US' Fed announces guidelines on payment services access

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

As the board mentions, the new guidelines provide a consistent and transparent process to evaluate requests for Federal Reserve accounts and access to payment services. This has been done in the attempt to support a safe, inclusive, and innovative payment system.

An updated framework

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.

Reporting crypto activity to Fed

The Federal Reserve (Fed) has also issued guidelines for banking institutions participating in crypto-related activity and potentially adopting digital assets. The financial institution sees the nascent asset class as a risk factor to the current financial system and to consumers investing capital in the sector.

In that sense, the Fed wants all US banks and financial institutions under their supervision to notify them of activities or if they are looking to engage in crypto-related activities. As regulators in the US see it, digital assets have several potential vulnerabilities. The financial institution shares this view.

The Fed’s opinion on the matter is that the underlying technology powering crypto is nascent and evolving and could pose a novel risk in matters related to cybersecurity. In addition, the financial institution argued that cryptocurrencies are a tool that could facilitates money laundering and illicit financing, although the institution did not come with metrics to support the claims.

For banking institutions engaging in crypto-related activities, the risk could be greater as they could face legal and consumer compliance risks from regulatory uncertainty regarding some crypto assets and potential lawsuits from the loss of capital, as the institution says. However, the same risk could be attributed to any companies or entities operating in the legacy financial system. The Fed’s main concerns seem related to the potential for digital assets to disrupt the system if adopted at large scale.