Citing an unlawful delay of 19 months over its application for a master account with the Federal Reserve, Custodia has today started a federal court action against the Federal Reserve Board and the Federal Reserve Bank of Kansas City.
In a process that normally takes around a week, the Custodia crypto bank is still waiting after 19 months. It has decided to sue on the grounds of a “patently unlawful delay” in the review of its application for a master account.
The suit states that the Federal Reserve has a legal obligation to act within one year, and according to an article on MSN.com, it claims that all was proceeding smoothly until the main Federal Reserve became involved in Spring 2021.
Custodia seeks to become the very first bitcoin bank to gain a master account, and the fact that the bank is crypto orientated may perhaps have been the reason for the intervention of the main Federal Reserve.
Custodia spokesperson Nathan Miller, said in a statement:
“Through this lawsuit, Custodia seeks to ensure that its Federal Reserve master account application receives the fair dealing and due process guaranteed to it by both federal statute and the U.S. Constitution. Custodia has satisfied every rule applicable to it, and has gone beyond by applying to become a Fed member bank.”
From the Fed’s side, chairman Jerome Powell stated in a Senate hearing in January that the abnormal delay for Custodia, as well as cryptocurrency exchange Kraken, was due to the “hugely precedential” nature of granting banking licences to crypto companies.
Custodia was founded by Caitlin Long in 2020 under the name of Avanti Financial Group. Long was against the idea of rehypothecation since experiencing the Great Recession and the subprime mortgage that caused it. She felt that crypto could suffer from a similar fate.
She therefore established Custodia in order to provide accounts to crypto companies so that they could pay their employees etc, but these companies would pay a service fee instead of having to take out loans.
In order to do this, Custodia needed a master account with the Fed. This would be crucial to help it “sharply reduce its costs, and bring new products and options to users of financial services.”
According to the suit:
“This delay in processing Custodia’s master account application is resulting in substantial, ongoing injury to Custodia,”
It followed with:
“The immediate injury is that the delay has forced Custodia to defer its solo entry into the financial services market in favor of a decidedly second-best and far more expensive alternative: launching with a correspondent bank—which has a master account— while Custodia awaits a decision on its long-pending application.”
Disclaimer: This article is provided for informational purposes only. It is not offered or intended to be used as legal, tax, investment, financial, or other advice.
