The US Federal Reserve Board announced on Monday that it had finalized guidelines on the factors reserve banks must take into account when reviewing applications for Federal Reserve accounts and payment services. The guidelines create a three-tier review framework with the level of due diligence to be provided, depending on the risk level of the applicant.
The guidelines were first proposed in May 2021, with a companion proposal published in March, and the final guidelines, which take effect upon publication in The Federal Register, are “substantially similar” to them. The Fed said in a statement that:
“Institutions that are engaged in novel activities and for which the authorities are still developing adequate supervisory and regulatory frameworks would be subject to a broader review.”
However, he continued, the framework was refined “to provide more comparable treatment between institutions not insured by the federal government and those incorporated under state law.” Non-federally insured institutions that are governed by federal law, but do not have a holding company subject to Federal Reserve oversight, will be subject to the strictest review. Financial institutions need an account at the Federal Reserve to access global payment systems.
The Federal Reserve’s slowness in granting crypto banks access to Federal Reserve accounts, often referred to as “master accounts”, has long drawn rejection from crypto bankers. Wyoming introduced rules to allow “blockchain banks” in 2019. In June, Wyoming-based digital asset bank Custodia sued the Federal Reserve Board of Governors and the Kansas City Federal Reserve Bank, claiming that the 19 months it had been waiting to receive a master account exceeded the legally established limits for response time.
The Lummis-Gillibrand Act on Responsible Financial Innovation would create requirements for Fed responses to master account requests.
The Governor of the Federal Reserve Bank, 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 publication sets the expectation that reviews will now be completed in an accelerated timeframe.”
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