to federal prudential supervision.”
  3. Tier 3: institutions that are neither federally insured nor subject to prudential supervision, but rather are subject to “a supervisory or regulatory framework that is significantly different from or weaker than that of federally insured institutions.”


Federal Reserve Bank Governor Michelle Bowman warned in a statement that the new guidelines “are only the first step in providing a transparent process. […] There is a risk that this release will give the impression that examinations will now be completed on an expedited basis.”

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