The Federal Reserve this week issued a unique set of guidelines related to access to its master accounts, mentioning crypto banks as firms that could potentially gain access. What does this mean, and how does this open up opportunity for crypto banks? What about regulation? Nikhilesh De, Managing Editor of Global Policy & Regulation at CoinDesk, joins Closing Bell to discuss. 

Closing Bell

Federal Reserve Issues Guidelines On Master Accounts for Crypto Banks

speaking of the Fed, the central bank this week issuing guidelines about access to its master accounts and how and when crypto custody banks may be able to gain access. Crypto was founded on the premise that it wouldn't be connected to the traditional financial system. So why might this sort of access be needed? And what does it mean for crypto farms as well as any potential regulation in this space joining me now is nick day managing editor of global Policy and regulation at coindesk. Nick, it's good to see you so walk me through these guidelines, what they are and why the Fed is issuing them now. Hi, thank you so much for having me this week. The Fed put out a final guidelines for something that's been in the works for a little over a year. Now the first issued this in April 2021 or so. And basically it kind of outlines this three tiered structure by which it wants to evaluate companies that want to become banks, you know, issue bank uh loans and operate like you know, any other bank could. And the crypto industry in particular has really been hoping for more crypto friendly banks because it has been traditionally difficult for the sector to gain access to banking services. A lot of banks have had concerns about, you know, for example, some of the issues we've heard about with money laundering and potential illicit activity and whether or not crypto companies are more at risk. There are a couple of crypto companies that have applied for master account at the Fed and if they receive it it will basically let them, you know for example originate loans and conduct transactions with any other master account holder and provide the same services to any other crypto company, crypto exchanges, lending platforms that need these services. So let's just walk through exactly I guess nick just to hone in here what a master account is and then how you manage that going forward. Yeah so a master account really is just a Federal Reserve account. It means that the bank can uh conduct transactions with other account holders that can basically tap this kind of global financial infrastructure that less than more easily transact with other banks and support services for crypto companies or any other company really that has an account with this you know with this bank that in turn has a master account so it really is just kind of lubrication on the financial system. Does this make crypto do you think that this makes the crypto space nick more or less easy to use easy to access? I think for a lot of people they want to see steps like this to feel more protected, interacting, exchanging, bind, selling Bitcoin for instance. Yeah it's you know I think on the retail level they might not really see a huge difference but for the companies themselves it will be a little bit easier for them to interact with uh the banking system right? They won't have to rely on, you know potentially shady lenders, they won't have to try and look for shadow bankers as a term. We've heard it we've seen, you know, companies and individuals have gone around creating bank accounts under a fake business and then provide those services and act as an intermediary for crypto companies. So if a crypto bank becomes a thing or if banks become more crypto friendly, it means that crypto exchanges won't have to go through these, you know, potentially very sketchy intermediaries will be able to just directly access and have all the same protections that any other bank could. Do. You think crypto focused firms nick which this will obviously impact. Do you think that they're in favor of this? Yeah. And we actually know that because multiple crypto companies have applied for master account in Wyoming, for example, crack and bank and custodial bank, two entities set up under Wyoming law have both been trying to become a master bank or have master account access for over a year now, Custodio even sued the Fed because in its words, the Fed was taking too long to get to a decision. So crypto companies are definitely hoping to get master account access and the guidelines don't necessarily guarantee that this will happen but there is now a bit more clarity as to how the Fed is going to approach these decisions, which in turn might make it easier for an approval to be granted, interesting in terms of what it might indicate going forward, more regulation, nick any sort of insights to glean there. So I think what's really interesting is that the next day yesterday the Fed actually put out a additional guidance for banks that it already supervises saying if you want to engage in crypto, we do have these concerns about consumer protections, about the rest of the financial system, about, you know, just safety and soundness. And so we want all banks to talk to us, talk to their supervisor at the Fed and provide information first before you know, really engaging crypto. So all of these little steps kind of suggest that the Fed is looking at banks becoming more engaged with crypto and looking at perhaps crypto companies becoming more engaged with the traditional financial system. But we don't know for sure yet. Just what that's gonna look like. It could just be that the Fed is saying this because that way, if a company does want to become more involved in crypto, the Fed can more easily say, absolutely not stop. Okay, nick, we got to leave it there. Good to get your take. That's nick Day, Managing Editor of Global Policy and Regulation at Coindesk. Thank you