exchanges must undergo KYC to enter the banking system

The Federal Reserve board announced the final guide to evaluate institutions that want to access the “master accounts”, which is the pass to the Federal Reserve payment system, a requirement for which companies linked to bitcoin (BTC) have worked to obtain.

In a press release published on the website of the Federal Reserve of the United States (FED), the board urges all banks in the system to use this new guide to review requests for access to accounts and payment services for that instance.

In essence, the new guide for assessing access to master accounts it contains guidelines very similar to those seen in May 2021, when the first proposal for guidelines for evaluating companies was published. Then, in March 2022, that document was reinforced with a complementary proposal, which led to the one approved today.

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In general, they are six basic principles that must be adhered to in order to to opt for the services of the United States Federal Reserve system.

The second principle has to do with avoiding credit, operational, settlement, cyber or other risks, both for the US payment system and in general. Nor should the Fed be prevented from applying its monetary policies by granting a master account to an applicant company.

Another principle relates to risks to the economy in general, so the institution applying for the account you must ensure that you do not promote money laundering, terrorist financing, fraud, cybercrime and other illegal activities.

For this, the interested company will have to comply, among other things, with the know-your-customer (KYC) protocols, in order to meet the requirements already seen.

Master accounts have been the object of attention of companies linked to bitcoin, such as Kraken, which has taken concrete steps to become a crypto bank. This to the point that he has requested access to the US payment system. As recognized by the Federal Reserve, “the number of institutions offering new types of financial products has grown in recent years”.

That is exactly why the US central bank is advancing in the new guidelines. With them they hope to provide a “coherent and transparent process” to evaluate applications “and support a secure, inclusive and innovative payment system,” according to Fed Vice President Lael Brainard.

Phased review

According to the guide itself, there will be a staggered review of applications, the degree of which will increase depending on the type of bank that intends to access the global payment system. The Fed defends that this framework will provide “additional clarity” on the scrutiny that will be applied to applicant entities.

“The tiered review framework in the final guidelines was refined to provide more comparable treatment among federally uninsured institutions registered under state and federal law,” the guidance explains.

Thus, at the first level will be institutions that have federal deposit insurance. In the second, banks that are not insured by the federal government, but are subject to the prudential supervision of a federal banking agency.

And in the third, banks not insured by the federal government and not subject to supervision, where could companies like Kraken fit in.

The guide will enter into force as soon as it is published in the Federal Register, and it will be from then on when companies linked to bitcoin choose to enter the global payments system formally and under the auspices of the Federal Reserve.