Kraken gets Fed account

Kraken’s Wyoming bank won a limited Federal Reserve account on March 4, giving a crypto firm direct access to the central bank’s payment rails for the first time. (kansascityfed.org) The approval came from the Federal Reserve Bank of Kansas City for Payward Financial, which does business as Kraken Financial and is chartered in Wyoming as a special purpose depository institution, a state bank built for digital-asset custody and payments. (kansascityfed.org) A master account is the Federal Reserve’s checking account for banks. It lets an institution settle payments in central bank money and connect to services such as Fedwire instead of routing dollars through a correspondent bank. (federalreserve.gov) Kraken said the account will let it move dollars faster for institutional clients and cut its dependence on intermediary banks. Banking Dive reported the account was approved for an initial one-year term, and Kraken said it can now settle directly on Fedwire. (blog.kraken.com) (bankingdive.com) The Federal Reserve did not give Kraken a standard bank account. The Kansas City Fed called it a “limited purpose account” with restrictions tailored to Kraken’s business model and risk profile under the Federal Reserve’s 2022 account-access guidelines. (kansascityfed.org) (federalregister.gov) Those 2022 guidelines created a three-tier review system for master-account requests. Institutions with novel charters or without federal deposit insurance face the highest level of scrutiny, and Banking Dive reported Kraken falls into Tier 3. (federalregister.gov) (bankingdive.com) The decision landed in a fight that has been running for years over whether crypto-focused banks should be allowed onto core payment infrastructure without going through traditional banks. Fed Vice Chair for Supervision Michelle Bowman said on March 11 that Kraken’s approval was a “pilot” to test how some nonbanks might access the system. (bankingjournal.aba.com) Critics in Congress quickly asked how the Federal Reserve weighed anti-money-laundering, consumer-protection and prudential risks before granting access. A March 26 letter from House Financial Services Committee Democrats to Kansas City Fed President Jeff Schmid said digital assets, tokenization and artificial intelligence were moving faster than the laws meant to govern financial risk. (democrats-financialservices.house.gov) The move also sharpened the contrast with Custodia Bank, another Wyoming crypto-focused bank that spent years in court trying to force the Federal Reserve to grant it a master account. CoinDesk reported on March 13 that Custodia’s case effectively ended days after Kraken received its limited account. (coindesk.com) For Kraken, the next test is not winning access but keeping it. The account is limited, time-bound and closely watched, which means the one-year pilot now doubles as a live test of whether a crypto-native bank can stay on Federal Reserve rails under bank-level oversight. (kansascityfed.org) (bankingjournal.aba.com)