CHEYENNE, Wyo.–Cryptocurrency exchange Kraken’s banking unit has gained access to the Federal Reserve’s payments system through a limited-purpose account, the first U.S. digital-asset bank to do so. The move raises “questions,” America’s Credit Unions said, while banks groups said the move has “significant risks.”
As a result of the Fed decision, Kraken Financial will be able to use its limited master account to link directly to core U.S. payment systems such as Fedwire, avoiding intermediary banks and enabling faster, more efficient fiat transfers for institutional clients, while reducing operational complexity and costs, the company said in a blog post.
While Kraken would not receive the wider range of privileges granted to banking institutions with a full master account, the move is still a major win for the digital-assets industry as they are increasingly incorporated into traditional markets and attracting more interest from institutional investors.
‘Landscape is Actively Evolving’
“As we know, the payments landscape is actively evolving,” Kansas City Fed President Jeff Schmid said in a statement. “Throughout this transformation, the integrity and stability of the U.S. payments system remain our priority.”
The account was approved for an initial one-year term, with services to be introduced in phases, starting with the support for institutional client activity at Kraken.
“This milestone marks the convergence of crypto infrastructure and sovereign financial rails. With a Federal Reserve master account, we can operate not as a peripheral participant in the U.S. banking system, but as a directly connected financial institution,” Arjun Sethi, Co-CEO of Payward and Kraken, said in a statement.
America’s Credit Unions Responds
“The Federal Reserve’s decision to grant limited master account access to Kraken Financial underscores the importance of transparency and clear process when evaluating novel requests for access to Federal Reserve services,” said America’s Credit Unions President and CEO Scott Simpson in a statement. “America’s Credit Unions has supported the development of consistent guidelines and thoughtful safeguards to address potential risks associated with new types of applicants.
“At the same time, moving forward before the Board of Governors has completed its review of comments on the proposed Payment Account Prototype raises questions about how these evolving frameworks will ultimately be applied,” Simpson continued. “Additional clarity around the scope of the access granted would also be helpful, particularly given the Board’s own discussion of how certain account features, such as borrowing privileges like the discount window or intraday credit, could increase risk to the Reserve Banks.
“As the Federal Reserve continues evaluating these issues, transparency and consistent application of policy will be essential to maintaining confidence in the process.”
Bankers Respond
Two bank groups also responded to the announcement:
- “There are significant risks to expanding direct Fed account access to institutions that operate outside the traditional banking regulatory framework,” Rebeca Romero, CEO of the Independent Community Bankers of America, said in a statement. “The Fed should continue limiting master account access to institutions that meet the financial services sector’s highest standards.”
- “This action ignores public comment that the Federal Reserve sought on this framework, and it was issued with no transparency into the process for approval or the risk mitigants that have been imposed t co-head of regulatory affairs with the Bank Policy Institute, said in a statement.
