The Order aims to integrate digital asset providers and innovative technologies into traditional financial services via broader access to the FRB’s payment infrastructure.

By Jenny Cieplak, Zachary Fallon, Arthur S. Long, Parag Patel, Yvette D. Valdez, Stephen P. Wink, Pia Naib, and Deric Behar

Key Points:

  • The Order requires all federal financial regulators to review existing rules, guidance, and application processes within 90 days and take affirmative steps to encourage fintech innovation within 180 days.
  • The Order requests the FRB to evaluate its legal framework for Reserve Bank payment access by uninsured depository institutions and non-bank financial companies and to establish transparent application procedures with 90-day decision timelines.
  • The FRB’s proposed Payment Account would give legally eligible institutions direct access to Fedwire Funds Service, the FedNow Service, the National Settlement Service (NSS), and the Fedwire Securities Service (for free transfers only), but would preclude access to the discount window, intraday credit, FedACH, or interest on balances.

On May 19, 2026, President Trump issued an executive order titled “Integrating Financial Technology Innovation Into Regulatory Frameworks” (the Order). The Order states that, given the importance of financial technology (fintech) firms in promoting the US as “a global leader in financial innovation,” the federal government must, as a matter of policy:

  • update regulations to allow integration of digital assets and innovative technology into traditional financial services and payment systems; and
  • remove overly burdensome and fragmented regulations and supervisory practices that form barriers to entry and primarily benefit incumbent financial services firms.

According to an accompanying fact sheet, certain financial market laws, rules, and regulations are “relics of a time when financial services were predominately provided in brick-and-mortar-centric settings and therefore must be updated to reflect the modern age” and “facilitate innovation and greater competition.”

On May 20, 2026, the Board of Governors of the Federal Reserve System (the Federal Reserve or FRB) issued a proposal to establish a limited-purpose “Payment Account” for legally eligible financial institutions to use for clearing and settling payments (the Proposal). The Proposal directly addresses several of the Order’s directives regarding Federal Reserve access for fintechs and crypto firms and is intended to “support private-sector innovation in payments while ensuring that the risks identified … continue to be managed prudently.”

Key provisions of the Order are discussed below, followed by a discussion of the Proposal.

Regulatory Review and Streamlining

Pursuant to the Order, the head of each federal financial regulator1 must conduct a review of existing regulations, guidance, documents, orders, no-action letters, supervisory practices, and application processes to identify those that could be updated to facilitate innovation. The regulators must determine if fintech firms are “unduly impede[d]” from partnering with federally regulated institutions2 and if there are opportunities to amend and streamline application processes for eligible fintech firms seeking to integrate into the regulated financial system, such as by seeking bank charters, credit union charters, deposit or share insurance, and other federal licenses, registrations, and authorizations.

Regulators are to conduct reviews and assess opportunities for promoting fintech innovation while “balancing … the importance of safety and soundness, consumer and investor protection, market integrity, financial stability, and oversight.”

Regulators must conduct reviews within 90 days of the Order and are directed (in consultation with the Assistant to the President for Economic Policy) to “take steps to encourage innovation as a result of the review[s]” within 180 days of the Order.

Federal Reserve Access

In a dedicated section, the Order requests the FRB to conduct the review and streamlining described above and to evaluate the legal, regulatory, and policy framework governing access to Reserve Bank payment accounts and payment services by uninsured depository institutions and non-bank financial companies. The Order explicitly identifies companies engaged in digital assets and other novel financial activities as well as those participating in real-time (instant) payment networks. If the FRB determines that access to Reserve Bank payment accounts and payment services for such companies is permitted under existing applicable law, the Order requests the FRB to “establish transparent application procedures for such access and to make determinations with respect to complete applications within 90 days of the application date for such access,” subject to appropriate risk management and financial stability requirements.

The Order also requests the FRB to assess whether each of the 12 regional Federal Reserve Banks has legal authority to act independently of the FRB in granting or denying access to Reserve Bank payment accounts and payment services and, if so, what FRB-level regulations or policies are in place (or can be proposed) to ensure that applicants are evaluated on a consistent basis.

The FRB is requested to conduct its review and submit a report to the President of its findings, options for expanding access, and recommendations within 120 days of the Order.

FRB Proposal on Limited-Purpose Payment Accounts

The Proposal follows FRB Governor Waller’s October and November 2025 speeches describing the central bank’s efforts to operationalize specialized limited-purpose payment accounts (aka skinny master accounts) by the fourth quarter of 2026 (see this Latham blog post) and is “substantially similar” to the prototype outlined in the FRB’s December 2025 request for information (the December 2025 RFI).

In response to “developments in the payments ecosystem, including the development of new financial products and technologies,” the Proposal would create a Payment Account “designed to minimize risk.” The Proposal defines a Payment Account as a special-purpose account maintained by a Reserve Bank for the purpose of clearing and settling the accountholder’s payment activity (including that of its depositors and customers). Eligible institutions would be able to access the Fedwire Funds Service, the FedNow Service, the NSS, and the Fedwire Securities Service (for transfers free of payment only).

The Proposal does not expand statutory eligibility; any institution that is legally eligible under the Federal Reserve Act or other federal statute to maintain an account at a Reserve Bank may request a Payment Account.

The FRB “anticipates that most Payment Account requesters would be Tier 2 or Tier 3 institutions” under the existing Account Access Guidelines3 tiered review framework4 (i.e., not federally insured, and therefore with “greater and more heterogenous risks than federally insured institutions”). As such, the FRB saw fit to design the Payment Account “with ex ante controls and standard terms to mitigate these risks.”

Standard Restrictions

No Access to Reserve Bank Credit

Payment Account holders would not be permitted to access Reserve Bank credit, either overnight (i.e., the discount window) or intraday (i.e., daylight overdraft). Transactions that would cause an overdraft are automatically rejected.

No FedACH Access

The FRB determined that its automated clearing house (ACH) network, with its deferred-settlement and batch-processing architecture, combined with its system of returns and reversals for both credit and debit transfers, would require a “complex, layered set of ACH controls to prevent Payment Account overdrafts.” The only way to eliminate credit risk from ACH debit transactions would be to prohibit Payment Account holders from receiving debits entirely, which the FRB determined would be “unprecedented within the ACH network” and would undermine its efficiency. Institutions that need ACH access would need to request a full Master Account or continue using correspondent relationships.

Activity-Based Closing Balance Limits

The December 2025 RFI proposed an asset-based cap of the lesser of $500 million or 10% of total assets. In response to commenter feedback that asset-based limits do not reflect the payment needs of high-volume, payments-focused firms, the FRB shifted to an activity-based methodology.

Under the Proposal, each Reserve Bank would calibrate the limit for an individual Payment Account based on the institution’s expected payment flows, not to exceed $1 billion,5 which — according to FRB analysis — “would be equal to or greater than approximately 97 percent of account closing balances” over the prior five years. The account balance limit applies only at the Federal Reserve’s close of business; there is no intraday balance cap. The unlimited intraday balance is intended to give Payment Account holders the leeway and flexibility to fund payment activity during the Federal Reserve business day.

No Interest on Balances

As Payment Accounts are intended for clearing and settling payments, balances held at Reserve Banks would not earn interest. The FRB views the zero-interest provision and the closing-balance limit as complementary tools to control the size of Payment Account balances and “help the Federal Reserve maintain an overall balance sheet that is consistent with its monetary policy implementation framework.”

No Correspondent-Respondent Relationships

Payment Account holders cannot act as correspondents settling other institutions’ activity, and may not settle their own activity through another institution’s master account.6

Review Authority and Timelines

Individual Reserve Banks would maintain the discretion to decide on Payment Account applications, along with discretion to impose additional restrictions on (or terminate) a Payment Account.

Reserve Banks would generally be expected to complete their review of Payment Account requests from Tier 2 and Tier 37 institutions within 90 calendar days of receiving all requested documentation. For Tier 1 (federally insured) institutions requesting any type of account (including a full Master Account), the proposed timeline is 45 days. If a Reserve Bank requires additional time beyond these periods, it should consult with the FRB before extending its review.

The FRB did not prescribe a timeline for Master Account requests from Tier 2 and Tier 3 institutions, noting that the “variety of charter types, business models, regulatory regimes, and risk profiles” for those institutions precludes a single timeline.

Illicit Finance Risk

Notably, the Proposal does not impose mandatory illicit finance requirements as a general condition but instead addresses illicit finance risk through a discretionary framework. Reserve Banks would have the discretion to require Payment Account holders to provide information demonstrating compliance with Bank Secrecy Act (BSA), Anti-Money Laundering (AML), and Office of Foreign Assets Control (OFAC) requirements. These informational requests could include independent third-party compliance assessments, attestations, copies of audit reports, regular meetings with the Reserve Bank on compliance issues, and notification of enforcement actions or material deficiencies.

The FRB is seeking public comment on whether mandatory illicit finance requirements should apply to institutions that are not federally insured.

Access Requests From Tier 3 Institutions

In tandem with the Proposal, the FRB is “encouraging” Reserve Banks to temporarily pause decisions on access requests from Tier 3 institutions (non-federally insured institutions that are not subject to prudential supervision by a federal banking agency). The FRB expects this pause to end no later than December 31, 2026. However, the FRB acknowledged that there may be “cases where extraordinary or unusual circumstances exist that support a Reserve Bank making a decision” before the policy development process is complete; in such cases, the Reserve Bank should consult with the FRB. The stated rationale is to allow public comment and promote consistent implementation across all 12 Reserve Banks before decisions are made on the most complex applications.

Statements For and Against the Proposal

Federal Reserve Governor Lisa D. Cook issued a statement in support of the Proposal, noting the FRB’s “effort to develop transparent, tailored standards for special-purpose payment accounts to support financial innovation in a responsible, risk-focused manner.” She cautioned, however, that “given the important risks that account access can pose both to individual Reserve Banks and the System as a whole, any expansion of direct access to Federal Reserve financial services requires careful and ongoing attention to the risk profiles of the requesting institutions and the potential systemic implications.”

Governor Cook invited comment on two specific issues: “the systemic impact of granting clearing and settling capabilities to legally eligible firms without deposit insurance and not subject to comprehensive federal oversight,” and “approaches to more robustly minimize” illicit finance risks.

Federal Reserve Governor Michael S. Barr presented the sole dissenting opinion, stating that the Proposal “does not provide sufficiently specific and robust safeguards to protect against the accounts being used for money laundering and terrorist financing by institutions we do not supervise.” He acknowledged that “there has been progress on addressing this concern relative to what was outlined in the earlier request for information,” but concluded that “the protections remain inadequate.”

Governor Barr indicated interest in public comment on how such safeguards could be designed.

The comment period is open until July 27, 2026, which is 60 days after publication in the Federal Register.

Conclusion

The Order’s goal is to streamline regulations and to integrate digital asset providers and innovative technologies into traditional financial services via broader access to the FRB’s payment infrastructure, while emphasizing “safety and soundness, consumer and investor protection, market integrity, financial stability, and oversight.”

The Proposal fulfills the Order in that it would create a tailored regulatory pathway that integrates fintechs and digital asset firms into the US financial system while seeking to preserve economic safety and soundness through standardized restrictions and Reserve Bank discretion to evaluate applications and thereby moderate individual Payment Account-holder risk. As the FRB noted, the Proposal “would generally mitigate the risks that Payment Account holders pose to the Reserve Banks, the payment system, and monetary policy implementation.”

For eligible fintechs and digital asset firms, the operational trade-offs of a Payment Account are worth considering: direct access to Fedwire, FedNow, and the NSS, though without ACH, Fed credit, Fed correspondent services, and with a general $1 billion closing balance maximum subject to Reserve Bank discretion and calibration.

On the flipside, as Payment Accounts would eliminate the need for qualifying fintechs and crypto firms to route transactions through correspondent banks, banks currently serving as correspondents to these firms may wish to assess which client relationships may shift if the FRB finalizes the Proposal and Payment Accounts become widely available.