Ahead of the Federal Reserve Board's deadline last week to review Guardian's membership application, CEO and founder Caitlin Long told Decrypt that she doubted it would be approved.
He is correct.
The federation rejected the request, saying in a brief statement that Custodia's business plans "do not meet legal requirements." When the Commission initially rejected the application on January 27, it was more clear: "The new business model of the company and the planned focus on crypto assets create significant safety and health risks."
But there is another news. U.S. District Judge Scott Skowdal denied Custodia's motion to dismiss the lawsuit against the feds. This makes the question of whether the Federal Reserve of Kansas City properly processed the guardianship application likely to be answered in court (but not guaranteed).
"From our point of view, we were pushed here," Long said of the lawsuit.
The Bank of Wyoming is a special purpose depository institution, meaning it can hold crypto on behalf of its customers. San Francisco-based crypto exchange Kraken first applied for a federal account in October 2020, a month after doing the same with a crypto bank. In the year In early 2021, federal officials in Kansas City told Custodia that their request was "unsuccessful," according to the lawsuit.
At this point, Long thought the decision was made immediately.
Access to the main account can access Custodia's FedWire network, which last year processed nearly 200 million money transfers for 4,700 member institutions. It is specifically designed to transfer large amounts of money from one bank to another. In the year By 2022, FedWire transactions will exceed $1 trillion for the first time since its inception in 1987.
Access to FedWire's escrow service eliminates the need for crypto banks to deal with intermediaries to conduct large transactions on behalf of other institutions. Without necessarily charging third-party fees, Custodia can offer competitive pricing to its large institutional clients.
In the year As of June 2022, more than a year after the "no exit" was granted, the watchdog still has not received a decision on the application. The bank sued the Kansas City Fed and the Federal Reserve Board for "unlawful delay." Then, in January, the Kansas City Federation officially rejected the protection request and doubled down on the decision last week after asking for a revised business plan.
A decision on a master account for a bank not involved in the crypto industry is expected within days, Jason Toth, an attorney at Proskauer Rose Decrypt law firm, said in an email.
"Traditional financial companies will receive applications for their first Federal Reserve accounts within days. In the absence of congressional crypto legislation, federal regulators are pursuing a patchwork quilt to test and regulate crypto," he said. It should bring much-needed clarity to crypto companies seeking Federal Reserve accounts."
The Kansas City federation argued that the termination, though delayed, avoided the complaint against the guardian. But now the judge disagrees and Custodia may get his time in court.
"We believe this precedent-setting case is the first to go beyond a motion to dismiss a claim for enforcement," said Davis Wright Tremaine, David Gassett, Stephen Gannon and Lisa Richards. "The Court's review must have been in favor of the Guardian as to the need to produce factual documents as the defendant's delay appears to have been more than excessive," the blog post said.
DWT is the same law firm that wrote the amicus brief in favor of bank managers on behalf of the Wyoming Task Force on Blockchain Technology.
In doing so, the Wyoming Blockchain Commission was joined by Republican lawmakers, including Sens. Cynthia Lamis (R-WI), Steve Daines (R-MT) and Kevin Cramer (R-ND), who filed their amicus briefs in support of the boxes. In September.
Speaking to Decrypt last week, Long's security path was very quiet. The rest of the crypto industry, which has chosen to avoid ambiguous legislation in the US or move forward without clear regulation, believes the rest is floundering abroad.
"We are in the third group and we are on our own. We asked for permission for everything and we didn't get permission. So what do we do if we don't have permission, which was rejected. We reduced the unauthorized and returned the business plan.
This includes abandoning plans to launch a stablecoin, which he specifically mentioned when the Fed already rejected his application for protection. But of course it didn't work.
In October, as the legal team fought the first of two now-abandoned attempts to dismiss the guardian's lawsuit, federally regulated Wall Street firm BNY Mellon announced the launch of a racing service for Bitcoin and Ethereum.
A few days later, in a speech, Long accused the Fed of hypocrisy and allowed crypto-centric Custodia Bank to launch its own crypto product, the risky but risky BNY Mellon.
Then, when crypto exchange FTX fell under allegations of fraud and mixed funds in November, Long realized that his efforts to warn regulators about bad players in the industry had failed.
Last month, he wrote on his blog that he was “providing law enforcement with evidence of potential crimes committed by major crypto fraudsters,” months before the 2022 crypto market storm wipes out billions of dollars in assets.
Sen. Dick Durbin (D-IL) made particular noise in his speech when he compared the custodian to "a 29-year-old suspected fraudster who now wears a bracelet."
"The truth is, I've never sat at the table with the decision makers," Long said. "Jay Powell and Gary Gensler were happy to set up a meeting with Sam Bankman-Fried, but every time I asked to meet with Powell, I was denied even with Powell."