š¦ Federal Reserve Releases New Guidelines for Crypto Banks š¦
The announcement could make it possible for American crypto banks to perform both crypto and traditional banking functions.
Up until now, American financial institutions that wanted to conduct both crypto transactions and traditional banking services have had to pick a lane.
That may soon change.
The Federal Reserve released formal guidelines this afternoon to oversee the process by which āinstitutions offering new types of financial products or with novel chartersā could be granted so-called āmaster accounts,ā a key financial status that allows for direct payments with, and access to, the Fed. All federally-chartered banks possess a master account.
The Fedās 49-page āFinal Guidanceā mentions the word "cryptocurrency" only once, when discussing the sort of novel institutions that may seek master accounts under these guidelines. But the subtext of todayās announcement is inextricably linked to the crypto industry.
Custodia, a crypto bank founded by former Morgan Stanley managing director Caitlin Long, sued the Federal Reserve in June, citing a 19-month delay in the Fedās processing of the bankās application for a master account. The Fedās application paperwork for a master account cites a typical turnaround time of five to seven business days.
The delay is likely due to the Fedās uncertainty over how to grant traditional banking powers to crypto-native institutions like Custodia and Kraken, which has also yet to hear back about its master account application. In January, Federal Reserve Chairman Jerome Powell chalked up the delay to the āhugely precedentialā nature of such a decision.
The Fed is hopeful, though, that todayās guidelines will help streamline the application review process for ānovelā institutions like Custodia and Kraken.
āThe new guidelines provide a consistent and transparent process to evaluate requests for Federal Reserve accounts and access to payment services in order to support a safe, inclusive, and innovative payment system," Fed vice chair Lael Brainard said in a statement.
The guidelines set up a tiered framework that organizes applicant institutions based on their apparent risk level. Tier 1 would consist of federally-insured applicants, and Tier 2 includes institutions that are not federally-insured but are still āsubject to federal prudential supervision."
Tier 3 includes institutions that are neither federally insured nor subject to prudential supervision, but rather subject to āa supervisory or regulatory framework that is substantially different from, and possibly weaker than⦠federally insured institutions.ā
Custodia, Kraken, and other similar crypto banks would likely fall into Tier 3.
Such a tiered system is largely consistent with language first proposedābut not adoptedāby the Fed in 2021.
https://decrypt.co/107507/federal-reserve-releases-new-guidelines-for-crypto-banks