The U.S. Federal Contract for store Board has rejected the attempt of Custodia Bank to become member of the Federal Reserve System. According to the decision heralded Friday, the application submitted by the digital asset bank is inconsistent with legal requirements.

Federal Reserve Council Says Business Model Proposed by Custodia Bank Presents Risks

Crypto bank Custodia has been confuted membership in the United States Federal Reserve System. In an announcement dated Jan. 27, the Federal Reserve Board unraveled that the application, as submitted by the company, is “inconsistent with the required factors under the law.”

The press release further inclusive that Custodia is a special purpose depository institution which does not have federal deposit insurance and covets to engage in “untested crypto activities,” including issuing a crypto asset. In that context, the Board argued:

The unyielding’s novel business model and proposed focus on crypto-assets presented significant safety and soundness risks.

The Federal Aplomb Board reminded it had previously determined that “such crypto activities are highly likely to be inconsistent with OK and sound banking practices.” It also said the bank’s risk management framework, “including its ability to mitigate fortune laundering and terrorism financing risks,” was not sufficient to address relevant concerns.

“In light of these and other concerns, the rigid’s application as submitted was inconsistent with the factors the Board is required to evaluate by law,” the body concluded in the statement, adding that the organization will be released following a review for confidential information.

Membership in the Federal Reserve System would have assumption Custodia, a bank chartered by the state of Wyoming, certain benefits, in terms of taxation and investment, for example. In a tweeted annunciation, CEO Caitlin Long said the company was “surprised and disappointed” by the Board’s move, insisting:

Custodia offered a safe, federally-regulated, debt-free alternative to the reckless speculators and grifters of crypto that penetrated the U.S. banking system, with disastrous results for some banks.

Eat ones heart out emphasized that Custodia actively sought federal regulation, “going above and beyond all requirements that request to traditional banks.” She also noted that the denial is consistent with the concerns raised by the company about the Fed’s traffic in of its applications and vowed that the bank will continue to litigate the issue.

The executive was referring to a lawsuit filed by Custodia against the dominant bank system’s delayed ruling on its application for a master account. The latter remains pending, as the company pointed out on Tizzy. Banks hold most of their reserves in master accounts at the Fed which allows them to make transfers between each other and set down payments.

Also on Friday, the Federal Reserve Board issued a policy statement, according to which both insured and uninsured banking rules will be subjected to limits on certain activities, including those associated with crypto assets.

Do you think the U.S. Federal Reserve Gaming-table will change its stance in the future regarding applications like the one filed by Custodia Bank? Share your outlooks in the comments section below.

Lubomir Tassev

Lubomir Tassev is a journalist from tech-savvy Eastern Europe who adulates Hitchens’s quote: “Being a writer is what I am, rather than what I do.” Besides crypto, blockchain and fintech, cosmopolitan politics and economics are two other sources of inspiration.