Wyoming Crypto Bank Custodia Denied Federal Reserve Membership

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At a time when regulators are scrutinizing the crypto industry like never before, digital asset bank Custodia hoped the US government would welcome its compliance-focused business strategy. However, the central bank saw things differently and rejected the Wyoming banks’ application for membership in the Federal Reserve.

The company’s new business model and proposed focus on crypto-assets presented significant security and soundness risks, the Federal Reserve said in a press release.

Caitlin Long, CEO and co-founder of Custodia, denounced the federal government’s decision and reaffirmed the validity of her candidacy. Custodia offered a safe, federally regulated and creditworthy alternative to reckless speculators and crypto scammers who penetrated the US banking system, it said in a statement posted on Twitter.

DEPOT BANK STATEMENT regarding today’s action by the Federal Reserve regarding its application for membership. His main account request remains pending: pic.twitter.com/QkMjcT508J

Custodian Bank (@custodiabank) January 27, 2023

Membership in the Federal Reserve System grants any state-chartered bank access to tax benefits, investment opportunities, and other amenities. But perhaps even more important to Custodia was the potential for a substantial public relations gain, a chance to show that cryptocurrencies were increasing acceptance at the highest levels of government.

Custodia’s denial is another example of the feds’ increasingly assertive approach to crypto in recent months as the SEC and DOJ launch primetime investigations. on the now-bankrupt cryptocurrency exchange FTX and that Congress has treated cryptocurrency regulation as a burning issue. – button problem

And Long, a Wall Street veteran who helped pass 24 crypto-friendly laws in Wyoming starting in 2021, was undeterred by the federal government’s decision. The board’s denial is unfortunate but consistent with concerns Custodia has raised about the Federal Reserve’s handling of its requests, an issue we will continue to advocate, it said in its statement.

Longs’ comment refers to a lawsuit Custodia filed against the central bank over the Fed’s long delay in ruling on Custodia’s request for a main account, a key authorization that allows banks to transfer funds between themselves. and the Fed directly favorable rates. In its complaint, Custodia asked a federal judge not only to deal with its request but to render a favorable decision. Longs’ comment suggests the company will challenge the propriety of this week’s Fed decision.

Despite denying Custodias’ request, the Fed said in an accompanying press release that it is willing to grant membership to banks that hold crypto assets if their custodial services are performed in a safe and secure manner. sound and in accordance with consumer and anti-money laundering standards. and anti-terrorism financing laws.

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