Custodia Bank Files Lawsuit against US Federal Reserve

On Oct 13, 2022 at 12:44 pm UTC by · 3 mins read

The lawsuit from Custodia Bank is not an uncommon move from a crypto-linked entity that feels regulation is not being fairly administered.

Custodia Bank, one of the leading crypto-focused financial institutions in the United States has filed a lawsuit against the Board of Directors of the Kansas City Fed alleging “favoritism” and a “lack of respect.”

As reported by Coindesk, Custodia Bank’s grudge is centered on the long waiting time it has been placed on by the Fed with respect to its application for a Master Account. According to details garnered, Custodia Bank has been waiting for more than 19 months to hear back from the top banking regulator but was very swift in granting Bank of New York Mellon Corp (NYSE: BK) the license it needs to operate crypto custody service for its clients.

The Master Account being pursued by Custodia Bank is one that will connect the banking startup directly to the broader financial system in the United States. Without the account, Custodia Bank is being forced to ply its trade under a third-party bank and it is notably subjected to the rules and fee structure of the bank.

As a bigger US National bank, BNY Mellon has a Master Account which makes securing the license a relatively easier approach.

The Fed has often maintained that permitting banks to keep custody of digital assets can upset the financial system, a top reason why it claims it needed more time to review the application from outfits like Custodia Bank. In Custodia Bank’s submission, granting the operating license to BNY Mellon antagonizes the earlier position of the Federal Reserve and thus constitutes an unethical practice.

“Last week, the Federal Reserve told a federal judge that keeping custody of digital assets, like Bitcoin, posed a ‘novel, precedent-setting risk.’ This week, the Fed allowed BNY Mellon to do the exact same thing. So it has one rule for innovators like Custodia Bank, and another for the nation’s oldest bank,” said Nathan Miller, a spokesperson for Custodia Bank, in an email to CoinDesk. “After waiting more than 24 months, we are seeking nothing more than fair and equal treatment.”

Custodia Bank Lawsuit to Address Equality

Custodia Bank believes that the Fed would have come off as more credible had it cratered the ambitions of BNY Mellon with respect to the crypto custody move.

“If holding custody of digital assets poses “novel, precedent-setting risk” to the United States financial system, as defendants suggest in their motions, then the board could have – indeed, should have – prevented BNY from engaging in such activities, especially since BNY is a global systematically important bank,” Custodia argued.

The demands of Custodia Bank are simple and it is praying the court to examine the announcement from BNY Mellon in which it announced its latest crypto custody service.

The lawsuit from Custodia Bank is not an uncommon move from a crypto-linked entity that feels regulation is not being fairly administered. With the rejection of the conversion of its popular Bitcoin Trust to a full-fledged Bitcoin Exchange Traded Fund (ETF), Grayscale Investments has also sued the United States Securities and Exchange Commission (SEC).

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