Federal Reserve Board Introduces System for Evaluating Fintech Access to Services

The Federal Reserve Board on Monday (August 15, 2022) announced final guidelines that establish “a transparent, risk-based, and consistent set of factors for Reserve Banks to use in reviewing requests to access Federal Reserve accounts and payment services.”

The final guidelines are substantially “similar to those proposed by the Board in its May 2021 proposal and March 2022 supplemental proposal.”

Vice Chair Lael Brainard said:

“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.”

Institutions offering new types of financial products or with novel charters have grown in recent years and many “have requested access to accounts – often referred to as ‘master accounts’ – and payment services offered by Federal Reserve Banks.”

The guidelines will be “used by Reserve Banks to evaluate those requests with a transparent and consistent set of factors.”

The new guidelines “include a tiered review framework to provide additional clarity on the level of due diligence and scrutiny that Reserve Banks will apply to different types of institutions with varying degrees of risk.”

For example, institutions with federal deposit insurance “would be subject to a more streamlined level of review, while institutions that engage in novel activities and for which authorities are still developing appropriate supervisory and regulatory frameworks would undergo a more extensive review.”

In response to public comments, the tiered review framework in the final guidelines “was refined to provide more comparable treatment between non-federally-insured institutions chartered under state and federal law.”

The new guidelines will be “effective upon publication in the Federal Register.”

Last month, Federal Reserve Vice Chair Lael Brainard delivered a speech for the Bank of England. The topic of discussion was crypto-assets and financial stability, currently a hot subject.

Recently, digital asset markets have floundered causing several firms to cease operations. Tanking valuations have raised fears of crypto contagion. Recently, Voyager Digital filed for bankruptcy protection as crypto hedge fund Three Arrow Capital defaulted on a loan valued at over $650 million.

Brainard noted that digital asset markets were currently not large enough to create systemic risk but clearly the ecosystem is in dire need of greater regulation. Brainard said there is a need to distinguish between “responsible innovation and regulatory evasion.”

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