Caitlin Long, a former managing director at Morgan Stanley, launched Custodia, a digital asset bank based in Wyoming. The crypto bank sued the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City for a “patently unlawful delay” in processing an application for its master account.
Caitlin Long, a proponent of Bitcoin (BTC), founded the bank in 2020 to provide accounts for cryptocurrency firms and serve as a conduit between them and the US dollar payment system.
Custodia is one of a small number of organizations granted Special Purpose Depository Institution (SPDI) status under a Wyoming statute, allowing them to handle both crypto and traditional banking transactions. Avanti was the previous name for the company.
The Fed is being blamed by a crypto bank for causing delays.
A master account allows a bank to contact the Federal Reserve System directly rather than through an intermediary bank. Custodia Bank applied for a master account with the Federal Reserve in October 2020, and has waited 19 months for approval. As a result, the bank filed a lawsuit against the Fed.
According to the lawsuit, the delay breached a one-year statutory deadline for processing such petitions. The Fed’s application form for a master account states a response period of five to seven days.
Custodia Bank’s representative, Nathan Miller, told Banking Dive that the bank intends to ensure that its application to the Federal Reserve is treated fairly and in accordance with federal law and the US Constitution.
According to the lawsuit, Custodia was advised by a Kansas City Fed representative in early 2021 that the application was ready and contained “no showstoppers.” Custodia, on the other hand, has yet to get a decision for the year 2021.
According to the lawsuit, the ongoing delay prevents new entrants from bringing innovation and competition to the financial services sector, while benefiting existing financial institutions whose interests are represented on the Kansas City Fed’s Board of Directors.
The crypto bank alleges that the Federal Reserve Bank of Kansas City was set to approve the account until the Federal Reserve Board took control of the process in spring 2021, causing the application to be “derailed.”
The complaint requests that the US District Court for the District of Wyoming intervene and order the Federal Reserve to rule on Custodia’s application within thirty days.
If Custodia wins the lawsuit or is granted one by the Fed, it will be the first digital asset bank in the country to have a Fed master account. As a result, traditional banks will be able to provide traditional businesses with a range of services that crypto businesses will be able to provide. The bank would also be able to settle digital asset and dollar exchanges at the same time.
