The landmark approval of the Federal Reserve Master Account by cryptocurrency exchange Kraken has raised fresh concerns among regulators, banks and industry experts about potential risks to the U.S. financial system.
The account has restrictions in place aimed at reducing its vulnerability, but critics argue the move could still pose new challenges.
Founded in 2011 and based in Wyoming, Kraken is one of the world’s largest crypto exchanges, serving both retail and institutional customers.
Last month, the company became the first crypto company to secure a master Fed account, with the Kansas City Fed granting it a “only-purpose” account for the first year.
However, neither the central bank nor Kraken disclosed the full extent of the restrictions associated with this account.
The decision has drawn scrutiny from traditional financial institutions and policymakers, including Rep. Maxine Waters, the top Democrat on the House Financial Services Committee.
Critics have raised concerns about the opacity of the approval process and whether it complies with the Federal Reserve’s established procedures.
Waters formally asked the Kansas City Fed to provide additional details about the approval by Friday.
A spokeswoman for the Kansas City Fed confirmed the bank was considering the request, but declined further comment.
Access to infrastructure supplied with key restrictions
A Fed Master Account is often compared to a bank account at a financial institution and allows direct access to the central bank’s payment system.
A Kraken spokesperson said the account will allow the Wyoming-based banking division to hold limited overnight balances using Fedwire, the Federal Reserve’s wholesale payments system.
This access allows Kraken to bypass traditional banking intermediaries, potentially allowing for faster and cheaper transactions.
However, this account has some notable limitations.
A spokesperson said Kraken cannot earn interest on reserves held by the Federal Reserve and cannot access emergency lending facilities or other payment systems such as FedNow or ACH.
A spokesperson declined to confirm whether Kraken would have access to Fed financing.
Jonathan Jachym, Head of Global Policy at Kraken, said the development was a milestone in regulatory cooperation. “We see this as great evidence of regulatory rigor and cooperation.
It promotes the principles of both safety and soundness, as well as innovation,” he said.
The approval comes amid a broader shift under President Donald Trump’s administration toward integrating crypto companies into mainstream financial infrastructure.
Other companies such as Ripple, Anchorage Digital, and Wise are also looking for similar master accounts.
Systemic risk and compliance concerns
Experts have warned that giving crypto companies direct access to Fedwire could pose systemic risks, despite the safety measures in place.
“Even if the model is limited, there are concerns that bringing in institutions with less track records and potentially less rigorous compliance and operations could pose some systemic risk,” said Richard Levin, head of fintech at Taft Stettinius & Hollister.
Regulators have long highlighted potential weaknesses in cryptocurrency and fintech companies, including inconsistent internal controls and cybersecurity vulnerabilities.
Yesha Yadav, associate dean of Vanderbilt University School of Law, expressed concern about operational readiness, saying, “They don’t have the experience.”
Money laundering risks also remain an important issue.
Federal Reserve President Michael Barr has previously warned of such concerns, saying the sector is exposed to illicit financial activity.
Another big concern is the potential for deposits to move away from traditional banks.
The move could reduce reliance on banks as intermediaries by allowing crypto companies to hold funds directly with the Fed.
