Cryptocurrency bank Custodia is suing the Federal Reserve Board and the Federal Reserve Bank of Kansas City in today’s federal court action. They have brought charges against them for allegedly “unlawfully” delaying action on the company’s application for a Federal Reserve Master Account.
Caitlin Long established the Cheyenne-based business in 2020 under the name Avanti Bank and Trust. The institution has been trying for almost 19 months to get direct access to the central bank without going through a third-party financial institution.
The bank, incorporated in Wyoming under a crypto-friendly 2019 statute allowing for “special purpose depository institutions,” believes the master account will save costs. Also, it’s “essential” to its fundamental mission of creating a bridge between digital assets and the U.S. currency system.
On Tuesday, Sen. Cynthia Lummis, R-Wyo., a crypto enthusiast, announced that she and a Democratic senator had presented new legislation. It states that launching new crypto products will be simple while still protecting consumers.
The Custodia crypto bank lawsuit
Custodia sued the Federal Reserve’s board of governors and the Kansas City Fed on Tuesday in Wyoming. For the same reasons given by Lummis, the company cited Wyoming’s efforts to entice cryptocurrency firms there. It claims that the Fed’s lack of action is stifling such efforts.
The bank hailed the state of Wyoming, where the bank received its charter as a national best in developing charters specifically for the digital asset market. However, the defendants have stalled the endeavor, alleging unjust delay to act on Custodia’s application.
Custodia went for legal action to force the central bank to respond quickly to the application and explain its decision-making process and criteria. The institution argued that the Fed’s secretive procedure had benefited incumbent financial institutions.
Delaying Custodia’s use of Wyoming’s charter undermines much of the competitive advantage it would have gained. That means forsaking Wyoming’s sovereignty in favor of already-established competitors.
Custodia must have direct access to the Federal Reserve to carry out its primary mission. Digital assets and the U.S. dollar payment system are both linked safely and legally, according to the lawsuit. It pointed out that the bank had already passed a thorough examination and strict regulations set by Wyoming.
Legislation in the state of Wyoming
There were hopes in 2020 that Wyoming would become a crypto-financial center after they passed legislation. It established Wyoming-chartered special purpose depository institutions (SPDIs).
Things didn’t turn out as planned. The Kansas City Fed, which took its time approving master accounts for Kraken Bank and Custodia, the state’s first SPDIs, is to blame for some mishaps. Stakeholders in Wyoming’s crypto business have concerns about the current situation. Cryptocurrency enthusiasts see Wyoming’s government as a bright point in the state. Compared to the federal government, the state, some say, moves considerably more quickly.
During the summer of 2020, Custodia, then known as Avanti Financial, reported that the Wyoming Division of Banking had accepted its completed application for a bank charter. The application process went fast and smoothly.
In late October of that year, they granted Custodia an SPDI charter by the Wyoming State Banking Board. Jeremiah Bishop, Commissioner of the Wyoming Division of Banking, stated that the board finally approved SPDI charters in an email. However, according to an insider, Bishop’s agency is still involved in analyzing and investigating charter requests.
An investigation is expected of all official petitions for banking charters by the Wyoming Division of Banking, as required by regulations. All within a predetermined amount of time. There was a review of Custodia Bank’s formal application by the Wyoming Division of Banking over three and a half months.
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