The U.S. Federal Reserve Bank has announced that it has finalized its guidelines for granting Federal Reserve accounts and payment services to financial institutions offering new types of financial services and institutions with novel charters, including digital asset banks.
In a press release, the Fed states that the guidelines will establish a transparent, risk-based, and consistent set of factors to be used in reviewing requests for access to its services.
The release adds that the guideline is tiered according to the amount of due diligence and scrutiny that Reserve Banks will apply to different institutions with varying degrees of risk.
“Institutions that engage in novel activities and for which authorities are still developing appropriate supervisory and regulatory frameworks would undergo a more extensive review,” according to the release.
Fed Vice Chair Lael Brainard said the guidelines are intended to make the payment system safe, inclusive, and innovative. The proposal will come into force after it is published in the Federal Register. However, according to a statement by Fed Governor Michelle W. Bowman, the guidelines are only the first step in providing a transparent review process. She added that entities applying for access to Fed accounts and services should not expect the review process to be completed on an accelerated timeline.
The guideline was first proposed in May 2021, with a supplementary proposal made in March 2022. The Fed notes that both the current final draft and the supplementary proposal are substantially similar to the first proposal.
Per the text of the proposal, the Federal Reserve Board has consistently based it on a foundation of risk management and mitigations. These risks possess, among others, risks to the Reserve Banks, the payment system, the financial system, and the effective implementation of monetary policy.
Fed finally ready to recognize digital assets banks
The guidelines have long been anticipated by digital asset banks who have been fighting to speed up the review process for gaining access to master accounts in the central bank. Back in June, the Federal Reserve Bank Board and the Federal Reserve Bank of Kansas City were dragged to court by Wyoming-based digital asset bank Custodia Bank.
Custodia argued that the Fed, which spent 19 months reviewing its application, had exceeded the legally set limits on response time. The bank also claims that the delay has seen it suffer great financial losses and kept it from offering new services to its customers.
Meanwhile, the guideline is not the only regulation that is looking to clarify the Fed’s treatment of digital asset banks. The Responsible Financial Innovation Act proposed by senators Cynthia Lummis (R-WY) and Kirsten Gillibrand (D-NY) will also create requirements for the Fed to respond to master account applications.
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