Fed shaping “novel institutions” guidelines

Agency Rule-Making & Guidance Federal Reserve Fintech Payments Bank Regulatory

On May 5, the Federal Reserve Board issued a notice and request for comments on proposed guidelines for evaluating account and service requests that would allow companies with “novel types of banking charters” to access the Fed’s payments system. Among other things, the notice outlines six proposed principals for Reserve Banks to consider when an institution requests access. These include:

• Whether the institution is eligible under federal statute to maintain an account at a Federal Reserve Bank and has a “well-founded, clear, transparent, and enforceable legal basis for its operations.”
• Whether the provision of an account and services to an institution would “present or create undue credit, operational, settlement, cyber or other risks to the Reserve Bank.”
• Whether the provision of an account and services to an institution would “present or create undue credit, operational, settlement, cyber or other risks to the overall payment system.”
• Whether the provision of an account and services to an institution would “create undue risk to the stability of the U.S. financial system.”
• Whether the provision of an account and services to an institution would “create undue risk to the overall economy by facilitating activities such as money laundering, terrorism financing, fraud, cybercrimes, or other illicit activity.”
• Whether the provision of an account and services to an institution would “adversely affect the Federal Reserve’s ability to implement monetary policy.”

“With technology driving rapid change in the payments landscape, the proposed Account Access Guidelines would ensure requests for access to the Federal Reserve payments system from novel institutions are evaluated in a consistent and transparent manner that promotes a safe, efficient, inclusive, and innovative payment system, consumer protection, and the safety and soundness of the banking system,” Fed Governor Lael Brainard said in the announcement.

If the Fed decides to grant an access request, “it may impose (at the time of account opening, granting access to service, or any time thereafter) obligations relating to, or conditions or limitations on, use of the account or services as necessary to limit operational, credit, legal, or other risks posed to the Reserve Banks, the payment system, financial stability or the implementation of monetary policy or to address other considerations,” the notice stated, adding that the “account-holding Reserve Bank may, at its discretion, decide to place additional risk management controls on the account and services, such as real-time monitoring of account balances, as it may deem necessary to mitigate risks.”

Comments on the proposal are due 60 days following publication in the Federal Register.