Crypto bank Custodia, founded by Caitlin Long, still cannot access the Federal Reserve’s payment channels after an appeals court ruled against its years-long effort to obtain a so-called “master account” with the US central bank.
The 10th Circuit Court of Appeals ruled Friday that Wyoming’s Special Purpose Depository Institution cannot force the Fed to grant it access to its main account, upholding a lower court ruling against Custodia last year.
“We conclude that the plain language of the relevant statutes grants the Federal Reserve Banks discretion to reject requests for master account access from eligible entities and, therefore, we reject Custodia’s attempt to impede the Fed’s ability to protect our nation’s financial system by exercising its discretion to reject master account access,” the decision states.
Custodia sued the Federal Reserve in 2022, initially arguing that the Fed was taking too long to evaluate his master account application and then amending the suit after the Fed denied his account application. Custodia argued that the Fed lacked the legal authority to reject a master account application.
A federal judge ruled against Custodia last year, ruling that the Fed was not required to grant a master account to every eligible depository institution. The company appealed shortly thereafter, and a three-judge panel heard the parties’ arguments last January.
In a statement published on X, Custodia said: “while we were hoping for a victory in [10th] Today on the circuit we received the next best thing: strong dissent. »
Throughout the process, Custodia has argued that the language of the laws governing master accounts means that the Fed has no choice but to grant access to the accounts to any eligible depository institution. Several judges now disagree with this interpretation.
Friday’s ruling highlights both legislation governing the Fed as well as an amendment from former Sen. Pat Toomey (R-Pa.) that all state that the Fed has discretion on these matters, according to the opinion written by Justice David Ebel.
Custodia had also tried to argue that the Federal Reserve Bank of Kansas City, which would be his supervisory entity, illegally coordinated with the entire Federal Reserve Board of Governors and former President Joe Biden’s administration to reject his request. Both the district court and the appeals court said they did not find these assertions persuasive.
“Custodia shows nothing in the record that would allow us to conclude that it was not FRBKC that made the final decision regarding Custodia’s master account application in this matter,” the filing states.
“Custodia has the possibility of requesting a new hearing by the [10th] Circuit, and we are actively considering it,” the company said in its statement.
Although the Federal Reserve has not officially taken any steps to allow crypto-friendly depository institutions direct access to a master account, Fed Governor Chris Waller suggested in a recent speech that the central bank could design a “lean master account” that crypto companies and similar types of businesses could leverage to access the Fed’s payment rails, without exposing the Fed to broader systemic risks.
Read more: Governor Waller: US Fed to ’embrace disruption’, proposes ‘skinny’ main account idea
