Proposed Guidelines for Evaluating Account and Services Requests, 25865-25870 [2021-09873]

Download as PDF Federal Register / Vol. 86, No. 89 / Tuesday, May 11, 2021 / Notices proper disposal. Persons other than registrants will generally be allowed to sell, distribute, or use existing stocks until such stocks are exhausted, provided that such sale, distribution, or use is consistent with the terms of the previously approved labeling on, or that accompanied, the canceled products. Authority: 7 U.S.C. 136 et seq. Dated: May 4, 2021. Marietta Echeverria, Acting Director, Registration Division, Office of Pesticide Programs. [FR Doc. 2021–09938 Filed 5–10–21; 8:45 am] BILLING CODE 6560–50–P FEDERAL RESERVE SYSTEM Change in Bank Control Notices; Acquisitions of Shares of a Bank or Bank Holding Company The notificants listed below have applied under the Change in Bank Control Act (Act) (12 U.S.C. 1817(j)) and § 225.41 of the Board’s Regulation Y (12 CFR 225.41) to acquire shares of a bank or bank holding company. The factors that are considered in acting on the applications are set forth in paragraph 7 of the Act (12 U.S.C. 1817(j)(7)). The public portions of the applications listed below, as well as other related filings required by the Board, if any, are available for immediate inspection at the Federal Reserve Bank(s) indicated below and at the offices of the Board of Governors. This information may also be obtained on an expedited basis, upon request, by contacting the appropriate Federal Reserve Bank and from the Board’s Freedom of Information Office at https://www.federalreserve.gov/foia/ request.htm. Interested persons may express their views in writing on the standards enumerated in paragraph 7 of the Act. Comments regarding each of these applications must be received at the Reserve Bank indicated or the offices of the Board of Governors, Ann E. Misback, Secretary of the Board, 20th Street and Constitution Avenue NW, Washington DC 20551–0001, not later than May 26, 2021. A. Federal Reserve Bank of Chicago (Colette A. Fried, Assistant Vice President) 230 South LaSalle Street, Chicago, Illinois 60690–1414: 1. The Vanguard Group, Inc., Malvern, Pennsylvania; on behalf of itself, its subsidiaries and affiliates, including investment companies registered under the Investment Company Act of 1940, other pooled investment vehicles, and institutional VerDate Sep<11>2014 17:13 May 10, 2021 Jkt 253001 accounts that are sponsored, managed, or advised by Vanguard; to acquire additional voting shares of First Midwest Bancorp, Inc., and thereby indirectly acquire additional voting shares of First Midwest Bank, both of Chicago, Illinois. 2. The Cheryl Foote Groenendyke Trust No. 1, Cheryl Foote Groenendyke, as trustee, Inky Investments, L.C., Cheryl Foote Groenendyke, as manager, the Richard A. Groenendyke, Jr. Revocable Trust, and Richard A. Groenendyke Jr., as trustee, all of Tulsa, Oklahoma; the Shingleton Family Limited Partnership, Bradford Shingleton and Barbara Foote Shingleton, as general partners, and Rebecca Shingleton, all of Boston, Massachusetts; the Donkersloot-Foote Family Trust, Darci Foote and John Donkersloot, as co-trustees, all of Brighton, Michigan; the Foote Shingleton 2004 Irrevocable Trust, Kenneth J. Foote, as trustee, the Kenneth J. Foote Trust No. 1, Kenneth J. Foote, as trustee, Alexander Kirby Foote, Lark Allison Foote, Juliet Ann Foote, and Blythe Esther Foote, all of Okemos, Michigan; Foote Capital, LLC, Susan Foote and Stephen L. Feinberg, as comanagers, all of El Paso, Texas, and Kenneth J. Foote, also a co-manager, Okemos, Michigan; the Kenneth J. Foote Trust No. 2, Amy A. Payne, as cotrustee, both of Okemos, Michigan, and Iris Foote, Howell, Michigan, and Charlotte Fitzpatrick, Souderton, Pennsylvania, both co-trustees of the aforementioned trust; the BFS 2020 Delaware Trust, First Republic Bank of Delaware, as trustee, both of Wilmington, Delaware, and Barbara Foote Shingleton, Investment Direction Adviser, Boston, Massachusetts; the Rhonda Foote Judy Michigan Asset Trust, Rhonda Foote Judy, as trustee, both of Houston, Texas; the Mamie M. Foote Trust No. 1, Mamie M. Foote, as trustee, both of Golden Oaks, Florida; Charlotte Lynne Fitzpatrick, Souderton, Pennsylvania; Benjamin Aaron Foote, Chicago, Illinois; Jennifer Ewing, Chestnut Hill, Massachusetts; Iris Foote, Howell, Michigan, and Elizabeth Glomsrud, Rancho Santa Fe, California; all to become members of the Foote Family Control Group, a group acting in concert, to retain the voting shares of First National Bancshares, Inc., and thereby indirectly retain voting shares of First National Bank of America, both East Lansing, Michigan. 25865 FEDERAL RESERVE SYSTEM [Docket No. OP–1747] Proposed Guidelines for Evaluating Account and Services Requests Board of Governors of the Federal Reserve System. ACTION: Notice; request for comment. AGENCY: The Board of Governors of the Federal Reserve System (Board) is requesting comment on proposed guidelines (Account Access Guidelines) to evaluate requests for accounts and services at Federal Reserve Banks (Reserve Banks). DATES: Comments on the proposed changes must be received on or before July 12, 2021. ADDRESSES: You may submit comments, identified by Docket No. OP–1747, by any of the following methods: • Agency Website: http://www.federal reserve.gov. Follow the instructions for submitting comments at http:// www.federalreserve.gov/generalinfo/ foia/ProposedRegs.cfm. • Email: regs.comments@ federalreserve.gov. Include docket number in the subject line of the message. • Fax: (202) 452–3819 or (202) 452– 3102. • Mail: Ann E. Misback, Secretary, Board of Governors of the Federal Reserve System, 20th Street and Constitution Avenue NW, Washington, DC 20551. All public comments are available from the Board’s website at www.federalreserve.gov/generalinfo/ foia/ProposedRegs.cfm as submitted, unless modified for technical reasons or to remove personally identifiable information at the commenter’s request. Accordingly, comments will not be edited to remove any identifying or contact information. Public comments may also be viewed electronically or in paper in Room 146, 1709 New York Avenue NW, Washington, DC 20006, between 9:00 a.m. and 5:00 p.m. on weekdays. SUMMARY: FOR FURTHER INFORMATION CONTACT: [FR Doc. 2021–09944 Filed 5–10–21; 8:45 am] Jason Hinkle, Assistant Director (202– 912–7805), Division of Reserve Bank Operations and Payment Systems, or Sophia Allison, Senior Special Counsel (202–452–3565) or Gavin Smith, Senior Counsel (202–872–7578), Legal Division, Board of Governors of the Federal Reserve System. For users of Telecommunications Device for the Deaf (TDD) only, please contact 202–263– 4869. BILLING CODE P SUPPLEMENTARY INFORMATION: Board of Governors of the Federal Reserve System, May 6, 2021. Michele Taylor Fennell, Deputy Associate Secretary of the Board. PO 00000 Frm 00029 Fmt 4703 Sfmt 4703 E:\FR\FM\11MYN1.SGM 11MYN1 25866 Federal Register / Vol. 86, No. 89 / Tuesday, May 11, 2021 / Notices I. Background The Board of Governors of the Federal Reserve System (Board) is considering adopting guidelines (Account Access Guidelines) to be used by Federal Reserve Banks (Reserve Banks) in evaluating requests for master accounts and/or access to Federal Reserve Bank financial services (accounts and services). The Board’s approach to this proposal reflects its analysis of the Board’s policy goals of (1) ensuring the safety and soundness of the banking system, (2) effectively implementing monetary policy, (3) promoting financial stability, (4) protecting consumers, and (5) promoting a safe, efficient, inclusive, and innovative payment system. The Board’s proposed guidelines are also intended to ensure that Reserve Banks evaluate a transparent and consistent set of factors when reviewing requests for accounts and services (access requests). The payments landscape is evolving rapidly as technological progress and other factors are leading to both the introduction of new financial products and services and to different ways of providing traditional banking services (i.e., payments, deposit-taking, and lending). Relatedly, there has been a recent uptick in novel charter types being authorized or considered across the country and, as a result, the Reserve Banks are receiving an increasing number of inquiries and requests for access to accounts and services from novel institutions. Although the Reserve Banks have received such inquiries on an exceptional basis in the past, the Board now believes, given the increase in the number and novelty of such inquiries, that a more transparent and consistent approach to such requests should be adopted by the Reserve Banks. Given that access decisions made by individual Reserve Banks can have implications for a wide array of Federal Reserve System (Federal Reserve) policies and objectives, a structured, transparent, and detailed framework for evaluating access requests would benefit the financial system broadly. Such a framework would also help foster consistent evaluation of access requests, from both risk and policy perspectives, across all twelve Reserve Banks. To help achieve the goal of applying a transparent and consistent process for all access requests, the Board is proposing guidelines for the Reserve Banks to evaluate such requests. The proposed account access guidelines contain six principles that would support consistency in approach and decision-making across Reserve Banks while maintaining Reserve Bank VerDate Sep<11>2014 17:13 May 10, 2021 Jkt 253001 discretionary authority to grant or deny requests. Accordingly, the proposed guidelines would reduce the potential for forum shopping across Reserve Banks and mitigate the risk that individual decisions by Reserve Banks could create de facto System policy for a particular business model or risk profile. These risk-focused guidelines would also promote more consistent implementation for eligible institutions with similar risk profiles. The proposed account access guidelines are centered on a foundation of risk management and mitigation. In developing the proposed guidelines, the Board considered the risks that may arise when an institution gains access to accounts and services. These risks include, among others, risks to the Reserve Banks, to the payment system, to the financial system, and to the effective implementation of monetary policy. The introduction to the proposed guidelines discusses the Federal Reserve’s broad policy goals when providing accounts and services as well as the reasons for proposing to issue the account access guidelines. In addition, the introduction provides that while the guidelines are designed primarily for new access requests, Reserve Banks should also apply the guidelines to existing account and services relationships when a Reserve Bank becomes aware of a significant change in the risks that the account holder presents due to changes in the nature of its principal business activities, condition, etc. The proposed account access guidelines identify potential risks and prompt the Reserve Bank to identify risk mitigation strategies adopted by the institution (including capital, risk frameworks, compliance with regulations, and supervision) and by the Reserve Bank (including account agreement provisions, restrictions on financial services accessed, account risk controls, and denial of access requests). The first principle specifies that only institutions that are legally eligible for accounts and services are in scope, and the remaining five principles are designed to address specific risks ranging from narrow risks (such as risk to an individual Reserve Bank) to broader risks (such as risk to the U.S. financial system).1 The Board is considering whether it may in the future 1 The proposed guidelines are designed as a risk management framework and, as such, the principles focus on risks an institution’s access could pose. The Board notes, however, that an institution’s access could have net benefits to the financial system that are not a focus of the risk management framework. PO 00000 Frm 00030 Fmt 4703 Sfmt 4703 be useful to clarify the interpretation of legal eligibility under the Federal Reserve Act for a Federal Reserve account and services. For each of these principles, the proposed guidelines identify factors that Reserve Banks should consider when evaluating an institution against the specific risk targeted by the pringciple (several factors are pertinent to more than one principle). The identified factors are commonly used in the regulation and supervision of federallyinsured institutions. When applying the account access guidelines the Reserve Bank should incorporate, to the extent possible, the assessments of an institution by state and/or federal supervisors into its independent assessment of the institution’s risk profile. Given that the proposed guidelines utilize factors broadly applied to federally-insured institutions, the Board anticipates the application of the guidelines to access requests by federally-insured institutions would be fairly straightforward in most cases. Reserve Bank assessments of access requests from non-federally-insured institutions, however, may require more extensive due diligence. Currently, Reserve Bank risk management practices include monitoring the condition of institutions with accounts and services on an ongoing basis using supervisory ratings, capitalization data, and other supplementary information. Reserve Banks use this process to determine whether risk controls or other restrictions should be placed on an institution’s account. For example, the process is used to determine if an institution continues to remain eligible for primary credit. The Board anticipates that, if the proposed guidelines are adopted, Reserve Banks would use the guidelines to re-evaluate the risks posed by an institution in cases where these condition-monitoring activities indicate potential changes in the institution’s risk profile. II. Proposed Guidelines Guidelines Covering Access to Accounts and Services at Federal Reserve Banks (Account Access Guidelines) The Board of Governors of the Federal Reserve System (Board) has adopted account access guidelines comprised of six principles to be used by Federal Reserve Banks (Reserve Banks) in evaluating requests for master accounts and access to Federal Reserve Bank financial services (access requests).2 3 2 As discussed in the Federal Reserve’s Operating Circular No. 1, an institution has the option to settle its Federal Reserve financial services transactions in E:\FR\FM\11MYN1.SGM 11MYN1 Federal Register / Vol. 86, No. 89 / Tuesday, May 11, 2021 / Notices The account access guidelines apply to requests from all institutions that are legally eligible to receive an account or services, as discussed in more detail in the first principle.4 The Federal Reserve System’s (Federal Reserve) approach to providing institutions with accounts and services depends on, among other things, whether the institution is legally eligible to obtain an account and on the Federal Reserve’s policy goals of ensuring the safety and soundness of the banking system, effectively implementing monetary policy, promoting financial stability, protecting consumers, and promoting a safe, effective, efficient, accessible and innovative payment system. The Board believes it is important to make clear that legal eligibility does not bestow a right to obtain an account and services. While decisions regarding individual access requests remain at the discretion of the individual Reserve Banks, the Board believes it is important that the Reserve Banks apply a consistent set of guidelines when reviewing such access requests to promote consistent outcomes across Reserve Banks and to facilitate equitable treatment across institutions. These account access guidelines also serve to inform requestors of the factors that a Reserve Bank will review in any access request and thereby allow requestors to make any enhancements to its risk management, documentation, or other practices, as the case may be, to attempt to demonstrate how it meets each of these factors for review. These guidelines broadly outline considerations for evaluating access requests but are not intended to provide assurance that any specific institution will be granted an account and services. The individual Reserve Bank will evaluate each access request on a caseby-case basis. When applying these account access guidelines, the Reserve Bank should incorporate to the extent possible the assessments of an institution by state and/or federal its master account with a Reserve Bank or in the master account of another institution that has agreed to act as its Correspondent. These principles apply to requests for either arrangement. 3 Reserve Bank financial services mean all services subject to Federal Reserve Act, section 11A (‘‘priced services’’) and Reserve Bank cash services. Financial services do not include transactions conducted as part of the Federal Reserve’s open market operations or administration of the Reserve Banks’ Discount Window. 4 These principles would not apply to accounts provided under fiscal agency authority or to accounts authorized pursuant to the Board’s Regulation N (12 CFR 214), joint account requests, or account requests from designated financial market utilities, since existing rules or policies already set out the considerations involved in granting these types of accounts. VerDate Sep<11>2014 17:13 May 10, 2021 Jkt 253001 supervisors into its independent analysis of the institution’s risk profile. The evaluation of an institution’s access request should also consider whether the request has the potential to set a precedent that could affect the Federal Reserve’s ability to achieve its policy goals now or in the future. If the Reserve Bank decides to grant an access request, it may impose (at the time of account opening, granting access to service, or any time thereafter) obligations relating to, or conditions or limitations on, use of the account or services as necessary to limit operational, credit, legal, or other risks posed to the Reserve Banks, the payment system, financial stability or the implementation of monetary policy or to address other considerations.5 The account-holding Reserve Bank may, at its discretion, decide to place additional risk management controls on the account and services, such as real-time monitoring of account balances, as it may deem necessary to mitigate risks. If the obligations, limitations, or controls are ineffective in mitigating the risks identified or if the obligations, limitations, or controls are breached, the account-holding Reserve Bank may further restrict the institution’s use of accounts and services or may close the account. Establishment of an account and provision of services by a Reserve Bank under these guidelines is not an endorsement or approval by the Federal Reserve of the institution. Nothing in the Board’s guidelines relieves any institution from compliance with obligations imposed by the institution’s supervisors and regulators. Accordingly, Reserve Banks should evaluate how each institution requesting an account and services will meet the following principles.6 Each principle identifies factors that Reserve Banks should consider when evaluating an institution against the specific risk targeted by the principle (several factors are pertinent to more than one principle). The identified factors are commonly used in the regulation and supervision of federally-insured institutions. As a result, the Board anticipates the application of the account access guidelines to access 5 The conditions imposed could include, but are not limited to, paying a different rate of interest on balances held in the account, limiting the amount of balances on which interest is paid, or establishing a cap on the amount of balances held in the account. 6 The principles are designed to address risks posed by an institution having access to an account and services, ranging from narrow risks (e.g., to an individual Reserve Bank) to broader risks (e.g., to the overall economy). Review activities performed by the Reserve Bank may address several principles at once. PO 00000 Frm 00031 Fmt 4703 Sfmt 4703 25867 requests by federally-insured institutions will be fairly straightforward in most cases. However, Reserve Bank assessments of access requests from non-federally insured institutions may require more extensive due diligence. Reserve Banks monitor and analyze the condition of institutions with accounts and services on an ongoing basis. Reserve Banks should use the guidelines to re-evaluate the risks posed by an institution in cases where its condition monitoring and analysis indicate potential changes in the risk profile of an institution, including a significant change to the institution’s business model. 1. Each institution requesting an account or services must be eligible under the Federal Reserve Act or other federal statute to maintain an account at a Federal Reserve Bank (Reserve Bank) and receive Federal Reserve services and should have a well-founded, clear, transparent, and enforceable legal basis for its operations.7 a. Unless otherwise specified by federal statute, only those entities that are member banks or meet the definition of a depository institution under section 19(b) of the Federal Reserve Act are legally eligible to obtain Federal Reserve accounts and financial services.8 b. The Reserve Bank should assess the consistency of the institution’s activities and services with applicable laws and regulations, such as Article 4A of the Uniform Commercial Code and the Electronic Fund Transfer Act. The Reserve Bank should also consider whether the design of the institution’s services would impede compliance by the institution’s customers with U.S. sanction programs, Bank Secrecy Act (BSA) and anti-money-laundering (AML) requirements or regulations, or consumer protection laws and regulations. 2. Provision of an account and services to an institution should not present or create undue credit, operational, settlement, cyber or other risks to the Reserve Bank. 7 These principles do not apply to accounts provided by a Reserve Bank as depository and fiscal agent for the Treasury and for certain governmentsponsored entities (12 U.S.C. 391, 393–95, 1823, 1435) as well as to accounts provided to certain international organizations (22 U.S.C. 285d, 286d, 290o-3, 290i-5, 290l-3), to designated financial market utilities (12 U.S.C. 5465), pursuant to the Board’s Regulation N (12 CFR 214), or to the Board’s Guidelines for Evaluating Joint Account Requests. 8 These principles apply to account requests from member banks or other entities that meet the definition of a depository institution under section 19(b), as well as Edge and Agreement corporations (12 U.S.C. 601–604a, 611–631), and branches and agencies of foreign banks (12 U.S.C. 347d). E:\FR\FM\11MYN1.SGM 11MYN1 25868 Federal Register / Vol. 86, No. 89 / Tuesday, May 11, 2021 / Notices a. The Reserve Bank should incorporate, to the extent possible, the assessments of an institution by state and/or federal supervisors into its independent assessment of the institution’s risk profile. b. The Reserve Bank should confirm that the institution has an effective risk management framework and governance arrangements to ensure that the institution operates in a safe and sound manner, during both normal conditions and periods of idiosyncratic and market stress. i. For these purposes, effective risk management includes having a robust framework, including policies, procedures, systems, and qualified staff, to manage applicable risks. The framework should at a minimum identify, measure, and control the particular risks posed by the institution’s business lines, products and services. The effectiveness of the framework should be further supported by internal testing and internal audit reviews. ii. The framework should be subject to oversight by a board of directors (or similar body) as well as oversight by state and/or federal banking supervisor(s). iii. The framework should clearly identify all risks that may arise related to the institution’s business (e.g., legal, credit, liquidity, operational, custody, investment) as well as objectives regarding the risk tolerances for the management of such risks. c. The Reserve Bank should confirm that the institution is in substantial compliance with its supervisory agency’s regulatory and supervisory requirements. d. The institution must, in the Reserve Bank’s judgment: i. Demonstrate an ability to comply, were it to obtain a master account, with Board orders and policies, Reserve Bank agreements and operating circulars, and other applicable Federal Reserve requirements. ii. Be in sound financial condition, including maintaining adequate capital to continue as a going concern and to meet its current and projected operating expenses under a range of scenarios. iii. Demonstrate the ability, on an ongoing basis (including during periods of idiosyncratic or market stress), to meet all of its obligations in order to remain a going concern and comply with its agreement for a Reserve Bank account and services, including by maintaining: A. Sufficient liquid resources to meet its obligations to the Reserve Bank under applicable agreements, operating circulars, and Board policies; VerDate Sep<11>2014 17:13 May 10, 2021 Jkt 253001 B. The operational capacity to ensure that such liquid resources are available to satisfy all such obligations to the Reserve Bank on a timely basis; and C. Settlement processes designed to appropriately monitor balances in its Reserve Bank account on an intraday basis, to process transactions through its account in an orderly manner and maintain/achieve a positive account balance before the end of the business day. iv. Have in place an operational risk framework designed to ensure operational resiliency against events associated with processes, people, and systems that may impair the institution’s use and settlement of Reserve Bank services. This framework should consider internal and external factors, including operational risks inherent in the institution’s business model, risks that might arise in connection with its use of any Reserve Bank account and services, and cyberrelated risks. At a minimum, the operational risk framework should: A. Identify the range of operational risks presented by the institution’s business model (e.g., cyber vulnerability, operational failure, resiliency of service providers), and establish sound operational risk management objectives to address such risks; B. Establish sound governance arrangements, rules, and procedures to oversee and implement the operational risk management framework; C. Establish clear and appropriate rules and procedures to carry out the risk management objectives; D. Employ the resources necessary to achieve its risk management objectives and implement effectively its rules and procedures, including, but not limited to, sound processes for physical and information security, internal controls, compliance, program management, incident management, business continuity, audit, and well-qualified personnel; and E. Support compliance with the electronic access requirements, including security measures, outlined in the Reserve Banks’ Operating Circular 5 and its supporting documentation. 3. Provision of an account and services to an institution should not present or create undue credit, liquidity, operational, settlement, cyber or other risks to the overall payment system. a. The Reserve Bank should incorporate, to the extent possible, the assessments of an institution by state and/or federal supervisors into its independent assessment of the institution’s risk profile. PO 00000 Frm 00032 Fmt 4703 Sfmt 4703 b. The Reserve Bank should confirm that the institution has an effective risk management framework and governance arrangements to limit the impact that idiosyncratic stress, disruptions, outages, cyber incidents or other incidents at the institution might have on other institutions and the payment system broadly. The framework should include: i. Clearly defined operational reliability objectives and policies and procedures in place to achieve those objectives. ii. A business continuity plan that addresses events that have the potential to disrupt operations and a resiliency objective to ensure the institution can resume services in a reasonable timeframe. iii. Policies and procedures for identifying risks that external parties may pose to sound operations, including interdependencies with affiliates, service providers, and others. c. The Reserve Bank should identify actual and potential interactions between the institution’s use of a Reserve Bank account and services and (other parts of) the payment system. i. The extent to which the institution’s use of a Reserve Bank account and services might restrict funds from being available to support the liquidity needs of other institutions should also be considered. d. The institution must, in the Reserve Bank’s judgment: i. Be in sound financial condition, including maintaining adequate capital to continue as a going concern and to meet its current and projected operating expenses under a range of scenarios. ii. Demonstrate the ability, on an ongoing basis (including during periods of idiosyncratic or market stress), to meet all of its obligations in order to remain a going concern and comply with its agreement for a Reserve Bank account and services, including by maintaining: A. Sufficient liquid resources to meet its obligations to the Reserve Bank under applicable agreements, Operating Circulars, and Board policies; B. The operational capacity to ensure that such liquid resources are available to satisfy all such obligations to the Reserve Bank on a timely basis; and C. Settlement processes designed to appropriately monitor balances in its Reserve Bank account on an intraday basis, to process transactions through its account in an orderly manner and maintain/achieve a positive account balance before the end of the business day. iii. Have in place an operational risk framework designed to ensure E:\FR\FM\11MYN1.SGM 11MYN1 Federal Register / Vol. 86, No. 89 / Tuesday, May 11, 2021 / Notices operational resiliency against events associated with processes, people, and systems that may impair the institution’s payment system activities. This framework should consider internal and external factors, including operational risk inherent in the institution’s business model, risk that might arise in connection with its use of the payment system, and cyber-related risks. At a minimum, the framework should: A. Identify the range of operational risks presented by the institution’s business model (e.g., cyber vulnerability, operational failure, resiliency of service providers), and establish sound operational riskmanagement objectives; B. Establish sound governance arrangements, rules, and procedures to oversee the operational risk management framework; C. Establish clear and appropriate rules and procedures to carry out the risk management objectives; D. Employ the resources necessary to achieve its risk management objectives and implement effectively its rules and procedures, including, but not limited to, sound processes for physical and information security, internal controls, compliance, program management, incident management, business continuity, audit, and well-qualified personnel. 4. Provision of an account and services to an institution should not create undue risk to the stability of the U.S. financial system. a. The Reserve Bank should incorporate, to the extent possible, the assessments of an institution by state and/or federal supervisors into its independent assessment of the institution’s risk profile. b. The Reserve Bank should determine, in coordination with the other Reserve Banks and Board, whether the access to an account and services by an institution itself or a group of like institutions could introduce financial stability risk to the U.S. financial system. c. The Reserve Bank should confirm that the institution has an effective risk management framework and governance arrangements for managing liquidity, credit, and other risks that may arise in times of financial or economic stress. d. The Reserve Bank should consider the extent to which, especially in times of financial or economic stress, liquidity or other strains at the institution may be transmitted to other segments of the financial system. e. The Reserve Bank should consider the extent to which, especially during times of financial or economic stress, VerDate Sep<11>2014 17:13 May 10, 2021 Jkt 253001 access to an account and services by an institution itself (or a group of like institutions) could affect deposit balances across U.S. financial institutions more broadly and whether any resulting movements in deposit balances could have a deleterious effect on U.S. financial stability. i. Balances held in Reserve Bank accounts are high-quality liquid assets, making them very attractive in times of financial or economic stress. For example, in times of stress, investors that would otherwise provide short-term funding to nonfinancial firms, financial firms, and state and local governments could rapidly withdraw that funding and instead deposit their funds with an institution holding mostly central bank balances. If the institution is not subject to capital requirements similar to a federally-insured institution, the potential for sudden and significant deposit inflows into that institution is particularly large, which could disintermediate other parts of the financial system, greatly amplifying stress. 5. Provision of an account and services to an institution should not create undue risk to the overall economy by facilitating activities such as money laundering, terrorism financing, fraud, cybercrimes, or other illicit activity. a. The Reserve Bank should incorporate, to the extent possible, the assessments of an institution by state and/or federal supervisors into its independent assessment of the institution’s risk profile. b. The Reserve Bank should confirm that the institution has an anti-moneylaundering program consistent with the requirements in 31 CFR 1020.210(b) and complies with the Office of Foreign Asset Control (OFAC) regulations at 31 CFR Chapter V. i. For these purposes, the Reserve Bank should confirm that these compliance programs contain the following elements: A. A system of internal controls, including policies and procedures, to ensure ongoing BSA/AML and OFAC compliance, including regular written risk assessments to identify, analyze and address the risks the institution faces, policies, procedures, and an effective transaction-monitoring system; B. Independent audit and testing of BSA/AML and OFAC compliance; C. Senior management commitment to BSA/AML and OFAC compliance, including, at a minimum: (a) The designation of a specific person or persons responsible for managing BSA/ AML and OFAC compliance, including the employment of an experienced BSA/ PO 00000 Frm 00033 Fmt 4703 Sfmt 4703 25869 AML and OFAC compliance officer; (b) senior management review and approval of the institution’s BSA/AML and OFAC compliance programs; (c) the institution’s compliance staff has sufficient authority and autonomy to deploy policies and procedures in a manner that effectively controls the institution’s BSA/AML and OFAC risk; and (d) senior management taking, and demonstrating that it will continue to take, steps to ensure that the institution’s compliance unit receives adequate resources; D. Ongoing training for appropriate personnel with a scope that is appropriate for the products and services the institution offers; and E. Processes that allow for a riskbased classification of its customer base, including risk-based procedures for conducting ongoing customer due diligence. 6. Provision of an account and services to an institution should not adversely affect the Federal Reserve’s ability to implement monetary policy. a. The Reserve Bank should incorporate, to the extent possible, the assessments of an institution by state and/or federal supervisors into its independent assessment of the institution’s risk profile. b. The Reserve Bank should determine, in coordination with the other Reserve Banks and the Board, whether access to an account and services by an institution itself or a group of like institutions could have an effect on the implementation of monetary policy. c. The Reserve Bank should consider, among other things, whether access to a Reserve Bank account and services by the institution could affect the level and variability of the demand for and supply of reserves, the level and volatility of key policy interest rates, the structure of key short-term funding markets, and on the overall size of the consolidated balance sheet of the Reserve Banks. The Reserve Bank should consider the implications of providing an account to the institution in normal times as well as in times of stress. This consideration should occur regardless of the current monetary policy implementation framework in place. III. Request for Comment The Board requests comment on all aspects of the proposed account access guidelines, including: (1) Whether the scope and application of the proposed guidance are sufficiently clear and appropriate to achieve their intended purpose; and (2) suggesting/identifying other criteria or information that commenters believe may be relevant to E:\FR\FM\11MYN1.SGM 11MYN1 25870 Federal Register / Vol. 86, No. 89 / Tuesday, May 11, 2021 / Notices evaluate accounts and services requests under the proposed guidance. The Board further seeks comment specifically on the following aspects of the proposed guidance: 1. Do the proposed account access guidelines address all the risks that would be relevant to the Federal Reserve’s policy goals? 2. Does the level of specificity in each principle provide sufficient clarity and transparency about how the Reserve Banks will evaluate requests? 3. Do the proposed account access guidelines support responsible financial innovation? Finally, the Board also seeks comment on whether the Board or the Reserve Banks should consider other steps or actions to facilitate the review of requests for accounts and services in a consistent and equitable manner. By order of the Board of Governors of the Federal Reserve System. Ann Misback, Secretary of the Board. [FR Doc. 2021–09873 Filed 5–10–21; 8:45 am] BILLING CODE P FEDERAL RESERVE SYSTEM Change in Bank Control Notices; Acquisitions of Shares of a Bank or Bank Holding Company The notificants listed below have applied under the Change in Bank Control Act (Act) (12 U.S.C. 1817(j)) and § 225.41 of the Board’s Regulation Y (12 CFR 225.41) to acquire shares of a bank or bank holding company. The factors that are considered in acting on the applications are set forth in paragraph 7 of the Act (12 U.S.C. 1817(j)(7)). The public portions of the applications listed below, as well as other related filings required by the Board, if any, are available for immediate inspection at the Federal Reserve Bank(s) indicated below and at the offices of the Board of Governors. This information may also be obtained on an expedited basis, upon request, by contacting the appropriate Federal Reserve Bank and from the Board’s Freedom of Information Office at https://www.federalreserve.gov/foia/ request.htm. Interested persons may express their views in writing on the standards enumerated in paragraph 7 of the Act. Comments regarding each of these applications must be received at the Reserve Bank indicated or the offices of the Board of Governors, Ann E. Misback, Secretary of the Board, 20th Street and Constitution Avenue NW, VerDate Sep<11>2014 17:13 May 10, 2021 Jkt 253001 Washington DC 20551–0001, not later than May 26, 2021. A. Federal Reserve Bank of Dallas (Karen Smith, Director, Applications) 2200 North Pearl Street, Dallas, Texas 75201–2272: 1. The Vanguard Group, Inc., Malvern, Pennsylvania; on behalf of itself, its subsidiaries and affiliates, including investment companies registered under the Investment Company Act of 1940, other pooled investment vehicles, and institutional accounts that are sponsored, managed, or advised by Vanguard; to acquire additional voting shares of Prosperity Bancshares, Inc., Houston, Texas, and thereby indirectly acquire additional voting shares of Prosperity Bank, El Campo, Texas. B. Federal Reserve Bank of New York (Ivan Hurwitz, Senior Vice President) 33 Liberty Street, New York, New York 10045–0001. Comments can also be sent electronically to Comments.applications@ny.frb.org: 1. The Vanguard Group, Inc., Malvern, Pennsylvania; on behalf of itself, its subsidiaries and affiliates, including investment companies registered under the Investment Company Act of 1940, other pooled investment vehicles, and institutional accounts that are sponsored, managed, or advised by Vanguard; to acquire additional voting shares of Community Bank System, Inc., DeWitt, New York, and thereby indirectly acquire additional voting shares of Community Bank, National Association, Canton, New York. C. Federal Reserve Bank of San Francisco (Sebastian Astrada, Director, Applications) 101 Market Street, San Francisco, California 94105–1579: 1. The Vanguard Group, Inc., Malvern, Pennsylvania; on behalf of itself, its subsidiaries and affiliates, including investment companies registered under the Investment Company Act of 1940, other pooled investment vehicles, and institutional accounts that are sponsored, managed, or advised by Vanguard; to acquire additional voting shares of Westamerica Bancorporation, and thereby indirectly acquire voting shares of Westamerica Bank, both of San Rafael, California. D. Federal Reserve Bank of Kansas City (Jeffrey Imgarten, Assistant Vice President) 1 Memorial Drive, Kansas City, Missouri 64198–0001: 1. The Frank L. Bruning Nonqualifying Trust Share (‘‘FL Bruning Trust’’), Fred D. Bruning, Bruning, Nebraska, and Jane A. Tonniges, Omaha, Nebraska, as co-trustees, and the Mary B. Bruning Revocable Trust (‘‘MB Bruning Trust’’), Mary B. Bruning, PO 00000 Frm 00034 Fmt 4703 Sfmt 4703 as co-trustee, both of Bruning, Nebraska; to retain voting shares of Bruning Bancshares, Inc., and indirectly retain voting shares of Bruning Bank, both of Bruning, Nebraska. Additionally, the Jane A. Tonniges Revocable Trust, Jane A Tonniges, as trustee, and Christopher Tonniges, all of Omaha, Nebraska; the Fred D. Bruning 2020 Irrevocable Trust, Penni J. Bruning, trustee, both of Bruning, Nebraska, and Dennis C. Stara, special purpose trustee, Lincoln, Nebraska; Adam F. Bruning, Hebron, Nebraska; Reiss L. Bruning, Bruning, Nebraska; and Dennis C. Stara, Lincoln, Nebraska; with the FL Bruning Trust and the MB Bruning Trust, to join the Bruning Family Group, a group acting in concert, to retain voting shares of Bruning Bancshares, Inc., and indirectly retain voting shares of Bruning Bank. Board of Governors of the Federal Reserve System, May 5, 2021. Michele Taylor Fennell, Deputy Associate Secretary of the Board. [FR Doc. 2021–09880 Filed 5–10–21; 8:45 am] BILLING CODE P FEDERAL TRADE COMMISSION Agency Information Collection Activities; Submission for OMB Review; Comment Request AGENCY: Federal Trade Commission (FTC). ACTION: Notice and request for comment. The FTC requests that the Office of Management and Budget (OMB) extend for three years the current Paperwork Reduction Act (PRA) clearance for information collection requirements contained in the Commission’s rules and regulations under the Textile Fiber Products Identification Act (Textile Rules). That clearance expires on May 31, 2021. DATES: Comments must be received by June 10, 2021. ADDRESSES: Written comments and recommendations for the proposed information collection should be sent within 30 days of publication of this notice to www.reginfo.gov/public/do/ PRAMain. Find this particular information collection by selecting ‘‘Currently under 30-day Review—Open for Public Comments’’ or by using the search function. The reginfo.gov web link is a United States Government website produced by OMB and the General Services Administration (GSA). Under PRA requirements, OMB’s Office of Information and Regulatory Affairs (OIRA) reviews Federal information collections. SUMMARY: E:\FR\FM\11MYN1.SGM 11MYN1

Agencies

[Federal Register Volume 86, Number 89 (Tuesday, May 11, 2021)]
[Notices]
[Pages 25865-25870]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2021-09873]


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FEDERAL RESERVE SYSTEM

[Docket No. OP-1747]


Proposed Guidelines for Evaluating Account and Services Requests

AGENCY: Board of Governors of the Federal Reserve System.

ACTION: Notice; request for comment.

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SUMMARY: The Board of Governors of the Federal Reserve System (Board) 
is requesting comment on proposed guidelines (Account Access 
Guidelines) to evaluate requests for accounts and services at Federal 
Reserve Banks (Reserve Banks).

DATES: Comments on the proposed changes must be received on or before 
July 12, 2021.

ADDRESSES: You may submit comments, identified by Docket No. OP-1747, 
by any of the following methods:
     Agency Website: http://www.federalreserve.gov. Follow the 
instructions for submitting comments at http://www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm.
     Email: [email protected]. Include docket 
number in the subject line of the message.
     Fax: (202) 452-3819 or (202) 452-3102.
     Mail: Ann E. Misback, Secretary, Board of Governors of the 
Federal Reserve System, 20th Street and Constitution Avenue NW, 
Washington, DC 20551.
    All public comments are available from the Board's website at 
www.federalreserve.gov/generalinfo/foia/ProposedRegs.cfm as submitted, 
unless modified for technical reasons or to remove personally 
identifiable information at the commenter's request. Accordingly, 
comments will not be edited to remove any identifying or contact 
information. Public comments may also be viewed electronically or in 
paper in Room 146, 1709 New York Avenue NW, Washington, DC 20006, 
between 9:00 a.m. and 5:00 p.m. on weekdays.

FOR FURTHER INFORMATION CONTACT: Jason Hinkle, Assistant Director (202-
912-7805), Division of Reserve Bank Operations and Payment Systems, or 
Sophia Allison, Senior Special Counsel (202-452-3565) or Gavin Smith, 
Senior Counsel (202-872-7578), Legal Division, Board of Governors of 
the Federal Reserve System. For users of Telecommunications Device for 
the Deaf (TDD) only, please contact 202-263-4869.

SUPPLEMENTARY INFORMATION:

[[Page 25866]]

I. Background

    The Board of Governors of the Federal Reserve System (Board) is 
considering adopting guidelines (Account Access Guidelines) to be used 
by Federal Reserve Banks (Reserve Banks) in evaluating requests for 
master accounts and/or access to Federal Reserve Bank financial 
services (accounts and services). The Board's approach to this proposal 
reflects its analysis of the Board's policy goals of (1) ensuring the 
safety and soundness of the banking system, (2) effectively 
implementing monetary policy, (3) promoting financial stability, (4) 
protecting consumers, and (5) promoting a safe, efficient, inclusive, 
and innovative payment system. The Board's proposed guidelines are also 
intended to ensure that Reserve Banks evaluate a transparent and 
consistent set of factors when reviewing requests for accounts and 
services (access requests).
    The payments landscape is evolving rapidly as technological 
progress and other factors are leading to both the introduction of new 
financial products and services and to different ways of providing 
traditional banking services (i.e., payments, deposit-taking, and 
lending). Relatedly, there has been a recent uptick in novel charter 
types being authorized or considered across the country and, as a 
result, the Reserve Banks are receiving an increasing number of 
inquiries and requests for access to accounts and services from novel 
institutions.
    Although the Reserve Banks have received such inquiries on an 
exceptional basis in the past, the Board now believes, given the 
increase in the number and novelty of such inquiries, that a more 
transparent and consistent approach to such requests should be adopted 
by the Reserve Banks. Given that access decisions made by individual 
Reserve Banks can have implications for a wide array of Federal Reserve 
System (Federal Reserve) policies and objectives, a structured, 
transparent, and detailed framework for evaluating access requests 
would benefit the financial system broadly. Such a framework would also 
help foster consistent evaluation of access requests, from both risk 
and policy perspectives, across all twelve Reserve Banks.
    To help achieve the goal of applying a transparent and consistent 
process for all access requests, the Board is proposing guidelines for 
the Reserve Banks to evaluate such requests. The proposed account 
access guidelines contain six principles that would support consistency 
in approach and decision-making across Reserve Banks while maintaining 
Reserve Bank discretionary authority to grant or deny requests. 
Accordingly, the proposed guidelines would reduce the potential for 
forum shopping across Reserve Banks and mitigate the risk that 
individual decisions by Reserve Banks could create de facto System 
policy for a particular business model or risk profile. These risk-
focused guidelines would also promote more consistent implementation 
for eligible institutions with similar risk profiles.
    The proposed account access guidelines are centered on a foundation 
of risk management and mitigation. In developing the proposed 
guidelines, the Board considered the risks that may arise when an 
institution gains access to accounts and services. These risks include, 
among others, risks to the Reserve Banks, to the payment system, to the 
financial system, and to the effective implementation of monetary 
policy.
    The introduction to the proposed guidelines discusses the Federal 
Reserve's broad policy goals when providing accounts and services as 
well as the reasons for proposing to issue the account access 
guidelines. In addition, the introduction provides that while the 
guidelines are designed primarily for new access requests, Reserve 
Banks should also apply the guidelines to existing account and services 
relationships when a Reserve Bank becomes aware of a significant change 
in the risks that the account holder presents due to changes in the 
nature of its principal business activities, condition, etc.
    The proposed account access guidelines identify potential risks and 
prompt the Reserve Bank to identify risk mitigation strategies adopted 
by the institution (including capital, risk frameworks, compliance with 
regulations, and supervision) and by the Reserve Bank (including 
account agreement provisions, restrictions on financial services 
accessed, account risk controls, and denial of access requests). The 
first principle specifies that only institutions that are legally 
eligible for accounts and services are in scope, and the remaining five 
principles are designed to address specific risks ranging from narrow 
risks (such as risk to an individual Reserve Bank) to broader risks 
(such as risk to the U.S. financial system).\1\ The Board is 
considering whether it may in the future be useful to clarify the 
interpretation of legal eligibility under the Federal Reserve Act for a 
Federal Reserve account and services.
---------------------------------------------------------------------------

    \1\ The proposed guidelines are designed as a risk management 
framework and, as such, the principles focus on risks an 
institution's access could pose. The Board notes, however, that an 
institution's access could have net benefits to the financial system 
that are not a focus of the risk management framework.
---------------------------------------------------------------------------

    For each of these principles, the proposed guidelines identify 
factors that Reserve Banks should consider when evaluating an 
institution against the specific risk targeted by the pringciple 
(several factors are pertinent to more than one principle). The 
identified factors are commonly used in the regulation and supervision 
of federally-insured institutions. When applying the account access 
guidelines the Reserve Bank should incorporate, to the extent possible, 
the assessments of an institution by state and/or federal supervisors 
into its independent assessment of the institution's risk profile. 
Given that the proposed guidelines utilize factors broadly applied to 
federally-insured institutions, the Board anticipates the application 
of the guidelines to access requests by federally-insured institutions 
would be fairly straightforward in most cases. Reserve Bank assessments 
of access requests from non-federally-insured institutions, however, 
may require more extensive due diligence.
    Currently, Reserve Bank risk management practices include 
monitoring the condition of institutions with accounts and services on 
an ongoing basis using supervisory ratings, capitalization data, and 
other supplementary information. Reserve Banks use this process to 
determine whether risk controls or other restrictions should be placed 
on an institution's account. For example, the process is used to 
determine if an institution continues to remain eligible for primary 
credit. The Board anticipates that, if the proposed guidelines are 
adopted, Reserve Banks would use the guidelines to re-evaluate the 
risks posed by an institution in cases where these condition-monitoring 
activities indicate potential changes in the institution's risk 
profile.

II. Proposed Guidelines

Guidelines Covering Access to Accounts and Services at Federal Reserve 
Banks (Account Access Guidelines)

    The Board of Governors of the Federal Reserve System (Board) has 
adopted account access guidelines comprised of six principles to be 
used by Federal Reserve Banks (Reserve Banks) in evaluating requests 
for master accounts and access to Federal Reserve Bank financial 
services (access requests).2 3

[[Page 25867]]

The account access guidelines apply to requests from all institutions 
that are legally eligible to receive an account or services, as 
discussed in more detail in the first principle.\4\
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    \2\ As discussed in the Federal Reserve's Operating Circular No. 
1, an institution has the option to settle its Federal Reserve 
financial services transactions in its master account with a Reserve 
Bank or in the master account of another institution that has agreed 
to act as its Correspondent. These principles apply to requests for 
either arrangement.
    \3\ Reserve Bank financial services mean all services subject to 
Federal Reserve Act, section 11A (``priced services'') and Reserve 
Bank cash services. Financial services do not include transactions 
conducted as part of the Federal Reserve's open market operations or 
administration of the Reserve Banks' Discount Window.
    \4\ These principles would not apply to accounts provided under 
fiscal agency authority or to accounts authorized pursuant to the 
Board's Regulation N (12 CFR 214), joint account requests, or 
account requests from designated financial market utilities, since 
existing rules or policies already set out the considerations 
involved in granting these types of accounts.
---------------------------------------------------------------------------

    The Federal Reserve System's (Federal Reserve) approach to 
providing institutions with accounts and services depends on, among 
other things, whether the institution is legally eligible to obtain an 
account and on the Federal Reserve's policy goals of ensuring the 
safety and soundness of the banking system, effectively implementing 
monetary policy, promoting financial stability, protecting consumers, 
and promoting a safe, effective, efficient, accessible and innovative 
payment system. The Board believes it is important to make clear that 
legal eligibility does not bestow a right to obtain an account and 
services. While decisions regarding individual access requests remain 
at the discretion of the individual Reserve Banks, the Board believes 
it is important that the Reserve Banks apply a consistent set of 
guidelines when reviewing such access requests to promote consistent 
outcomes across Reserve Banks and to facilitate equitable treatment 
across institutions.
    These account access guidelines also serve to inform requestors of 
the factors that a Reserve Bank will review in any access request and 
thereby allow requestors to make any enhancements to its risk 
management, documentation, or other practices, as the case may be, to 
attempt to demonstrate how it meets each of these factors for review.
    These guidelines broadly outline considerations for evaluating 
access requests but are not intended to provide assurance that any 
specific institution will be granted an account and services. The 
individual Reserve Bank will evaluate each access request on a case-by-
case basis. When applying these account access guidelines, the Reserve 
Bank should incorporate to the extent possible the assessments of an 
institution by state and/or federal supervisors into its independent 
analysis of the institution's risk profile. The evaluation of an 
institution's access request should also consider whether the request 
has the potential to set a precedent that could affect the Federal 
Reserve's ability to achieve its policy goals now or in the future.
    If the Reserve Bank decides to grant an access request, it may 
impose (at the time of account opening, granting access to service, or 
any time thereafter) obligations relating to, or conditions or 
limitations on, use of the account or services as necessary to limit 
operational, credit, legal, or other risks posed to the Reserve Banks, 
the payment system, financial stability or the implementation of 
monetary policy or to address other considerations.\5\ The account-
holding Reserve Bank may, at its discretion, decide to place additional 
risk management controls on the account and services, such as real-time 
monitoring of account balances, as it may deem necessary to mitigate 
risks. If the obligations, limitations, or controls are ineffective in 
mitigating the risks identified or if the obligations, limitations, or 
controls are breached, the account-holding Reserve Bank may further 
restrict the institution's use of accounts and services or may close 
the account. Establishment of an account and provision of services by a 
Reserve Bank under these guidelines is not an endorsement or approval 
by the Federal Reserve of the institution. Nothing in the Board's 
guidelines relieves any institution from compliance with obligations 
imposed by the institution's supervisors and regulators.
---------------------------------------------------------------------------

    \5\ The conditions imposed could include, but are not limited 
to, paying a different rate of interest on balances held in the 
account, limiting the amount of balances on which interest is paid, 
or establishing a cap on the amount of balances held in the account.
---------------------------------------------------------------------------

    Accordingly, Reserve Banks should evaluate how each institution 
requesting an account and services will meet the following 
principles.\6\ Each principle identifies factors that Reserve Banks 
should consider when evaluating an institution against the specific 
risk targeted by the principle (several factors are pertinent to more 
than one principle). The identified factors are commonly used in the 
regulation and supervision of federally-insured institutions. As a 
result, the Board anticipates the application of the account access 
guidelines to access requests by federally-insured institutions will be 
fairly straightforward in most cases. However, Reserve Bank assessments 
of access requests from non-federally insured institutions may require 
more extensive due diligence.
---------------------------------------------------------------------------

    \6\ The principles are designed to address risks posed by an 
institution having access to an account and services, ranging from 
narrow risks (e.g., to an individual Reserve Bank) to broader risks 
(e.g., to the overall economy). Review activities performed by the 
Reserve Bank may address several principles at once.
---------------------------------------------------------------------------

    Reserve Banks monitor and analyze the condition of institutions 
with accounts and services on an ongoing basis. Reserve Banks should 
use the guidelines to re-evaluate the risks posed by an institution in 
cases where its condition monitoring and analysis indicate potential 
changes in the risk profile of an institution, including a significant 
change to the institution's business model.
    1. Each institution requesting an account or services must be 
eligible under the Federal Reserve Act or other federal statute to 
maintain an account at a Federal Reserve Bank (Reserve Bank) and 
receive Federal Reserve services and should have a well-founded, clear, 
transparent, and enforceable legal basis for its operations.\7\
---------------------------------------------------------------------------

    \7\ These principles do not apply to accounts provided by a 
Reserve Bank as depository and fiscal agent for the Treasury and for 
certain government-sponsored entities (12 U.S.C. 391, 393-95, 1823, 
1435) as well as to accounts provided to certain international 
organizations (22 U.S.C. 285d, 286d, 290o-3, 290i-5, 290l-3), to 
designated financial market utilities (12 U.S.C. 5465), pursuant to 
the Board's Regulation N (12 CFR 214), or to the Board's Guidelines 
for Evaluating Joint Account Requests.
---------------------------------------------------------------------------

    a. Unless otherwise specified by federal statute, only those 
entities that are member banks or meet the definition of a depository 
institution under section 19(b) of the Federal Reserve Act are legally 
eligible to obtain Federal Reserve accounts and financial services.\8\
---------------------------------------------------------------------------

    \8\ These principles apply to account requests from member banks 
or other entities that meet the definition of a depository 
institution under section 19(b), as well as Edge and Agreement 
corporations (12 U.S.C. 601-604a, 611-631), and branches and 
agencies of foreign banks (12 U.S.C. 347d).
---------------------------------------------------------------------------

    b. The Reserve Bank should assess the consistency of the 
institution's activities and services with applicable laws and 
regulations, such as Article 4A of the Uniform Commercial Code and the 
Electronic Fund Transfer Act. The Reserve Bank should also consider 
whether the design of the institution's services would impede 
compliance by the institution's customers with U.S. sanction programs, 
Bank Secrecy Act (BSA) and anti-money-laundering (AML) requirements or 
regulations, or consumer protection laws and regulations.
    2. Provision of an account and services to an institution should 
not present or create undue credit, operational, settlement, cyber or 
other risks to the Reserve Bank.

[[Page 25868]]

    a. The Reserve Bank should incorporate, to the extent possible, the 
assessments of an institution by state and/or federal supervisors into 
its independent assessment of the institution's risk profile.
    b. The Reserve Bank should confirm that the institution has an 
effective risk management framework and governance arrangements to 
ensure that the institution operates in a safe and sound manner, during 
both normal conditions and periods of idiosyncratic and market stress.
    i. For these purposes, effective risk management includes having a 
robust framework, including policies, procedures, systems, and 
qualified staff, to manage applicable risks. The framework should at a 
minimum identify, measure, and control the particular risks posed by 
the institution's business lines, products and services. The 
effectiveness of the framework should be further supported by internal 
testing and internal audit reviews.
    ii. The framework should be subject to oversight by a board of 
directors (or similar body) as well as oversight by state and/or 
federal banking supervisor(s).
    iii. The framework should clearly identify all risks that may arise 
related to the institution's business (e.g., legal, credit, liquidity, 
operational, custody, investment) as well as objectives regarding the 
risk tolerances for the management of such risks.
    c. The Reserve Bank should confirm that the institution is in 
substantial compliance with its supervisory agency's regulatory and 
supervisory requirements.
    d. The institution must, in the Reserve Bank's judgment:
    i. Demonstrate an ability to comply, were it to obtain a master 
account, with Board orders and policies, Reserve Bank agreements and 
operating circulars, and other applicable Federal Reserve requirements.
    ii. Be in sound financial condition, including maintaining adequate 
capital to continue as a going concern and to meet its current and 
projected operating expenses under a range of scenarios.
    iii. Demonstrate the ability, on an ongoing basis (including during 
periods of idiosyncratic or market stress), to meet all of its 
obligations in order to remain a going concern and comply with its 
agreement for a Reserve Bank account and services, including by 
maintaining:
    A. Sufficient liquid resources to meet its obligations to the 
Reserve Bank under applicable agreements, operating circulars, and 
Board policies;
    B. The operational capacity to ensure that such liquid resources 
are available to satisfy all such obligations to the Reserve Bank on a 
timely basis; and
    C. Settlement processes designed to appropriately monitor balances 
in its Reserve Bank account on an intraday basis, to process 
transactions through its account in an orderly manner and maintain/
achieve a positive account balance before the end of the business day.
    iv. Have in place an operational risk framework designed to ensure 
operational resiliency against events associated with processes, 
people, and systems that may impair the institution's use and 
settlement of Reserve Bank services. This framework should consider 
internal and external factors, including operational risks inherent in 
the institution's business model, risks that might arise in connection 
with its use of any Reserve Bank account and services, and cyber-
related risks. At a minimum, the operational risk framework should:
    A. Identify the range of operational risks presented by the 
institution's business model (e.g., cyber vulnerability, operational 
failure, resiliency of service providers), and establish sound 
operational risk management objectives to address such risks;
    B. Establish sound governance arrangements, rules, and procedures 
to oversee and implement the operational risk management framework;
    C. Establish clear and appropriate rules and procedures to carry 
out the risk management objectives;
    D. Employ the resources necessary to achieve its risk management 
objectives and implement effectively its rules and procedures, 
including, but not limited to, sound processes for physical and 
information security, internal controls, compliance, program 
management, incident management, business continuity, audit, and well-
qualified personnel; and
    E. Support compliance with the electronic access requirements, 
including security measures, outlined in the Reserve Banks' Operating 
Circular 5 and its supporting documentation.
    3. Provision of an account and services to an institution should 
not present or create undue credit, liquidity, operational, settlement, 
cyber or other risks to the overall payment system.
    a. The Reserve Bank should incorporate, to the extent possible, the 
assessments of an institution by state and/or federal supervisors into 
its independent assessment of the institution's risk profile.
    b. The Reserve Bank should confirm that the institution has an 
effective risk management framework and governance arrangements to 
limit the impact that idiosyncratic stress, disruptions, outages, cyber 
incidents or other incidents at the institution might have on other 
institutions and the payment system broadly. The framework should 
include:
    i. Clearly defined operational reliability objectives and policies 
and procedures in place to achieve those objectives.
    ii. A business continuity plan that addresses events that have the 
potential to disrupt operations and a resiliency objective to ensure 
the institution can resume services in a reasonable timeframe.
    iii. Policies and procedures for identifying risks that external 
parties may pose to sound operations, including interdependencies with 
affiliates, service providers, and others.
    c. The Reserve Bank should identify actual and potential 
interactions between the institution's use of a Reserve Bank account 
and services and (other parts of) the payment system.
    i. The extent to which the institution's use of a Reserve Bank 
account and services might restrict funds from being available to 
support the liquidity needs of other institutions should also be 
considered.
    d. The institution must, in the Reserve Bank's judgment:
    i. Be in sound financial condition, including maintaining adequate 
capital to continue as a going concern and to meet its current and 
projected operating expenses under a range of scenarios.
    ii. Demonstrate the ability, on an ongoing basis (including during 
periods of idiosyncratic or market stress), to meet all of its 
obligations in order to remain a going concern and comply with its 
agreement for a Reserve Bank account and services, including by 
maintaining:
    A. Sufficient liquid resources to meet its obligations to the 
Reserve Bank under applicable agreements, Operating Circulars, and 
Board policies;
    B. The operational capacity to ensure that such liquid resources 
are available to satisfy all such obligations to the Reserve Bank on a 
timely basis; and
    C. Settlement processes designed to appropriately monitor balances 
in its Reserve Bank account on an intraday basis, to process 
transactions through its account in an orderly manner and maintain/
achieve a positive account balance before the end of the business day.
    iii. Have in place an operational risk framework designed to ensure

[[Page 25869]]

operational resiliency against events associated with processes, 
people, and systems that may impair the institution's payment system 
activities. This framework should consider internal and external 
factors, including operational risk inherent in the institution's 
business model, risk that might arise in connection with its use of the 
payment system, and cyber-related risks. At a minimum, the framework 
should:
    A. Identify the range of operational risks presented by the 
institution's business model (e.g., cyber vulnerability, operational 
failure, resiliency of service providers), and establish sound 
operational risk-management objectives;
    B. Establish sound governance arrangements, rules, and procedures 
to oversee the operational risk management framework;
    C. Establish clear and appropriate rules and procedures to carry 
out the risk management objectives;
    D. Employ the resources necessary to achieve its risk management 
objectives and implement effectively its rules and procedures, 
including, but not limited to, sound processes for physical and 
information security, internal controls, compliance, program 
management, incident management, business continuity, audit, and well-
qualified personnel.
    4. Provision of an account and services to an institution should 
not create undue risk to the stability of the U.S. financial system.
    a. The Reserve Bank should incorporate, to the extent possible, the 
assessments of an institution by state and/or federal supervisors into 
its independent assessment of the institution's risk profile.
    b. The Reserve Bank should determine, in coordination with the 
other Reserve Banks and Board, whether the access to an account and 
services by an institution itself or a group of like institutions could 
introduce financial stability risk to the U.S. financial system.
    c. The Reserve Bank should confirm that the institution has an 
effective risk management framework and governance arrangements for 
managing liquidity, credit, and other risks that may arise in times of 
financial or economic stress.
    d. The Reserve Bank should consider the extent to which, especially 
in times of financial or economic stress, liquidity or other strains at 
the institution may be transmitted to other segments of the financial 
system.
    e. The Reserve Bank should consider the extent to which, especially 
during times of financial or economic stress, access to an account and 
services by an institution itself (or a group of like institutions) 
could affect deposit balances across U.S. financial institutions more 
broadly and whether any resulting movements in deposit balances could 
have a deleterious effect on U.S. financial stability.
    i. Balances held in Reserve Bank accounts are high-quality liquid 
assets, making them very attractive in times of financial or economic 
stress. For example, in times of stress, investors that would otherwise 
provide short-term funding to nonfinancial firms, financial firms, and 
state and local governments could rapidly withdraw that funding and 
instead deposit their funds with an institution holding mostly central 
bank balances. If the institution is not subject to capital 
requirements similar to a federally-insured institution, the potential 
for sudden and significant deposit inflows into that institution is 
particularly large, which could disintermediate other parts of the 
financial system, greatly amplifying stress.
    5. Provision of an account and services to an institution should 
not create undue risk to the overall economy by facilitating activities 
such as money laundering, terrorism financing, fraud, cybercrimes, or 
other illicit activity.
    a. The Reserve Bank should incorporate, to the extent possible, the 
assessments of an institution by state and/or federal supervisors into 
its independent assessment of the institution's risk profile.
    b. The Reserve Bank should confirm that the institution has an 
anti-money-laundering program consistent with the requirements in 31 
CFR 1020.210(b) and complies with the Office of Foreign Asset Control 
(OFAC) regulations at 31 CFR Chapter V.
    i. For these purposes, the Reserve Bank should confirm that these 
compliance programs contain the following elements:
    A. A system of internal controls, including policies and 
procedures, to ensure ongoing BSA/AML and OFAC compliance, including 
regular written risk assessments to identify, analyze and address the 
risks the institution faces, policies, procedures, and an effective 
transaction-monitoring system;
    B. Independent audit and testing of BSA/AML and OFAC compliance;
    C. Senior management commitment to BSA/AML and OFAC compliance, 
including, at a minimum: (a) The designation of a specific person or 
persons responsible for managing BSA/AML and OFAC compliance, including 
the employment of an experienced BSA/AML and OFAC compliance officer; 
(b) senior management review and approval of the institution's BSA/AML 
and OFAC compliance programs; (c) the institution's compliance staff 
has sufficient authority and autonomy to deploy policies and procedures 
in a manner that effectively controls the institution's BSA/AML and 
OFAC risk; and (d) senior management taking, and demonstrating that it 
will continue to take, steps to ensure that the institution's 
compliance unit receives adequate resources;
    D. Ongoing training for appropriate personnel with a scope that is 
appropriate for the products and services the institution offers; and
    E. Processes that allow for a risk-based classification of its 
customer base, including risk-based procedures for conducting ongoing 
customer due diligence.
    6. Provision of an account and services to an institution should 
not adversely affect the Federal Reserve's ability to implement 
monetary policy.
    a. The Reserve Bank should incorporate, to the extent possible, the 
assessments of an institution by state and/or federal supervisors into 
its independent assessment of the institution's risk profile.
    b. The Reserve Bank should determine, in coordination with the 
other Reserve Banks and the Board, whether access to an account and 
services by an institution itself or a group of like institutions could 
have an effect on the implementation of monetary policy.
    c. The Reserve Bank should consider, among other things, whether 
access to a Reserve Bank account and services by the institution could 
affect the level and variability of the demand for and supply of 
reserves, the level and volatility of key policy interest rates, the 
structure of key short-term funding markets, and on the overall size of 
the consolidated balance sheet of the Reserve Banks. The Reserve Bank 
should consider the implications of providing an account to the 
institution in normal times as well as in times of stress. This 
consideration should occur regardless of the current monetary policy 
implementation framework in place.

III. Request for Comment

    The Board requests comment on all aspects of the proposed account 
access guidelines, including: (1) Whether the scope and application of 
the proposed guidance are sufficiently clear and appropriate to achieve 
their intended purpose; and (2) suggesting/identifying other criteria 
or information that commenters believe may be relevant to

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evaluate accounts and services requests under the proposed guidance. 
The Board further seeks comment specifically on the following aspects 
of the proposed guidance:
    1. Do the proposed account access guidelines address all the risks 
that would be relevant to the Federal Reserve's policy goals?
    2. Does the level of specificity in each principle provide 
sufficient clarity and transparency about how the Reserve Banks will 
evaluate requests?
    3. Do the proposed account access guidelines support responsible 
financial innovation?
    Finally, the Board also seeks comment on whether the Board or the 
Reserve Banks should consider other steps or actions to facilitate the 
review of requests for accounts and services in a consistent and 
equitable manner.

    By order of the Board of Governors of the Federal Reserve 
System.
Ann Misback,
Secretary of the Board.
[FR Doc. 2021-09873 Filed 5-10-21; 8:45 am]
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