Banking and Finance Law Daily Wrap Up, FEDERAL RESERVE SYSTEM—Blunt Rochester presses Fed on Kraken payment-account pilot, (May 21, 2026)

By Shashi Kant, BALLB, LL.M.

The Senator asked whether the Fed reviewed the Kansas City Fed’s decision, what standards governed the approval, and whether additional limited-purpose accounts could be granted before a broader policy framework is finalized.

Senator Lisa Blunt Rochester (D-Del.) asked the Federal Reserve Board for information about the Federal Reserve Bank of Kansas City’s approval of a limited-purpose master account for Kraken Financial, saying the decision raises questions about governance, consistency, and risk management while the Fed’s broader framework for such accounts remains unsettled. In a May 20 letter to Fed Governors Christopher Waller, Michelle Bowman, and Michael Barr, and to Kansas City Fed President Jeffrey Schmid, Blunt Rochester said direct access to the Fed’s payment infrastructure is a significant privilege and should be accompanied by clear standards, transparency, and accountability. In a press release, Blunt Rochester’s office also said the Fed announced after the letter that it would pursue a formal public rulemaking process for limited-purpose payment accounts and encouraged Reserve Banks to temporarily pause additional Tier 3 account access decisions while that framework is under development.

The letter follows the Kansas City Fed’s March approval of a limited-purpose master account for Payward Financial, doing business as Kraken Financial, a Wyoming-chartered special purpose depository institution affiliated with the digital asset exchange Kraken. Kraken described the approval as a step toward direct settlement on Fedwire and other payment services, while banking trade groups questioned the standards and safeguards applicable to an uninsured institution not subject to federal prudential supervision (see Banking and Finance Law Daily , Mar. 5, 2026).

Letter questions timing of approval. Blunt Rochester said the Kansas City Fed’s action appears to have occurred before the Board of Governors finalized a broader policy framework governing limited-purpose or “skinny” master accounts. According to the letter, that timing raises questions about the process used to approve Kraken’s account, the Board’s oversight role, and the standards and risk assessments applied in evaluating the request. Her letter also states that the Kraken account may be the first operational instance of a limited-purpose payment account under consideration by the Board. Blunt Rochester cited public remarks by Vice Chair for Supervision Michelle Bowman describing the account as a limited-duration pilot or “experiment,” and said Congress and the public should understand the scope of that pilot, the controls attached to it, and the criteria the Fed will use to judge its results.

Questions focus on Board role and policy framework. The senator asked whether the Board of Governors reviewed, approved, or otherwise participated in the Kansas City Fed’s decision. She also requested identification of any guidance, manuals, or supervisory materials that govern Board oversight of Reserve Bank decisions on master accounts. The letter further asks whether the Fed has finalized any policy framework governing limited-purpose or skinny master accounts and, if not, why such an account was approved before that framework was completed. Blunt Rochester also asked how the Board ensures that all 12 Reserve Banks apply consistent standards while the broader framework remains under development.

Pilot structure and expiration date probed. Blunt Rochester asked whether Kraken’s account is intended to operate as a pilot, whether it is expressly time-limited, and what evaluation criteria will be used to determine whether the arrangement should continue, end, or serve as a model for other institutions. She also asked whether the Fed plans to make public any assessment of the pilot’s results. The letter separately asks on what date the account expires and what Kraken’s access status will be once that date arrives. Blunt Rochester said those details are important to understanding whether the Fed is treating the account as a narrow test case or as the beginning of a broader policy shift.

Senator seeks information on safeguards and compliance obligations. The letter also asks what supervisory standards, operational conditions, and compliance obligations were imposed on Kraken as part of the approval. Blunt Rochester requested information on how those conditions compare with requirements applicable to insured depository institutions and asked what safeguards are in place to address fraud, operational disruption, sanctions compliance, and anti-money-laundering obligations. She also asked what authority the Fed has to suspend, restrict, or terminate a master account after it has been granted, including whether suspension triggers are predefined or left to case-by-case discretion. In the senator’s view, clarity on those issues is necessary if the Fed is going to permit nontraditional institutions direct access to payment infrastructure.

Letter asks whether more approvals are coming. Blunt Rochester also asked whether the Fed expects to approve similar limited-purpose accounts for other firms in the near future and, if so, whether those approvals would come before a formal policy framework is finished. Her letter says innovation in payments can produce benefits, but that direct access to the Fed’s core infrastructure also raises significant questions involving operational resilience, supervisory oversight, illicit finance, and financial stability. Blunt Rochester requested a response by June 5, 2026.

Companies: Kraken Financial; Payward Financial

LegislativeActivity: BankingOperations Blockchain ChecksElectronicTransfers FederalReserveSystem FinancialIntermediaries FinTech GCNNews OversightInvestigations