The US Federal Reserve issued final guidelines on August 15 which provide a clear, risk-based, and uniform set of parameters for reserve banks to consider when assessing permissions to use Federal Reserve accounts and payment solutions. The U.S. central bank appears to have taken a step further with the announcement by potentially giving Wyoming special-purpose depository institutions (SPDI), such as Custodia (previously Avanti) and Kraken Bank, access to these accounts so they wouldn’t require middleman banks. The final rules are pretty close to those provided by the boards in their proposals in May 2021 as well as in March 2022.
“The 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,” said Vice Chair Lael Brainard.
3-tiered review approach opted by US Federal Reserve
These proposed regulations feature a 3-tiered review approach to clarify the levels of investigative work and examination that reserve banks would conduct on various types of facilities with varying risk levels. Institutions having federal deposit insurance, for instance, would indeed be subjected to a more simplified level of evaluation, whereas institutions engaged in innovative activities for which officials are still creating adequate regulation and supervision structures would be subjected to a more thorough review. The tiered assessment approach in the finalised guidelines was updated in response to community feedback to ensure more similar treatment amongst non-federally covered organisations incorporated by federal and state law.
Under the guidelines, banks in Tier 1 will be backed by the government. In Tier 2, banks will not be government covered, but they will be “subject to regulatory oversight by a banking supervision authority.”
The third category includes organisations that are “not federally covered and are therefore not subjected to financial supervision by a federal banking institution,” which mostly includes Wyoming crypto banks.
“Several commentators, on the contrary, suggested that the Suggested Standards make it more difficult for organisations with new charters to acquire account access and services. Numerous of these respondents stated that irrespective of the bank’s business strategy, the proposed guidelines must bind non-federally covered organisations to the exact same sorts of standards as federally guaranteed banking institutions.