Fed proposes guidelines for considering access requests to payment services from ‘novel types’ of financial institutions

Proposed guidelines to evaluate requests for accounts and payment services at Federal Reserve Banks, presented by “novel types” of banking institutions attempting to leverage new and emerging technologies and techniques, were released for public comment Wednesday by the Federal Reserve.

The proposed “Account Access Guidelines,” which have a 60-day comment period, outline six principles for the Reserve Banks to consider when weighing a request. Generally, the principles require the requesting entity to be eligible to receive Fed services, and cannot present “undue risk” to the Fed system or the financial system at large.

In a release, the Fed asserted that new financial products and delivery mechanisms for traditional banking services have been introduced in recent years, “notably leveraging emerging technologies, including from institutions with novel types of banking charters designed to support such innovation.”

The Fed said that some of the new institutions, to facilitate financial products and delivery, have requested access to the payments system offered by Federal Reserve Banks. “To help achieve the goal of applying a transparent and consistent process for all access requests, as well as considering the ramifications for the broader financial system, the Board is proposing Account Access Guidelines for the Reserve Banks to evaluate such requests,” the Fed said. “These guidelines take into account the Board’s legal authority and reflect an analysis of its policy goals.”

Gov. Lael Brainard, in a release, said the proposed guidelines would ensure that requests for access to its payments systems 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.”

The guidelines, according to the proposal, contain six principles designed to support consistency in approach and decision-making across Federal Reserve Banks, but also give the banks discretionary authority to grant or deny requests.

The first principle, the Fed said, specifies that only institutions that are legally eligible for accounts and services are in scope (that is, it must be eligible to maintain an account at a Reserve Bank and should have a “well-founded, clear, transparent and enforceable legal basis for its operations”).

The remaining five principles, the Fed added, are designed to address specific risks ranging from narrow risks (such as risk to an individual Reserve Bank) to broader risks (such as risk to the U.S. financial system). “The Board is considering whether it may in the future be useful to clarify the interpretation of legal eligibility under the Federal Reserve Act for a Federal Reserve account and services,” the proposal states.

More specifically, those five remaining principles for provisioning an account and service to an institution should not:

  • Present or create undue credit, operational, settlement, cyber or other risks to the Reserve Bank.
  • Present or create undue credit, liquidity, operational, settlement, cyber or other risks to the overall payment system.
  • Create undue risk to the stability of the U.S. financial system.
  • Create undue risk to the overall economy by facilitating activities such as money laundering, terrorism financing, fraud, cybercrimes, or other illicit activity.
  • Adversely affect the Federal Reserve’s ability to implement monetary policy.

Federal Reserve Board invites public comment on proposed guidelines to evaluate requests for accounts and payment services at Federal Reserve Banks