Fed to issue long-awaited guidelines for issuing master accounts to crypto banks

The US Federal Reserve Board finalized tiered guidelines on the issuance of Fed accounts, with Wyoming's crypto banks likely to face the most scrutiny.

The United States Federal Reserve Board announced on Monday that it has finalized its guidelines on factors that reserve banks should consider when reviewing requests for Federal Reserve accounts and payment services. The guidelines establish a three-tiered review framework, with the level of due diligence to be provided depending on the risk level of the applicant. The guidelines, which were first proposed in May 2021 and a supplemental proposal was published in March, are "substantially similar" to the final guidelines, which became effective upon publication in the Federal Register. In a statement, the Fed said: "Institutions that engage in new activities and for which the authorities are still developing appropriate supervisory and regulatory frameworks will undergo a more thorough review." However, the framework has been refined "to provide more comparable treatment between non-federally insured institutions licensed under state and federal law." Non-federally insured institutions that are authorized under federal law but do not have a holding company subject to Federal Reserve oversight will be subject to the strictest scrutiny. Financial institutions need a Federal Reserve account to access global payment systems. The Fed's slow approach to granting crypto banks access to Federal Reserve accounts, often referred to as "master accounts," has long caused backlash among crypto bankers. Wyoming introduced rules to allow "blockchain banks" in 2019. In June, Wyoming-based digital asset Custodia Bank sued the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City, claiming that the 19 months it waited to receive a master account exceeded legally set response time limits. The Lummis-Gillibrand Responsible Financial Innovation Act would create requirements for the Fed's responses to master account applications. Federal Reserve Bank governor Michelle Bowman warned in a statement that the new guidelines "are only the first step in ensuring a transparent process." [...] There is a risk that this publication creates the expectation that reviews will now be completed on an accelerated timeline."