Crypto Bank Custodia Denied Membership in the US Federal Reserve System Cryptocurrencies and ICOs

The US Federal Reserve Board has rejected Custodia Bank’s attempt to become a member of the Federal Reserve System. According to the decision announced on Friday, the application submitted by the digital asset bank does not meet the legal requirements.

Federal Reserve Board Says Custodia Bank’s Proposed Business Model Presents Risks

Custodia crypto bank has been denied membership in the United States Federal Reserve System. In an announcement dated January 27, the Federal Reserve Board explained that the application, as submitted by the company, is “inconsistent with the factors required by law.”

The press release further detailed that Custodia is a special-purpose depository institution that does not have federal deposit insurance and wants to engage in “unproven cryptographic activities,” including issuing a cryptographic asset. In this context, the Board argued:

The company’s novel business model and proposed focus on crypto assets presented significant security and robustness risks.

The Federal Reserve Board recalled that it had previously determined that “it is highly likely that such cryptographic activities are inconsistent with safe and sound banking practices.” It also said the bank’s risk management framework, “including its ability to mitigate money laundering and terrorist financing risks,” was not sufficient to address the relevant concerns.

“In light of these and other concerns, the company’s request, as submitted, was not consistent with the factors that the Board must evaluate by law,” the agency concluded in the statement, adding that the order will be published later. of a review of confidential information.

Membership in the Federal Reserve System would have given Custodia, a bank chartered by the state of Wyoming, certain benefits, in terms of taxes and investments, for example. in a tweeted statementChief executive Caitlin Long said the company was “surprised and disappointed” by the board’s move, insisting:

Custodia offered a safe, solvent, and federally regulated alternative to reckless speculators and cryptocurrency scammers who penetrated the US banking system, with disastrous results for some banks.

Long emphasized that Custodia actively sought federal regulation, “going beyond all the requirements that apply to traditional banks.” He also noted that the refusal is consistent with concerns raised by the company about the Fed’s handling of its requests and vowed that the bank will continue to litigate the issue.

The executive was referring to a lawsuit filed by Custodia against the central bank system’s delay in its request for a master account. The latter is still pending, as the company has pointed out on Twitter. Banks keep most of their reserves in master accounts at the Federal Reserve, which allows them to make transfers between themselves and settle payments.

Also on Friday, the Federal Reserve Board issued a policy statement, according to which both insured and uninsured banking institutions will be subject to limits on certain activities, including those associated with crypto assets.

Do you think the US Federal Reserve Board will change its stance in the future on requests like the one submitted by Custodia Bank? Share your expectations in the comments section below.

Lubomir Tassev

Lubomir Tassev is a tech-savvy Eastern European journalist who likes Hitchens’ quote: “Being a writer is who I am, more than what I do.” In addition to crypto, blockchain and fintech, international politics and economics are two other sources of inspiration.