US Federal Reserve denies Custodia Bank’s request for Fed supervision

0 3

The Federal Reserve Board has denied the request from crypto-focused Custodia Bank to reconsider its membership to the Federal Reserve System.

Own this piece of history

Collect this article as an NFT

The United States Federal Reserve has denied a request from cryptocurrency bank Custodia Bank to reconsider its membership application to the Federal Reserve System, while a district court has allowed a lawsuit between the two parties to continue to play out.

The central bank announced its membership denial on Feb. 23, noting the Federal Reserve Board previously decided that Custodia’s application “was inconsistent with the required factors under the law.”

The Fed rejected Custodia’s application to become a member in January, around four years after it applied for it in 2019. Board rules allow applicants to request a reconsideration of membership decisions.

At the time of the rejection, the Fed claimed Custodia had an “insufficient” management framework.

It also cited a joint declaration it made alongside the Federal Deposit Insurance Corporation (FDIC) and Office of the Comptroller of the Currency (OCC) that claimed cryptocurrencies were “inconsistent with safe and sound banking practices.”

Custodia has said it wishes to join the Federal Reserve System so it can be regulated under the standards that apply to traditional banks and open a path for other crypto-banks that wish to be held to those same heightened standards.

Cointelegraph contacted Custodia, who declined to comment on the matter.

Lawsuit to play out

Earlier this week on Feb. 22, a Wyoming District Court Judge denied a motion from the Fed Board to dismiss a lawsuit from Custodia over a more-than-two-year delay for a Federal Reserve master account.

A master account would allow Custodia to access the Federal Reserve payment systems without using a third-party bank. The Fed denied Custodia’s master account application on Jan. 27, more than two years after it applied for the master account in October 2020. 

Related: IMF exec board endorses crypto policy framework, including no crypto as legal tender

The Fed then moved to dismiss the case due to the account denial making the lawsuit moot. However, Custodia filed a proposed amended complaint on Feb. 17, alleging the Fed unfairly singled out and rejected its application as part of a “concentrated and coordinated” effort with President Joe Biden’s administration and asked the court to overturn the decision.

At the time, it noted the denials for its membership and master account came on the same day the White House issued a statement outlining the “imperative of separating risky digital assets from the banking system” and said the timing was “no coincidence.”

The judge has ordered Custodia to file its first amended complaint to the court by Mar. 1.


Leave A Reply

Your email address will not be published.