Cryptocurrency bank Custodia Bank Inc. Submitted applications for Fed membership have been rejected, hampering efforts to access the central bank’s payment system.
“The firm’s new business model and proposed focus on cryptocurrency assets poses significant safety and soundness risks,” the Fed said in a statement on Friday. “The Committee has previously made clear that such cryptocurrency activities are highly May not be consistent with safe and sound banking practice.”
Wyoming-based Custodia Bank has been working to gain access to the Fed’s master account, which would mean integration into the central bank’s payments system. Custodia Chief Executive Caitlin Long said in a statement that the Fed notified the company 72 hours before its public statement that the company would either withdraw its membership application or be rejected.
“Custodia is surprised and disappointed by the Commission’s action today,” she said.
enhanced scrutiny
Custodia, formerly known as Avanti Bank & Trust, holds a special license for financial institutions dealing with digital assets such as cryptocurrencies. The firm has sued the Federal Reserve Board and the Kansas City Fed for “apparently unlawful delays” in processing applications for what it calls a “master account.”
“For infiltrating Bank of America Custodia provides a safe, federally regulated, solvent alternative to the system’s reckless speculators and cryptocurrency scammers, which has had disastrous consequences for some banks,” Long said in the statement.
She also said Custodia would continue to pursue litigation against the Fed over the processing of its application.
Banking regulators have stepped up scrutiny of the crypto industry’s relationship with traditional lending following the collapse of one of the world’s largest digital asset exchanges after its heyday. FTX was exposed to be associated with several banks.
Earlier this month, the Federal Reserve, the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corporation issued a joint statement warning of the need to curb the risks associated with crypto assets before affecting the entire financial system.
In addition to denying Custodia’s application, the Fed issued a policy statement on Friday saying that any lender supervised by the central bank, whether insured or not, would be subject to the same restrictions on its activities, including new types of banking activities related to cryptocurrencies.
Editor in charge: Li Tong
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