The board of governors of the Federal Reserve System, better known as the Fed, has officially confirmed that Custodia’s application to be part of its network was denied.
The Fed is concerned about Custody’s abilities
in an updated statement On March 24, the US central bank said it was concerned about Custody’s business model.
In early January, the Fed issued a statement saying the bank was denied its application because they focused on one facet of the economy, presenting “safety and soundness risks.”
Now, according to this week’s report, the Fed claimed that Custody’s operations were inconsistent with “factors required by law,” casting doubt on the bank’s ability to curb, among other risks, money laundering.
Custodia is a cryptocurrency-focused bank that continues to be regulated under the laws of the state of Wyoming. Operating as a special purpose depository institution (SPDI), Custody can legally hold digital assets on behalf of its clients, including institutions.
The Catlin Long-founded bank had applied to be part of the Federal Reserve and wanted to be assigned a master account in its application in October 2020.
There were delays that forced Custodia to go to court, suing the Federal Reserve. The case will continue despite the fact that the Federal Reserve prohibited them from accessing FedWire. Custody is pushing for damages in this lawsuit, arguing that the Fed may have mishandled the case after US District Judge Scott Skavdahl denied a motion to dismiss the lawsuit.
Typically, non-crypto banks seeking access to the Fed’s master account would receive feedback within days. Custody had to wait more than two years before the Kansas City Fed made a decision. The bank claims there was a Federal Reserve conspiracy to block it all along.
The approval would have benefited cryptocurrencies
If Custody had been allowed to be part of the FedWireit would have joined other financial institutions regulated by the central bank.
The FedWire system is expressly designed to facilitate the transfer of bulk transactions. Consequently, with this facility, Custodia would be able to quickly transfer large customer transfers without the need for an intermediary, offering competitive rates as they will not have to pay intermediary fees.
In recent weeks, agencies in the United States have been hitting cryptocurrency companies, including banks. Silvergate Bank filed for voluntary liquidation while the Federal Deposit Insurance Corporation (FDIC) took over Silicon Valley Bank’s (SVB) assets after a bank run.
Meanwhile, New York regulators shut down Signature Bank, citing a crisis of confidence in the platform’s leadership.
