Federal Reserve is finally coming around to the idea of cryptocurrency banks in light of the latest media reports. The Central Bank has recently issued a detailed regulatory framework for cryptocurrency banking organizations that wish to operate and manage master accounts on a commercial scale. It means that the institutions in the region would be able to open master accounts using their cryptocurrency reserves that will contain novel charters.
These banks also include the cryptocurrency organizations that provide custodial services for commercial users and their trade associates. It is worth noting that a master account is a way for commercial enterprises to gain direct access to the payment systems of a Reserve bank such as the Federal Reserve. If any organization does not have a master account, they have to partner with a third-party institution to borrow their master accounts first.
DeFi Sector Regulation
At present, the expectations around DeFi stability are in a state of panic on account of Tornado Cash sanctions. However, it seems that Federal Reserve has granted a lifeline to the cryptocurrency sector by acknowledging the application of cryptocurrency organizations for direct master accounts. The guidelines issued by the Federal Reserve at this point do not have a legislative status.
It is worth noting that the one-page directive document mentioned cryptocurrency banks only once. Furthermore, it is interesting to consider that after crypto custodial services can get a direct master account, they would become completely isolated and independent from traditional banking networks. At the same time, Fed has made it clear that the process of scrutiny and due diligence is going to be more stringent for the quoted novel charter organizations.
Michelle Bowman is Fed Governor who recently told the media that the cryptocurrency agencies should be aware that the Central Bank is not planning to make the master account approval a fast process. She cautioned the cryptocurrency proponent and organizations by stating that there is still a lot of work needed to complete the eligibility and qualification regulations for crypto firms.
She further explained that cryptocurrency organizations should not expect that their direct master account applications are a matter of urgency for the Fed at present. Meanwhile, Federal Reserve claims that many people are taking direct master account access as a step forward for the growth and development of the cryptocurrency sector.