“A Watershed Milestone”: Kraken Becomes First Crypto Firm To Gain Access To Fed’s Payment System

Kraken has secured a Federal Reserve “master account,” giving its banking arm direct access to the Fed’s core payment systems and making it the first crypto firm to operate on the same rails as traditional financial institutions, Coindesk reported.

The company said its unit, Kraken Financial, received approval for a Federal Reserve “master account,” the Wall Street Journal reports. The account allows direct access to Fedwire, a major interbank payment network that processes trillions in transfers a day, and will be able to move money on the same rails that banks and credit unions use. The firm also noted that the approval would enable them to handle transactions more quickly and seamlessly for big clients and professional traders, as it would have access to Fedwire.

Pro-crypto Senator Cynthia Lummis described this as a “watershed milestone in the history of digital assets.” That’s because until now, Kraken had to rely on partner banks to send or receive U.S. dollars. Direct access changes that flow as the firm can now settle payments itself, which may speed up deposits and withdrawals for large traders and institutional clients.

Kraken Financial operates under a Wyoming charter designed for crypto-focused banks. The Federal Reserve Bank of Kansas City oversaw the application.

The approval is limited, however. Kraken will not receive the full set of services available to traditional banks as it won’t earn interest on reserves or be able to tap into the Fed’s emergency lending.

Kraken, a cryptocurrency exchange founded in 2011, has been slowly moving towards an iniital public offering (IPO). Several of its rivals, including Gemini, Coinbase, and CoinDesk’s parent company Bullish have already made their public markets debut.

Its parent company, Payward, has been on an acquisition spree, last month adding token management platform Magna to it. Last year, it acquired U.S. futures trading platform NinjaTrader for $1.5 billion and U.S.-licensed derivatives trading venue Small Exchange for $100 million.

It also moved into the tokenization space with the acquisition of tokenized stock specialist Backed Finance, the issuer of xStocks.

Meanwhile, it is worth noting that crypto firms such as Ripple and Anchorage, along with crypto-friendly Custodia Bank, have filed for a Fed master account. Custodia filed its application around the same time Kraken did, while Ripple filed its application last year.

In an X post, crypto journalist Eleanor Terrett revealed that the Kraken Fed master account approval is designed as a “pilot” program for the proposed skinny master account. This comes as Fed Governor Chris Waller, who proposed the framework, looks to finalize the initiative by the end of this year.

As CoinGape reported, the bank and crypto industry have clashed over this proposed Fed skinny master account. Banking groups have raised regulatory concerns. The American Bankers Association said many eligible entities lack a long history of supervisory oversight. It also warned that federal safety and soundness standards remain inconsistent across applicants.

Under the proposed skinny master accounts,  firms would be able to hold reserves and settle transactions using the Central Bank’s payment system. However, they cannot lend, access the Fed’s discount window, or operate as a traditional commercial bank, Terrett explained.

It is worth noting that other banking regulators, such as the OCC, are also warming up to the crypto industry. The OCC has conditionally approved national trust charters for Ripple, Crypto.com, Circle, and Paxos. The OCC recently expanded Trust Bank’s services, a move that could also provide these crypto firms with access to the U.S. financial system.

Meanwhile, Fed Governor Michelle Bowman recently stated that they are working with other banking regulators to implement the GENIUS Act. She added that they will provide clarity on the treatment of digital assets to ensure the banking system is well-positioned to support crypto activities.