Kraken Financial's Direct Access to Fed Payment System Sparks Regulatory Concerns

The Federal Reserve's move to grant Kraken Financial access to its payment system has raised concerns among banking trade groups. According to critics, the approval bypasses regulatory safeguards and pre-empts a policy framework that is still being developed.

The Bank Policy Institute, which represents major banks such as JPMorgan Chase and Goldman Sachs, expressed 'deep concern' over the decision. The group argued that the Federal Reserve Bank of Kansas City acted prematurely in approving Kraken's master account before the central bank completed its rulemaking process.

Similar concerns were raised by the Independent Community Bankers of America (ICBA), which warned that granting access to non-traditional financial institutions like Kraken could create a two-tiered system. The group pointed out that Wyoming's Special Purpose Depository Institutions (SPDIs) do not have to adhere to federal deposit insurance, capital requirements and consumer protection rules.

Despite the restrictions on earning interest on reserves held at the Federal Reserve, the approval still allows Kraken Financial to settle US dollar transactions directly through Fedwire. This move is seen as a significant step forward for the crypto industry, which has long been hindered by operational constraints in payment settlement.