Kraken Becomes First Crypto Platform to Secure a Fed “Master Account”

Kraken’s new move takes the crypto sector closer to the mainstream financial system. 

The US-based cryptocurrency exchange Kraken has become the first to secure direct access to the Federal Reserve’s payment system. On Wednesday, March 4, Eleanor Terrett, an American crypto reporter, revealed that Kraken’s banking subsidiary, Kraken Financial, has been approved for a Federal Reserve master account by the Federal Reserve Bank of Kansas City. 

Kraken applied for approval in October 2020, and this approval has marked a grand success for the crypto exchange. This approval enables the exchange to move money on the same rails used by banks and credit unions. It would also allow Kraken Financial to handle transactions more quickly and seamlessly for big clients and professional traders. 

About Kraken 

Kraken is a major US-based cryptocurrency exchange founded in 2011. The platform is known for high security and spot/margin trading of 200+ digital assets. It has also become the first crypto firm to obtain a US bank charter. The exchange also offers advanced, institutional-grade, and retail trading, with $207 billion in quarterly volume. 

Kraken Gets Direct Access to Fedwire 

Kraken was approved for a Fed master account, which will enable Kraken Financial access to Fedwire directly. It is an important interbank payment system that handles more than $4 trillion in average daily fund transfers. The firm previously depended on intermediary banks to transfer money to other firms. 

Arjun Sethi, co-chief executive of Kraken, said, “It improves reliability and efficiency for moving fiat deposits in and out of digital-asset markets.”

Raising Criticism Against the Approval 

The Federal Reserve’s approval of Kraken’s master account faced heavy criticism from traditional banking institutions. Many financial experts and banking institutions pointed out a lack of transparency in the risk mitigants imposed on Kraken. They also shared concerns about potential financial risks. Moreover, unlike traditional banks, Kraken Financial is not FDIC-insured, and several banking institutions argue that it creates a gap in consumer protection and oversight. 

Federal Reserve Sends Green Light For Crypto 

With the Fed approval, Kraken, the exchange, will now be up for bigger expansion and global adoption. It also indicates a major milestone for the crypto industry, suggesting that the Fed is gradually embracing the crypto ecosystem. 

As the Federal Reserve integrates crypto, it should also ensure stable banking relationships with crypto firms. It also opens a direct channel into the U.S. financial system and implies that the Fed is satisfied with the firm’s anti-money laundering and sanctions compliance controls. 

Conclusion 

Since the Trump administration, crypto companies have received the green light to compete more directly with banks. In December, the Office of the Comptroller of the Currency authorized five crypto companies, including Circle and Ripple, to establish national “trust banks.” 

Kraken has achieved a milestone since it was approved by the Federal Reserve Bank of Kansas City for a master account. The application was pending for over five years as the Fed developed a tiered framework for evaluating the non-traditional bank requests. This enables near-instant fiat transfers, reducing delays for institutional and high-volume trades. Moreover, Kraken no longer requires third-party commercial banks, where they have to pay additional fees or face restrictive policies.