The news: The Federal Reserve released a set of long-awaited guidelines that outline how crypto firms can access master accounts at the Fed, per a press release.
‘New types of products’: The guidelines don’t mention crypto, bitcoin, or any other type of digital asset by name. Instead, the Fed says the guidelines were needed because more firms are offering new types of financial products and requesting access to master accounts and payment services the Fed offers.
The guidelines sort applicant institutions into three levels, and the application review becomes more stringent at each level.
- Tier 1 represents applicants that are federally insured. These institutions are subject to strict regulatory requirements and embody the lowest risk level.
- Tier 2 contains applicants that are not federally insured, but are subject to federal prudential supervision. These firms follow regulatory frameworks similar to those for federally insured institutions but not identical. Therefore they represent a slightly higher risk.
- Tier 3 applicants are neither federally insured nor subject to prudential supervision by a federal banking agency. These institutions are generally subject to a substantially different regulatory framework and likely pose the greatest level of risk.
The Fed first released proposed guidelines and sought comments on them last year, which it took into account when it finalized and released updated guidelines this week. Notably, some of the comments called for tier 3 applicants to be regulated under the same framework as federally insured institutions.
The bigger picture: While the guidance does not specifically call out crypto firms, many in the industry consider it applicable and believe these firms fall within tier 3. Currently, most crypto firms work with an intermediary bank to obtain master account access. But a few have applied for direct access.
- Digital asset bank Custodia, which applied for a master account shortly after it gained its Wyoming bank charter in 2019, later sued the Federal Reserve for not giving a response within the one-year time frame that Custodia said it’s legally obligated to abide by.
- Another digital asset firm, Kraken Bank, also applied for a master account in 2021.
Both banks received a routing number from the Fed, but the status of their applications is still pending.