US Federal Reserve rejects Custodia Bank request

The US Federal Reserve rejected Custodia Banks application to become a member of The Federal Reserve System.

Custodia is a Wyoming licensed specialty depository institution that does not have federal deposit insurance.

The company planned to engage in crypto-related activities such as issuing crypto assets on open, public and/or decentralized networks.

The regulator said Custodia’s request does not meet the factors required by law.

Custodia’s new business strategy and focus on crypto-assets has posed significant security and soundness issues, the regulator said.

“The Board of Directors also found that Custodia’s risk management framework was insufficient to address concerns about increased risks associated with its proposed crypto businesses, including its ability to mitigate money laundering and terrorist financing,” he added.

Responding to this development, Custodia CEO Caitlin Long said, “Custodia is surprised and disappointed with the action of the Board of Directors today.

“Custodia provided a safe, federally regulated, creditworthy alternative to reckless speculators and crypto scammers who penetrated the US banking system, with disastrous results for some banks.

“The Board’s denial is regrettable but consistent with concerns raised by Custodia regarding the Federal Reserve’s handling of its requests, an issue we will continue to advocate.”

In parallel, issue a policy statementThe Federal Reserve said uninsured and insured banks subject to Council oversight will face the same restrictions on operations, including those engaged in crypto-asset-related activities.

Earlier this month, the Top U.S. banking watchdogs have warned the country’s bank on the risks posed by crypto-assets.