Custodia wants to force the Federal Reserve Board and its Kansas City branch to accept its application for a Fedmaster account within 30 days.
Wyming-based digital asset bank custodia is prosecuting the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City, claiming “unlawful delay” in processing a request for its master account.
Custodia, previously known as Avanti, was one of the first Special Purpose Depository Institutions (SPDIs) known as “blockchain banks” formed under a Wyoming regulatory framework.
The bank was initiated by Caitlin Long, an early advocate for Bitcoin (BTC) who started the company in 2020 to provide accounts for crypto companies and act as a bridge between them for the US dollar payment system.
Custodia put forward an application for a Federal Reserve Master Account 19 months ago in October 2020. The account will permit Custodia to access the Federal Reserve payment system without using a third-party bank.
Nathan Miller a representative for Custodia Bank stated to Cointelegraph:
“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.”
The lawsuit alleges that the Federal Reserve violated the United States Code of Conduct, which sets out a one-year time limit for processing applications and states that it even takes five to seven business days to make a decision on a master account application.
Custodia said the Fed’s Kansas City Bank account was ready for approval before the Federal Reserve Board tightened control over the process in the spring of 2021, which “derailed” the application.
Custodia said the “black-box bureaucratic process” meant it had eliminated “all options except litigation” and wanted to force the Federal Reserve and its Kansas City Bank to approve its master account within 30 days.
Custodia plans to make the final settlement for the payment of US dollars in digital asset transactions, along with the provision of digital asset custody services. A key part of its service is to pay customers directly with the Fed, which says it will reduce costs, counterparty credit risk, and settlement delays.
Delays have severely limited the custodian’s access to the market and forced the bank to partner with another bank that already has a master’s account. It stated it as a “temporary solution” that is “second best and much more expensive”.
If Custodia wins the case or a Fedmaster account is granted, it will be the first digital asset bank in the country to secure one.
In December 2021, Republican Senator Cynthia Lumis of Wyoming demanded that the Fed was “violating the law” by unfairly giving SPDI as a custodian through a delayed application to obtain a master’s account.
SPDI was formed from a Wyoming regulatory framework for cryptocurrency custody introduced in late 2019 to assist businesses unable to secure Federal Deposit Insurance Corporation (FDIC) banking services owing to their transactions with cryptocurrencies.
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