WASHINGTON—America’s Credit Unions is urging the Federal Reserve to strengthen anti-money laundering and supervisory safeguards before moving forward with a proposal that would provide certain financial institutions with a new type of limited-purpose account at the central bank, arguing the current framework could expose the payment system to greater operational and illicit finance risks.
In a comment letter submitted to the Federal Reserve, the trade group said it supports many elements of the Fed’s proposed Payment Account framework, including maintaining existing statutory eligibility requirements for institutions seeking access to Federal Reserve accounts. However, it said the proposal should be revised and reissued for public comment after the Fed develops a more detailed supervisory and examination framework for institutions that would hold the new accounts.
America’s Credit Unions said the proposal lacks sufficiently specific Bank Secrecy Act and anti-money laundering safeguards, particularly for uninsured institutions and entities engaged in crypto-related business activities that may not be subject to federal prudential supervision. The organization said informational reporting requirements alone are not an adequate substitute for formal examinations and inspections.
Growing Fraud Cited
The letter cited growing fraud involving cryptocurrency, including Federal Trade Commission data showing a sharp increase in losses tied to Bitcoin ATM scams and a recent FBI warning about cryptocurrency investment scams targeting older Americans. The group argued that allowing crypto-adjacent entities direct access to Federal Reserve payment infrastructure without comparable oversight could make it easier for illicit funds to move through the financial system.
At the same time, America’s Credit Unions endorsed several risk controls included in the proposal, including prohibiting Payment Account holders from earning interest on balances, accessing discount window lending or incurring overdrafts. It said those restrictions appropriately reduce credit risk while preventing the accounts from functioning as investment vehicles or competing for deposits that support lending by traditional financial institutions.
The organization also encouraged the Federal Reserve to take additional time reviewing applications from institutions with novel business models and to publish aggregate data on Payment Account requests and approvals to improve transparency.
Caution Over Expansion
Separately, the trade group cautioned the Federal Reserve against broadly expanding fintech firms’ access to Federal Reserve infrastructure under a recent executive order without first conducting a thorough public review of the operational and financial stability risks. The letter pointed to the 2023 Silicon Valley Bank failure and the temporary loss of USDC’s dollar peg as evidence of the interconnectedness between digital assets and the traditional banking system.
The letter was signed by Andrew Morris, director of innovation and technology for America’s Credit Unions.
