Monday, February 10, 2025
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Last week, the US Federal Reserve Board (Fed) released its final guidelines for reviewing requests for access to Federal Reserve accounts and payment services. The final guidelines—which closely resemble those proposed by the Board in its May 2021 proposal and March 2022 supplemental proposal—will offer a three-tiered method for evaluation and final approval.

According to the corresponding press release issued by the Fed: “Institutions offering new types of financial products or with new charters have grown in recent years, and many have requested access to accounts—often called ‘master accounts’—and payment services offered by Federal Reserve Banks . The guidelines will be used by Reserve Banks to assess those claims against a transparent and consistent set of factors.

“The new guidance includes a tiered review framework to provide additional clarity on the level of due diligence and control that Reserve Banks will apply to different types of institutions with different degrees of risk. For example, institutions with federal deposit insurance would be subject to a more stringent level of review, while institutions that engage in new activities and for which authorities are still developing appropriate supervisory and regulatory frameworks would be subject to more extensive review. In response to public comments, the tiered review framework in the final guidance has been improved to allow for more comparable treatment between nonfederally insured institutions authorized under state and federal law.”

Fed Vice President Lael Brainard said in a press release: “The new guidance provides a consistent and transparent process for evaluating applications for Federal Reserve accounts and access to payment services to support a secure, inclusive and innovative payments system.”

According to the committee’s August 2 memo: Proposed Guidelines for Evaluating Applications for Accounts and Services at Federal Reserve Banks:

  • “Tier 1 would consist of eligible institutions that are federally insured. These institutions would generally be subject to less intensive and simplified review.
  • Tier 2 would consist of eligible institutions that are not federally insured but (i) are subject (statutory) to prudential supervision by a federal banking agency; and (ii) any holding company that would be subject to Federal Reserve supervision (by statute or by obligation). These institutions would generally receive a medium level of review.
  • Tier 3 would consist of eligible institutions that are not federally insured and are not subject to prudential supervision by the federal banking agency at the institution or holding company level. These institutions would generally receive the most stringent level of review.”

In the notice published by the Fed, a particularly strong emphasis was placed on case-by-case inspections and the importance of risk mitigation measures commensurate with the applicant’s risk profile and their business activities.

The notice states that applications are considered on a case-by-case, risk-focused basis, reflecting the institution’s full risk profile (including its business model, size, complexity and regulatory framework) and to mitigate, to the extent possible, identified risks.

Furthermore, as stated in the Initial Proposal, each applicant institution’s risk management and governance infrastructure is expected to meet existing regulatory and supervisory requirements and be sufficiently tailored to the institution’s operations, as judged by the Reserve Bank, to mitigate the risks identified by Banks. Account Access Guidelines.”

Although the notice does not specifically state this, if a business engages in crypto activities and seeks access to Fed accounts, having strong compliance tools such as the use of blockchain analytics is an absolute must – especially with regard to KYC/AML protocols and the company’s ability to anticipate potential bad actors who may wish to gain access to the platform or its services.

Catawba Digital Economic Zone publishes draft rules for DAOs

The Catawba Digital Economic Zone (CDEZ) – supported by the Catawba Indian Nation in Rock Hill, South Carolina – released an advance notice of proposed rulemaking on DAOs.

The proposed rulemaking will be called the “Green Earth Zone Decentralized Autonomous Organization Regulation” and provides DAOs with several options for how they want to be structured and regulated. One of these options is to register DAOs as LLCs, while the other allows DAOs to be registered as unincorporated nonprofit associations (UNAs).

A CDEZ spokesperson told CoinDesk: “These can be verbal, written or even software rules. Unlike LLCs, UNAs do not require a registered agent. However, they are still protected by limited liability. And while the original UNA is primarily for non-profit purposes, the regulation uses existing exemptions to UNA law to allow UNA DAOs to provide compensation, including through investment.”

CDEZ’s proposed DAO regulation follows in the footsteps of Wyoming, which became the first state to enact a rule allowing a DAO to register as an LLC. CDEZ also issued a regulation in July that broadly defines digital assets.

Philippines pauses licenses for digital assets

The Central Bank of the Philippines – Bangko Sentral ng Pilipinas (BSP) – has placed a three-year moratorium on the issuance of licenses for virtual asset service providers. The licensing break is scheduled to begin on September 1st. BSP representatives indicate the need to find a greater regulatory balance for the risks associated with digital assets.

The BSP has issued a statement on its decision to change its approach to digital assets. The bank stated that: “The Bangko Sentral recognizes that while VAs (virtual assets) offer opportunities to promote greater access to financial services at reduced costs, they also present various risks that may undermine financial stability.” According to data released by the BSP, the Philippines currently has 19 existing VASP licenses. They will also process licenses submitted before the August 31 cut-off date that begins the three-year licensing hiatus.

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