Crypto Bank Custodia’s Bid for Fed Supervision Rejected Again

The Federal Reserve Board announced Thursday it had again rejected crypto bank Custodia’s bid for Fed supervision, after previously denying the application last month.

The Fed board voted against reconsidering Custodia’s application, a press release said. According to a list of votes, the decision was unanimous, consistent with last month’s initial denial of Custodia’s application to become a member of the Federal Reserve system.

“The Board previously concluded that the firm’s application as submitted was inconsistent with the required factors under the law. The Board’s rules permit an applicant to request that the Board reconsider its application decision,” Thursday’s release said, though it did not share much information beyond that.

In its initial rejection, the Fed said Custodia’s business model “presented significant safety and soundness risks,” and claimed Custodia did not have a sufficient risk management framework in place.

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For its part, Custodia has renewed its efforts to force the Fed to grant it access through the courts, filing an amended complaint against the Federal Reserve as part of its ongoing legal fight. Custodia is seeking to both become a member of the Federal Reserve System and undergo Fed supervision and gain access to a Master Account through the Kansas City Fed.

If Custodia – or another crypto bank – received master account access, it would allow these banks to tap the Fed payment system and negate the need for using other intermediary banks.

When Custodia initially filed suit last year it alleged the Fed had missed mandatory deadlines to make a decision on its application. In its amended complaint, it called for a court order directing the Fed to grant the application.

“Custodia’s master account was denied on January 27, 2023, and Custodia has no other method by which it can access Federal Reserve services,” the filing noted.

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