U.S. Democratic Representative Maxine Waters is demanding answers from the Federal Reserve Bank of Kansas City after it granted crypto exchange Kraken access to Federal Reserve payment services, raising transparency and legal concerns.

The scrutiny follows the Kansas City Fed's recent approval of a so-called "limited purpose account" for Payward Financial, doing business as Kraken Financial, according to a press release from Waters' office. 

The arrangement allows Kraken to access core payment rails used for high-value dollar settlement, potentially enabling faster deposits and withdrawals for institutional clients — though it comes with limits, including no access to interest on reserves. Kraken Co-CEO Arjun Sethi hailed the move as the "convergence of crypto infrastructure and sovereign financial rails."

In a letter sent Thursday to Kansas City Fed President Jeff Schmid, Waters — the ranking Democrat on the House Financial Services Committee — asked the agency to clarify the scope and legal basis of the account. 

She noted that neither federal statute nor the Federal Reserve Board's Account Access Guidelines reference a "limited purpose account," raising concerns about transparency and legal grounding.

"Innovations in payments, digital assets, tokenization, and even artificial intelligence are rapidly outpacing statutory frameworks," wrote Waters, who argued that access to critical financial infrastructure should not be granted without full transparency and confidence that risks are properly managed.

Waters also pointed to the Kansas City Fed's earlier statement that it would not disclose details about account holders, citing the "confidentiality of business information provided by applicants."

Her letter requested further clarity on whether Kraken's account includes access to key payment rails such as FedACH, Fedwire or cash services, as well as whether it's subject to limits on overdrafts, balance caps, or enhanced supervisory requirements. 

She also called for information on whether the approval involved coordination with the Federal Reserve Board or other government agencies, and set an April 10 deadline for a response.

The Block has reached out to Kraken for comment.

Backlash

The approval has already sparked backlash from traditional banking groups. The Bank Policy Institute, which represents many major banks in the U.S., has said it was "deeply concerned" that the decision came before the Fed finalized a policy framework for so-called "limited purpose" or "skinny" master accounts.

"It was issued with no transparency into the process for approval or the risk mitigants that have been imposed to address the very significant risks it raises," Paige Pidano Paridon, the group's co-head of regulatory affairs, said earlier this month.

The debate comes as the Federal Reserve works on a broader framework for "skinny" master accounts — a restricted version of a central bank account that provides access to payment systems while excluding features such as earning interest on reserves or borrowing from the discount window. 

Federal Reserve Governor Christopher Waller said last month that the central bank aims to roll out its proposal before the end of this year.