The United States Federal Reserve released an 86-page report dated March 24 detailing the reasons Custodia Bank's January membership application was denied, including the bank's involvement in the crypto space.
According According to the report, the Fed board has expressed "concerns about banks with business plans focused on a narrow sector of the economy," with a high concentration of activities related to the cryptocurrency industry. The report states:
"Those concerns are further heightened with respect to Custody because it is an uninsured depository institution seeking to focus almost exclusively on offering products and services related to the crypto-asset sector, which presents higher illicit financing and safety and soundness risks."
The document also states that Fed members must align their risk management systems and controls with the activities outlined in their business plans. According to the Fed scope, "Custodia had not yet developed a sufficient risk management framework for its proposed crypto-asset-related activities, nor had it addressed the highly correlated risks associated with its undiversified business model."
If accepted as a member of the System, Custodia Bank would be prohibited from running crypto-related services "given the speculative and volatile nature of the crypto-asset ecosystem" which is not consistent with the purposes of the Federal Reserve Act," the report says:
"Furthermore, if the Board were to approve Custodia's application for membership, it would prohibit Custodia from engaging in a number of novel and unprecedented activities that it proposes to undertake, at least until such time as activities undertaken as a director are permitted for national banks. . [...]."
In response to the report, Custodia Bank spokesman Nathan Miller told Cointelegraph that "the recently released Fed order is the result of numerous procedural abnormalities, factual inaccuracies that the Fed has refused to correct, and a general bias against investors." digital assets".
Miller also noted that the decision is a demonstration of the Fed's "myopia and inability to adapt to changing markets." Miller further said that "perhaps more attention to areas of real risk would have prevented the bank closures Custodia was created to do. It's a shame Custodia has to go to court to vindicate its rights and force the Fed to comply with the law". .โ
CUSTODY STANDS FIRM IN RESPONSE TO FED pic.twitter.com/xXWGjffU3I
โ Custodia Bankโข (@custodiabank) March 24, 2023
The Fed's report is 14 times longer than its previous longest denial order and 41% longer than the Fed's longest order on any subject, the bank claims. In late January, the Fed denied a membership application of Custodia Bank, as well as a second application in February, alleging that its application "was inconsistent with the factors required by law."
Update (March 25 4:44pm UTC): This article has been updated to include Custodia Bank's response.
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