A federal appeals court has rejected crypto bank Custodia’s final bid to challenge the U.S. Federal Reserve’s authority to grant master accounts, but the decision comes at a time when the central bank is opening other avenues for such accounts.
A Fed master account provides access to the central bank’s payment channels and comprehensive services, allowing an institution to eliminate intermediary agreements. It is therefore coveted by emerging crypto banks like Custodia Bank, licensed by Wyoming. The bank has been battling with the Fed for years over the initial rejection of its master account application and then over whether the central bank should have the final say on whether to grant such access.
The US Court of Appeals for the 10th Circuit revealed on Friday that it had refused to hear Custodia’s latest appeal on this point by a vote of 7 to 3. However, the latest in a series of legal defeats comes as the Fed system has opened the door to crypto companies’ master accounts.
First, a regional bank, the Federal Reserve Bank of Kansas City, recently granted Kraken a new limited special account. While it’s not a full-featured master account, it has many of the same features, and Kraken is the first crypto company to get one for its banking arm.
At the same time, the Federal Reserve Board nationally is working on a new policy to welcome crypto companies and others into so-called “lean” primary accounts that would likely be similar to Kansas City’s approach. This process is in its early stages, so it is unclear when crypto banks will be able to start applying.
Representatives for Custodia did not immediately respond to a request for comment on Friday’s court ruling. A person familiar with its efforts said Friday that the bank was still seeking access.
In a dissenting opinion released by the court, one of the judges explained why the rehearing should have been granted. “Declaring that the Reserve Banks have unchecked discretion over the principal accounts puts us on the wrong side of the statutes and, probably, the Constitution as well,” Justice Timothy Tymkovich wrote. “The consequences of this case for the financial sector and its impact on the state-federal balance in banking regulation make it particularly important.”
Kraken’s success has prompted analysts to predict that other cryptocurrency names could soon join them on the list of companies with master accounts, but some who have followed the years-long battle say that will be slow and depend on which region of the Reserve Bank System they are in. The real rush of approvals could wait until the Fed establishes a national approach to limited accounts.
Read more: Crypto Bank Custodia Files Motion for Rehearing by All Appellate Judges
