The Federal Reserve Board announced its denial of the application by Custodia Bank, Inc., Cheyenne, Wyoming, “to become a member of the Federal Reserve System.”
The Board has concluded that the firm’s application “as submitted is inconsistent with the required factors under the law.”
Custodia is “a special purpose depository institution, chartered by the state of Wyoming, which does not have federal deposit insurance.” The firm proposed “to engage in novel and untested crypto activities that include issuing a crypto asset on open, public and/or decentralized networks.”
The firm’s novel business model and proposed focus on crypto-assets “presented significant safety and soundness risks.” The Board has previously “made clear that such crypto activities are highly likely to be inconsistent with safe and sound banking practices.”
The Board also “found that Custodia’s risk management framework was insufficient to address concerns regarding the heightened risks associated with its proposed crypto activities, including its ability to mitigate money laundering and terrorism financing risks.”
In light of these and other concerns, the firm’s application “as submitted was inconsistent with the factors the Board is required to evaluate by law.” The Board’s order “will be released following a review for confidential information.”
Caitlin Long, chief executive officer of Custodia, said:
“Custodia is surprised and disappointed by the Board’s action today. The Fed advised Custodia 72 hours ago that it could either withdraw its membership application or see it denied, and the Fed denied it in record time. Custodia offered a safe, federally-regulated, solvent alternative to the reckless speculators and grifters of crypto that penetrated the U.S. banking system, with disastrous results for some banks. Custodia actively sought federal regulation, going above and beyond all requirements that apply to traditional banks. The Board’s denial is unfortunate but consistent with the concerns that Custodia has raised about the Federal Reserve’s handling of its applications, an issue we will continue to litigate.”
As covered, Custodia Bank, Inc. is “a Wyoming bank formed to serve as a compliant bridge to the U.S. dollar payments system and a custodian of digital assets that can meet the strictest level of institutional custody standards.”
Custodia is “required to fully comply with all applicable laws and regulations, including the Bank Secrecy Act and federal ‘know your customer,’ anti-money laundering and related laws and regulations.”
Custodia will also “comply with Wyoming’s special purpose depository institution and digital asset laws, which include requirements that fiat deposits be 100% reserved and that Custodia meet the strictest investor protections in the digital asset industry.”
