Dear Ms Martin:
The Clearing House Payments Company (“The Clearing House”) and The Clearing House Association, American Bankers Association, Bank Policy Institute, Consumer Bankers Association, Credit Union National Association, Independent Community Bankers of America, Nacha, and National Association of Federally-Insured Credit Unions (collectively, the “Associations”) write to express concern over the potential application of Kraken Financial for access to a Federal Reserve account and payments system services. The Clearing House, as the private sector operator of the nation’s payments systems, and the Associations, as the trade associations representing users of the payments systems operated by both The Clearing House and the Federal Reserve Banks, are concerned that the nature of the business engaged in by Kraken Financial presents heightened risks that should be taken into consideration in determining whether the Federal Reserve should grant such access, and, if granted, on what conditions.
Kraken Financial was formed as the result of a new and unique special purpose depository institution (“SPDI”) charter recently established under Wyoming law that appears to be targeted to cryptocurrency businesses.1Kraken Financial presents a business model that is highly unusual for state chartered institutions and for depository institutions generally in that (1) its principal business is to provide a banking gateway between digital assets and national currencies, a business that raises heightened anti-money laundering, Bank Secrecy Act and terrorist financing concerns and is subject to high volatility relating to its cryptocurrency deposits and business, and (2) it presents potential payments system and other risks without appropriate supervision across the breadth of its affiliated entities.
Kraken Financial’s business model raises novel risks and the Federal Reserve Banks currently lack a clear, uniform policy to address how these factors should be considered when acting on an application for a Federal Reserve account and services. Accordingly, The Clearing House and the Associations urge the Federal Reserve Board to direct the Federal Reserve Bank of St. Louis to delay taking any action that would grant Kraken Financial access to a master account or the payments system until such time as the Federal Reserve Board has adopted, following notice and comment, a uniform policy that would apply to the Federal Reserve Banks that sets forth appropriate criteria for evaluating special purpose entities like Kraken Financial for access to such services. 2
It is important to note that The Clearing House and the Associations recognize the need for the Federal Reserve Board to support continued innovation in financial services where it advances the national interest. The benefits of innovation, however, cannot come at the expense of the integrity of the payment system but rather must be accomplished in a manner that addresses the unique or heightened risks that otherwise innovative business models may present.
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