The decision to grant a cryptocurrency firm a “limited-purpose” master account within the Federal Reserve System while crypto regulations are under consideration creates serious risk for consumers and the financial system, the American Bankers Association said.
Kraken Financial has been granted a one-year, limited-purpose account that includes restrictions and limitations tailored to the company’s business model, the Federal Reserve Bank of Kansas City announced today. The Wyoming-based crypto firm is a Tier 3 entity under Fed guidelines, which means it is not federally insured and not subject to supervision by a federal banking agency. It is the first crypto firm to be granted an account.
The Kansas City Fed said the decision to grant an account is based on particular facts and circumstances of each applicant, including a risk-based assessment of the institution’s business model. As for what limitations were applied to Kraken’s account, the Kansas City Fed said it does not disclose specific information about account holders’ access to Fed financial services.
The Federal Reserve Board of Governors is currently seeking comment on whether to create “skinny” master accounts that would provide basic payment services to legally eligible institutions but would lack many of the features of actual master accounts. Kraken was not granted a skinny account.
In a statement, ABA SVP Brooke Ybarra said the Fed’s decision is another example of agencies taking significant action while the rules are still a work in progress, “creating risk for the financial system, consumers and the economy.”
“With so many related issues still unsettled, including final Genius Act rules and the development of a ‘skinny’ master account framework, we have serious questions about why regulators are granting access to the Fed payment system and charters before completing the public notice and comment process that will inform any official guidance,” Ybarra said. “This action puts the cart so far ahead, that the horse will never be able to catch up.”
