Finalization of the Federal Reserve Guidelines
On Monday, the Federal Reserve Board unveiled its finalized guidelines regarding the evaluation of Federal Reserve accounts and payment services requests. These new rules have established a three-tier review system that determines the level of scrutiny based on the applicant’s perceived risk.
A Brief History of the Guidelines
The journey to these guidelines hasn’t been a short one. The framework was first proposed in May 2021. After a couple of refinements, including a supplemental proposal in March, the final version, described as “substantially similar” to its predecessors, comes into effect following publication in The Federal Register.
What’s the Big Deal About These Guidelines?
The Fed has indicated that institutions engaging in novel activities—those ventures where authorities are still figuring out appropriate supervisory and regulatory responses—will face a more rigorous review process. This means if you’re trying to ride the wave of some groundbreaking tech or service, don’t be surprised if the Fed gives you the third degree!
Difference Between Insured and Non-Insured Institutions
One noteworthy aspect is the effort to level the playing field between federally insured and non-federally insured institutions. Perhaps this is a move to ensure that no institution feels like the underdog simply because of its insurance status—every dog deserves a fair shot, after all! However, for those non-federally insured institutions without a holding company under Federal Reserve supervision, get ready for the most severe scrutiny.
The Crypto Debate: A Slow Rollout
The Fed’s cautious approach to providing crypto banks with Federal Reserve accounts—often termed “master accounts”—has been a controversial hot potato among crypto bankers. The state of Wyoming, being at the forefront of trying to embrace modern financial technologies, established rules to facilitate the creation of “blockchain banks” back in 2019.
Recent Legal Tangles
A perfect illustration of the frustration in this area is Wyoming-based Custodia Bank, which filed a lawsuit against the Federal Reserve Board of Governors and the Kansas City branch, arguing that their wait time of 19 months for a master account exceeds the legally mandated limits. Talk about making a storm in a teacup!
Looking Ahead: The Road to Transparency
Federal Reserve Bank governor, Michelle Bowman, has pointed out that these new guidelines represent just the initial step toward establishing a more transparent review process. However, let’s not toss confetti just yet; she also cautioned against setting false expectations that reviews would suddenly be completed at warp speed. It turns out that the wheels of regulation tend to turn slowly—just like molasses on a cold winter’s day!
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