U.S. Rep. Maxine Waters (D-CA), the ranking Democrat on the House Financial Services Committee, formally requested that the Kansas City Fed explain the legal basis for approving the Fed’s main account to Payward Financial, an entity doing business as Kraken Financial, marking the first time a cryptocurrency exchange has gained direct access to the Fed’s core payment infrastructure.
In a letter sent Thursday to Kansas City Fed President Jeff Schmid, Waters requested a written response by April 10, citing deficiencies in transparency and the absence of any legal or regulatory basis for classifying the regional bank’s accounts. The approval, which the Federal Reserve Bank of Kansas City confirmed on March 4, 2026, is structured as a “limited purpose account” – a designation that does not appear in the Federal Reserve Act nor in the Fed’s account access guidelines.
We believe Waters’ investigation signals something more than just approval on one account: it reflects Democratic lawmakers’ determination to assert congressional oversight of a regulatory posture that has clearly shifted toward accommodation since the change in administration. Native crypto banks and exchange operators with pending master account applications may mistreat this as routine regulatory noise.
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Kraken’s main account: an inside-congressional investigation into Waters
A Federal Reserve Master Account gives its holder direct access to the Fed’s payment paths, primarily Fedwire Funds Service for high-value, real-time gross settlement and FedACH for bulk retail transfers, without routing through an intermediary correspondent bank.
For a cryptocurrency exchange like Kraken, this operational transformation is fundamental: it eliminates counterparty dependence on traditional banking intermediaries, accelerates settlement finality, and reduces the structural weakness that has made cryptocurrency companies targets of bank breakup pressures over the past several years.
Kraken Financial holds a Special Purpose Deposit Institution (SPDI) charter in Wyoming, operates on a full-reserve model with no lending activity, and is not covered by the Federal Deposit Insurance Corporation (FDIC).
The Federal Reserve Bank of Kansas City, Wyoming’s local charter bank, approved what it described as a “limited purpose account” — a category that restricts certain privileges, including interest on excess reserves, but grants access to Fedwire settlement. Kraken co-CEO Arjun Sethi has publicly described the arrangement as a “convergence of crypto infrastructure and sovereign financial rails.”
Maxine Waters
Waters’ letter to Schmid specifically identifies the underlying procedural issue: No provision in the Federal Reserve Act nor any section of the Federal Reserve’s Account Access Guidelines published in 2022 refers to a “limited purpose account” as a distinct account tier.
I asked Schmid to clarify whether a Kraken account included access to FedACH, Fedwire, or access to cash services; Whether it is subject to overdraft restrictions, balance limits or enhanced supervisory requirements; and whether the Kansas City Fed coordinated approval with the Federal Reserve Board of Governors or other federal agencies.
Waters also noted the Kansas City Fed’s stated refusal to disclose account holder details, citing the “confidentiality of commercial information provided by applicants,” a position she described as inconsistent with public accountability for access to sovereign financial infrastructure.
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Fed Key Accounts and Crypto Banks: The Legal Battleground
The legal history here is not abstract. Custodia Bank, also a Wyoming SPDI, spent years suing the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City after both rejected its master account application and Fed membership.
A federal district court eventually ruled against Custodia in 2024, finding that the Federal Reserve Bank of Kansas City retained discretion under the Federal Reserve Act — specifically under 12 USC § 342 — to deny account access to state-chartered non-member banks. This ruling, and the Federal Reserve’s 2022 supervisory guidance establishing a tiered review framework for new banking applications, created a legal structure that appears to block direct Fed access to native cryptocurrency depositories designated in the highest-risk tier.
A historic moment for cryptocurrencies.
Kraken Financial has been granted a Federal Reserve Master Account, making us the first digital asset bank with direct access to the US payments system.
A major step towards connecting cryptocurrency infrastructure to the fundamental rails of global finance.
– Kraken (@krakenfx) March 4, 2026
Kraken Approval arrived through a different procedural channel. Instead of seeking full master account membership, Payward Financial obtained a restricted account that was designed as a one-year pilot program, and was confirmed as such by Federal Reserve Vice Chairman for Supervision Michele Bowman at the American Bankers Association conference one week after the approval.
Bowman described the account as a test for non-bank institutions that occupy a “gray area” between regulated deposits and companies without a supervisory relationship, saying bluntly: “We are trying to learn.” This framing is notable because it positions approval not as a policy decision but as a supervised experiment, which may limit its ex ante value to other applicants while at the same time protecting it from the kind of eventual challenge that doomed Custodia’s application to failure.
Peg Pedano Paredon, co-head of regulatory affairs at the Bank Policy Institute, expressed the concerns of the institutional banking sector directly: “We are deeply concerned…this action ignores public comment…with a lack of transparency in the approval process or risk mitigation.” This reaction is significant because it unites the traditional banking lobby with Waters’ transparency argument, creating a multi-ideological lobbying coalition that the Kansas City Fed will find difficult to dismiss as partisan. We expect the Fed’s pending “skinny” key account framework — which aims to limit the benefits of the capital system for cryptocurrency companies while allowing narrow access to payment — to become the focal document in any formal response to Waters’ inquiry.
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Neil is a professional cryptocurrency content writer with years of experience. He has written for numerous cryptocurrency websites to report breaking news, and has been hired by all kinds of cryptocurrency projects, to create content that will increase their exposure and attract more potential investors.
