The rules of banking and crypto are changing once again as the Federal Reserve has released new formal guidelines. These new rules will oversee processes of institutions “offering new types of financial products” and regulations for offering “master account” status which is a key financial status that allows direct payments and access to the Fed. All federally charted banks possess a master account.
The rules were set in a “Final Guidance” that was 49 pages long and only mentions crypto once in the entire document. This one time was while discussing novel institutions that may be able to get a master account under the new guidelines.There is indeed subtext that is linked to crypto in the document and this may mean new things for the crypto industry as a whole.
The Federal Reserve was sued this past June by crypto bank Custodia due to a 19-month delay in the Fed’s processing of the bank’s application for a master account. This time frame was way past the typical turnaround of five to seven business days. Banks like Custodia and Kraken pose a new challenge to the Federal Reserve as the entity seeks to find proper ways to grant traditional banking powers to institutions that deal with crypto. The new guidelines are set to aid in streamlining this process.
The guidelines are very transparent and consistent. The process is efficient enough to aid the Federal Reserve in processing requests. This will suffice in supporting a safe , inclusive, and innovative payment system according to Fed vice chair Lael Brainard. With the guidelines a tiered framework has been set.
The framework will organize institutions based on their risk level. Tier 1 would be applicants that are federally insured, tier 2 includes those that are federally insured but still need to be prudently supervised by the federal government. Tier 3 includes those that are not insures and don’t need to be supervised. Those in tier 3 are subject to supervision or regulatory framework that is not the same as those institutions that are federally insured. Custodia would likely be a frame 3 platform based off of the new rules.
The question came about services being offered to high-risk institutions. The Fed was clear they “do not establish legal eligibility standards but they do establish a framework that is risk-focused and able to evaluate access requests from institutions that are legally eligible under federal law.
