The application that Custodia Bank submitted to join the Federal Reserve System was denied by the Board of Governors of the Federal Reserve System in the United States. The Federal Reserve noted in its statement that the application “was not compatible with the relevant conditions under the law.” In addition to this, it asserted that Custodia possessed a management framework that was “insufficient,” and it referred to an earlier joint declaration made by the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency, which concluded that cryptocurrency assets are incompatible with safe banking procedures.
In spite of the fact that the bank’s application for a master account was denied, the bank said in a tweet that the application is still in the processing stage. Because of what is known as a “master account,” a financial institution is able to carry out crucial tasks such as making international money transfers. Custodia, which is led by Caitlin Long, submitted an application for the master account in 2020 and filed a lawsuit against the Fed in June due to the prolonged delay in the Fed’s consideration of the application.
According to a statement released by Custodia, the Fed set the bank a deadline of three days and three nights to withdraw its application. Custodia aggressively sought federal oversight, going above and beyond all of the rules that apply to ordinary banks, the report noted.
In August, when it became apparent that digital asset banks may have a difficult time acquiring an account, the Fed did not provide rules for the issuance of master accounts until after it had become evident that digital asset banks could have a difficult time receiving an account. “Institutions that engage in novel activities and for which authorities are still developing appropriate supervisory and regulatory frameworks would undergo a more extensive review,” the Fed said in a statement at the time. “Institutions that engage in novel activities and for which authorities are still developing appropriate supervisory and regulatory frameworks.”
In October, the Federal Reserve granted the BNY Mellon bank permission to provide cryptocurrency custody services. As a result, the BNY Mellon bank became the first major U.S. bank to offer simultaneous custody of digital assets and conventional investments on the same platform. Custodia Bank was established in Wyoming in 2020, taking advantage of the crypto-friendly state’s opt-in custody laws for “blockchain banks” that were implemented in 2019.
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