Kraken Bank cannot use master account despite Fed approval

Kraken Bank has received permission from the Federal Reserve for a master account, but it still may not actually use it. This emerges from statements by Caitlin Long, CEO of Kraken Bank, who exposes the gap between announcement and reality.

In short:

• Kraken signed the documents for the master account in January, but it was only publicly announced in March
• Despite approval, Kraken Bank still cannot operationalise the account, eight months after receiving it
• The Federal Reserve is currently conducting a twelve-month trial period, eight months of which have passed without the account being actively used

The delay behind the scenes

Kraken Bank’s master account was publicly announced in March as a milestone for the crypto exchange. Yet the documents had already been signed in January. According to Long, this difference between administrative completion and actual application is typical of the game the Fed is playing.

Long compares the regulation of Kraken Bank with that of traditional banks. Kraken Bank faces the same charter requirements and must pass a full bank examination every year with CAMELS scores. This is stricter than what trust subsidiaries or money transmitters must guarantee. Yet the master account runs into the same obstacles.

Twelve-month trial period without operationalisation

More striking still: Kraken Bank is already eight months into a twelve-month trial period in which the Federal Reserve determines whether the master account may be used. According to Long, the Fed has still not made the account operational during those eight months, despite all the approval.

Reactions to the approval were fierce. Politicians such as Elizabeth Warren and her allies protested loudly against the move. Long argues that this opposition, although loud, was not as consistent as that against traditional banks. The irony is that Kraken Bank falls under the same regulations as these traditional institutions.

The Fed is playing games, according to Long

Long concludes that the master account was never really intended to become operational. “The Fed is just playing games,” she says. According to her, the long silence between approval and actual use points to regulatory foot-dragging rather than genuine willingness.

This incident brings to light questions about how the Federal Reserve deals with innovation in the financial sector and crypto companies in particular. While Kraken Bank meets the same strict standards as traditional banks, the regulatory path seems much longer and more uncertain.