Corporate Counsel Daily, Kraken touts Kansas City Fed approval of ‘limited purpose‘ master account, (Mar 5, 2026)

By Justin Marcus Smith, J.D.

Wyoming Senator Lummis said she expects more approvals linking digital asset banking providers to Fedwire in coming weeks, but ABA, ICBA, and BPI all expressed deep concerns about Tier 3 entities.

The Federal Reserve Bank of Kansas City (Kansas City Fed) announced on March 4, 2026, that it has approved a limited purpose master account for Payward Financial, doing business as Kraken Financial (Kraken). Kraken holds itself out as a Wyoming-chartered Special Purpose Depository Institution (SPDI) offering digital asset banking on a fully-reserve basis. The Kansas City Fed classified it as a Tier 3 entity under Fed Board of Governors’ Guidelines. The initial approval term is one year with unspecified “restrictions and limitations” tailored to the Kraken business model and risk profile “appropriate to mitigate risks identified in the Guidelines.”

Kansas City Fed President Jeff Schmid said the integrity and stability of the U.S. payments system will “remain our priority” as the payments landscape evolves. Kraken and Wyoming officials welcomed the approval, but the three major banking associations expressed deep concerns about unresolved standards and risk mitigation for Tier 3 entities, which are neither federally insured, nor subject to federal prudential supervision.

Kraken Co-CEO Arjun Sethi stated that the Fed approval means Kraken will be able to settle directly on Fedwire and “integrate regulated fiat liquidity directly into digital asset markets.” Sethi suggested that integration could eventually enable “atomic settlement between fiat and crypto, institutional-grade cash management with digital asset custody, and programmable financial products built within a fully regulated framework.”

Kraken said functional rollout will proceed in phases with an initial focus on “facilitating institutional client activity at Kraken.” Kraken said the approval came after five years of engagement with regulators that included extensive examination and operational scrutiny. As a Wyoming SPDI, Kraken holds itself out as a state-regulated bank operating on a 100% reserve basis. Kraken said it will continue to “word closely” with Federal Reserve and Wyoming regulators as it expands its payment capabilities over time.

In a press release, U.S. Senator Cynthia Lummis (R-Wyo.), Chair of the Senate Banking Subcommittee on Digital Assets, called the approval a “watershed moment for the digital asset industry.” She said Fed approval acknowledged her long-held view that a digital asset company can “balance innovation with strong risk management.” She said she expects resolution of more pending applications in coming weeks. Wyoming Governor Mark Gordon contributed his thoughts to the Sen. Lummis press release, including his view that Fed approval “signals support for Wyoming’s banking and digital asset laws.” He thanked Sen. Lummis for her “steadfast commitment to getting us to this place.”

Industry reaction. American Banking Association (ABA) Senior Vice President Brook Ybarra said the ABA has “serious questions about why regulators are granting access to the Fed payment system and charters before completing the public notice and comment process that will inform any official guidance.” Ybarra said the Fed approval of Kraken is “another example of agencies taking significant action while the rules are still a work in progress, creating risk for the financial system, consumers and the economy.” She specifically cited unsettled issues surrounding final GENIUS Act rules and the unresolved “skinny” master account framework for providing basic payment services without many features of actual master accounts.

A contemporaneous article in the ABA Journal contended that Kraken, as a Tier 3 entity, is “not federally insured and not subject to supervision by a federal banking agency.” The article noted that the limitations on the Kraken account are unknown and distinguished that Kraken obtained a “limited purpose” master account rather than a “skinny account.”

Independent Community Bankers Association (ICBA) President and CEO Rebeca Romero Rainey issued a statement similarly expressing “deep concerns” with the Fed decision to approve a master account for Kraken. Rainey said there are “significant risks to expanding direct Fed account access to institutions that operate outside the traditional banking regulatory framework.” She said the Fed should “continue limiting master account access to institutions that meet the financial services sector’s highest standards.”

Bank Policy Institute (BPI) Regulatory Affairs Co-Head Paige Pidano Paridon likewise issued a statement that BPI is “deeply concerned” about Fed approval of the Kraken limited purpose master account. In contrast to the ABA Journal assessment that the Kraken account is not a “skinny account,” Paridon’s take was that the account appears to be a “skinny account” despite the lack of a finalized policy framework for such accounts. Paridon expressed her view that the approval ignored public comment the Fed sought about the framework, lacked transparency about the approval process, and left uncertainties about risk mitigation measures where federally uninsured SPDIs like Kraken present “substantially greater risk” to the payment system. She said the approval called into question whether the Fed can ensure consistent application of skinny account standards across reserve Banks and whether it is appropriately supervising the regional Reserve Banks for compliance with account approval standards.

Companies: American Banking Association; Bank Policy Institute; Independent Community Bankers Association; Kraken Financial; Payward Financial

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