FinTechs, Innovation, and Federal Reserve Bank “Payment Accounts”

The Administration recently issued Executive Order 14405, entitled “Integrating Financial Technology Innovation into Regulatory Frameworks.” The Executive Order lays out the Administration’s policy to “streamline regulatory processes, reduce unnecessary barriers to entry, and encourage collaboration between fintech firms, federally regulated financial institutions, and federal financial regulators.” To that end, the Executive Order has two primary directives:

• Streamline regulatory processes - Identify existing regulations, guidance, supervisory practices, and application processes across the federal financial regulators that might be updated to enhance fintech access to financial services (e.g., through partnerships, charters, products, and services).
• Expand access to Federal Reserve services - Evaluate, report, and establish procedures for uninsured depository institutions and non-bank financial companies to access Federal Reserve Bank payment accounts and payment services.

Following the Executive Order, the Federal Reserve Board (FRB) issued three proposals that together would facilitate the offering of a new special-purpose payment account (Payment Account) to clear and settle payment activity. The proposals include revisions to:

1. The Policy on Payment System Risk and Account Access Guidelines
2. Regulation A (Extensions of Credit by Federal Reserve Banks)
3. Regulation D (Reserve Requirements of Depository Institutions)

The agency states the proposals are intended to support private-sector innovation in payments and are primarily directed toward non-federally insured depository institutions interested in direct access to Reserve Bank accounts and services.

Comments will be accepted through July 27, 2026.

Executive Order: Integrating Financial Technology Innovation into Regulatory Framework

For purposes of the Executive Order, the following definitions apply:

• “Fintech firm” – would mean a non-bank company that uses or develops technological means to offer or support the offering of financial products or services, including any application or technology that facilitates access to, management of, or data processing for financial products or services. Such financial products or services may include payment processing, lending, deposit-taking, derivatives, investment management, brokerage services, underwriting and capital-market activities, custodial and fiduciary services, digital banking, digital asset-related services, securities and commodities market activities, and blockchain-based services.  
• “Federal financial regulators” – would mean the Commodity Futures Trading Commission, Consumer Financial Protection Bureau, Federal Deposit Insurance Corporation, National Credit Union Administration, Office of the Comptroller of the Currency, and the Securities and Exchange Commission as well as the Federal Reserve Board.

Streamline Regulatory Processes – Each federal financial regulator is required to take the following actions:

Access to Federal Reserve Services – The FRB is directed to:

Proposals: Federal Reserve Special-Purpose Payment Account

The proposals to establish the FRB Payment Account follow the 2022 release of the FRB’s Account Access Guidelines (Guidelines - see KPMG Regulatory Alert here), which established a three-tiered framework to guide Reserve Bank assessments of requests for accounts and services, as well as a recent request for information on a “prototype Payment Account,” which sought information on whether a tailored payment account could meet the needs of eligible entities that are not federally-insured (considered Tier 2 and Tier 3 institutions under the Guidelines) and also meet the material risks identified in the Guidelines (e.g., operational, liquidity, cyber, fraud, money laundering). 

The FRB summarizes that the proposed Payment Account would facilitate access by eligible institutions, including uninsured depository institutions, to Federal Reserve services for clearing and settling payment activity, subject to a standardized set of terms that together would reduce the operational complexity and residual risk profile of the Payment Account relative to a Federal Reserve Master Account. Reserve Banks would be expected to continue to assess all account requests, including Payment Account requests, against the Guidelines.

The three rule proposals would work together, with amendments to the Payment System Risk Policy (PSR Policy) and Guidelines including references to the Regulation A and Regulation D amendments that would implement certain standardized terms for Payment Accounts. Key features follow.

Additional clarifications to the requirements for Payment Accounts include:

• Reserve Banks would not recognize third-party interests for Payment Accounts.
• An institution may only maintain one account except in very limited circumstances.
• Master Accounts do not have a standard set of risk-mitigating terms (although Reserve Banks have discretion to impose terms on Master Accounts) and are separate from Payment Accounts.
• Proposed changes to Regulation A would change neither the existing programs under which the Reserve Banks generally provide discount window credit (primary credit, secondary credit, and seasonal credit) nor the process for establishing the primary credit, secondary credit, and seasonal credit rates.
• The FRB is encouraging Reserve Banks to pause decisions on requests for Reserve Bank accounts and services from Tier 3 institutions until it has completed the policy development process on the Payment Account proposal.