Custodia is a Wyoming-based digital asset bank founded by former Morgan Stanley CEO Caitlin Long. The crypto bank has filed a lawsuit against the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City, alleging “patently unlawful delay” in processing a request for its main account.
Caitlin Long was an early advocate of Bitcoin (BTC) and established the bank in 2020 to provide accounts for cryptocurrency businesses and serve as a link between them and the US dollar payment system.
Related Reading | Ethereum sees successful merger rollout on Testnet Ropsten
Custodia is one of a select group of companies that have been granted Special Purpose Depository Institution (SPDI) status by Wyoming law, allowing them to handle both crypto and regular banking business. It was formerly known as Avanti.
Crypto Bank accuses the Fed of causing delays
A master account allows a bank to directly access the Federal Reserve System without going through an intermediary bank. Custodia Bank applied for a main account with the Federal Reserve in October 2020 and has been waiting for approval for 19 months. Thus, the bank filed a lawsuit against the Federal Reserve.
The lawsuit claims the delay violated a one-year legal deadline for approving such requests. While the Fed Main Account Application Form specifies a response time of five to seven days.
Nathan Miller, a spokesman for Custodia Bank, told Banking Dive that the bank plans to ensure that his candidacy for the Federal Reserve is treated fairly in accordance with federal law and the United States Constitution.
According to the lawsuit, in early 2021, a Kansas City Fed representative informed Custodia that the application was ready and included “no impediments.” But on the other hand, Custodia has not received any decision for the whole of 2021.
The lawsuit also said the continued delay bars entrants from bringing innovation and competition to the financial services industry and benefits existing financial institutions whose interests are represented on the Kansas City Fed board.
The crypto bank claims that the Federal Reserve Bank of Kansas City was willing to authorize the account until the Federal Reserve Board took control of the process in the spring of 2021, thereby “derailing” the application.
Related Reading | Bitcoin back above $30,000 as Coinbase sees outflows of 38,000 BTC
The lawsuit demands that the United States District Court for the District of Wyoming intervene and compel the Federal Reserve to rule on Custodia’s request within thirty days.
Custodia will be the first digital asset bank in the nation to be granted a main account by the Fed if it wins the lawsuit or if it receives one from the Fed. As a result, traditional banks would be able to offer a range of services to traditional businesses, which crypto firms would be able to provide. The bank would also be able to simultaneously settle trades between digital assets and the dollar.
Featured image from Flickr and chart from Tradingview.com