On June 7, Custodia, a digital asset bank located in Wyoming, filed a lawsuit against the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City, accusing them of an “unlawful delay” in processing an application for its master account. Custodia registered for a Federal Reserve master account 19 months ago, in October 2020. Custodia might utilise the account to gain access to the Federal Reserve’s payment systems without the necessity for a third-party bank.
According to the lawsuit, the Federal Reserve violated a US Code provision that specifies a one-year limit for completing the application, and it even states on the master account application that a decision will be made within five to seven business days. Custodia argues that the Federal Reserve Bank of Kansas City was about to authorise the account when the Federal Reserve Board took over the process in spring 2021, “derailing” the application.
Custodia noted that it had exhausted “all alternatives short of litigation” due to the “black-box bureaucratic procedure,” and it wanted to compel the Federal Reserve and its Kansas City bank to approve its master account within 30 days.
Custodia, previously known as Avanti, was one of the first Special Purpose Depository Institutions (SPDIs), or “blockchain banks,” established under a Wyoming legal framework. Caitlin Long, an early supporter of Bitcoin (BTC), formed the bank in 2020 to provide accounts for crypto firms and act as a bridge between them and the US dollar payment system.
Custodia intends to provide final settlement for US dollar payments in digital asset transactions, as well as custodial services for digital assets. One important aspect of its business is that it clears payments for its clients directly with the Fed, which it claims will decrease expenses, counterparty credit risk, and settlement delays.
Custodian’s full market launch has been pushed back, necessitating the bank to collaborate with another bank that already has a master account. If Custodia wins the lawsuit or is granted a Fed master account, he would become the country’s first digital asset bank.