Federal Reserve offers tiered framework to assess ‘main account’ requests Finance & Banking

On March 1, 2022, the Federal Reserve (the “Fed”) proposed a new framework to evaluate “master account” applications for direct access to the Fed’s payment system. The proposal builds on the Fed’s proposal original proposal of May 2021, which had set out six principles that the various Federal Reserve banks should take into account when considering these applications. The latest proposal incorporates these principles and adds a “tiered review framework” that links the intensity of review to the level of oversight to which the requesting institution is subject.1

This memorandum reviews the six principles that reserve banks would use and summarizes the proposed new tiered review framework.


To settle financial transactions with the Fed, institutions must either have a main account with a reserve bank or an agreement with an existing member (and approval from the relevant reserve bank) to use the main account of this member for financial services. Under Section 13 of the Federal Reserve Act, a Reserve Bank may, at its discretion, grant an eligible institution a primary account and access to financial services.

According to Fed Governor Lael Brainard, “With technology driving a rapidly changing payments landscape, the proposed guidelines would ensure that new requests for access to Federal Reserve accounts and payment services are assessed consistently and transparency to ensure a safe and innovative payment system”.

Six Review Principles

The six review principles were proposed to promote consistency and efficiency among Reserve Banks when reviewing applications for the Fed’s main accounts. These principles emphasize that if an institution is eligible for Fed services, individual Reserve Banks have the discretion to grant or deny access to such services, if it is determined that access to a primary account and financial services will not create undue risk.

The first principle requires each reserve bank to ensure that the requesting institution is eligible2 for a Fed account and has a “well-founded, clear, transparent and enforceable legal basis for its operations”.3 Under this principle, a reserve bank should also assess whether the institution’s service design would prevent it from fully complying with certain laws and regulations, such as anti-money laundering (“AML”) regulations. , US sanctions and consumer protection laws.

The other five principles would require reserve banks to ensure that opening an account with the requesting institution would not create undue risk. As far as possible, this review should incorporate the assessments of the institution’s supervisory authorities. In addition, the review committee would ensure that the institution has effective risk management frameworks in place for each of the risks addressed by these principles.

To meet the second principle, an institution should demonstrate that it does not pose undue potential risks to the Reserve Bank, including credit, operational, settlement, and cyber risks. In its assessment, a reserve bank must confirm that the institution complies with the requirements of its oversight agency and demonstrates its ability to comply with ongoing Fed requirements while managing operational risk.

According to the third principle, the requesting institution’s access to a Fed account and financial services should not involve potential undue risks for the entire payment system, including credit, liquidity , operational, settlement and cyber. Accordingly, a reserve bank should identify the interactions between the institution and the payment system and judge that the institution is in good financial health with the potential to continuously meet its obligations and risk management requirements.

The fourth principle assesses the institution’s potential for undue risk to the stability of the US financial system. In applying this principle, the reviewing reserve bank should coordinate with other reserve banks and the Fed and consider how pressures on this institution might spill over into other segments of the financial system, including deposit balances with states. -United.

The fifth principle addresses undue risks to the global economy from illicit activities, such as fraud, money laundering and cybercrime. Here, the Reserve Bank must verify that the bank secrecy law and the institution’s AML compliance programs meet certain requirements and confirm that the institution has a compliance program that satisfies the regulations of the Office of Control foreign assets of the Treasury Department.4

Finally, the sixth principle requires a reserve bank to assess any negative effects on the Fed’s ability to implement monetary policy. To do so, the particular reserve bank should assess the effect on reserve supply and demand, key policy interest rates, and the structure of key short-term funding markets, among other factors.

Tiered review framework

The three-tier review framework provides a guide for Reserve Banks to determine the level of due diligence and scrutiny in each review. First, the Reserve Bank would determine an institution’s eligibility for a Fed account and financial services. Next, the Reserve Bank would apply a level of due diligence and oversight that scales with the level of regulatory oversight to which each institution is already subject.

  • Tier 1 – Tier 1 would apply to federally insured facilities. Tier 1 establishments would face ‘less intensive and more streamlined review’5 unless this initial review identifies a potential risk requiring further attention.

  • Tier 2 – Tier 2 would be institutions subject to federal prudential supervision, including, where applicable, at the holding company level, but not federally insured. Tier 2 establishments would face an “intermediate review level”.

  • Tier 3 – Tier 3 would apply to institutions with no federal insurance and no federal prudential oversight at the holding company and institution level. Tier 3 institutions would face the “strictest level of scrutiny”.

The updated proposal preserves the principles of the 2021 proposal to guide reserve banks in their assessment of a request for access to the main account. According to the Fed, the tiered review framework was added to clarify the level of scrutiny that different institutions would face. These principles and tiered review framework have been proposed to foster a more consistent review system without removing Reserve Bank discretion, as technological and financial innovation leads to more unique institutions requiring the access to Fed services.

Special thanks to partner Jordan Briggs (New York-Financial Institutions Advisory & Financial Regulatory), who contributed to this publication.


1 The tiered review framework proposed in the supplement has been introduced in part in response to recommendations from solicited comment letters on the original proposal. See note to the Board of Governors, “Proposed Guidelines for Assessing Applications for Accounts and Services at Federal Reserve Banks”, FRB Staff (February 16, 2022).

2 Eligibility is determined under the Federal Reserve Act or other federal law.

3 Notice added to 11.

4 31 CFR Chapter V.

5 Additional notice to 23.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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