Gary DeWaal, special counsel and chair of Katten's Financial Markets and Regulation practice group, spoke with CoinDesk regarding the US Federal Reserve's recently released guidelines on the evaluation of applications seeking access to Reserve Bank master accounts and payment services. In particular, Gary offered his thoughts on how the guidance potentially opens the door a bit wider for crypto institutions looking to secure master account access.
Regarding the initial proposed guidelines, the Federal Reserve noted that it had received some comments that opposed granting account access to institutions with novel charters. The Fed's final guidelines indicated its rejection of such a ban, stating in part: "The Board does not believe that it is appropriate to categorically exclude all novel charters from access to accounts and services. The Account Access Guidelines as adopted are intended to be applied by Reserve Banks to access requests from eligible institutions with both novel and more traditional charters."
Gary told CoinDesk that the Federal Reserve's response is positive news for crypto applicants. Discussing the pushback in the comments, Gary said that "this is a classic case of the traditional versus the nontraditional, and I think the Fed has stood up well to the traditional and they said, 'We're not going to just say no.'"
"You can see that in the responses to the comments. To me that’s very significant, people should not underestimate that," he added.
The Federal Reserve's guidelines outline six principles to be used by Reserve Banks when evaluating master account applications, and further provide a three-tiered review framework regarding the "level of due diligence and scrutiny" to be applied to the various master account applicants. However, the CoinDesk article observed that while the guidelines provide a general roadmap for applicants, the Fed has left some things unclear – such as how applicants can satisfy the principles and how long the evaluation process might take. The article noted that the Fed may publish additional guidance to answer such questions.
"I think this is clearly a first step, but it's an important first step," Gary told CoinDesk. "... My hunch is the further guidelines that are published by the Reserve Bank will [see] more 'meat on the bones.'"
The CoinDesk article also touched on a pending lawsuit in which Custodia Bank, Inc. has alleged that the Federal Reserve failed to timely act on its application for a master account. CoinDesk reported that the defendants, the Federal Reserve Bank of Kansas and the Federal Reserve's Board of Governors, filed individual motions to dismiss the case. Gary explained that the Board’s central defense is that it is under no legal obligation to instruct the Kansas branch to approve a master account.
CoinDesk noted that Gary recently co-authored an advisory on the Federal Reserve's master account guidelines and the implications for the crypto industry. Corporate partner Christina Grigorian and Financial Markets and Funds partner Daniel Davis were also authors on the advisory.
"Crypto Banks Are One Step Closer to Reality Under New Fed Guidance," CoinDesk, August 23, 2022