Federal Reserve Not Obligated to Grant Custodia Access to Master Account

Judge Scott Skavdahl in the U.S. District Court in Wyoming recently ruled that the Federal Reserve does not have an obligation to grant digital asset bank Custodia access to a master account.

This decision underscores the discretionary power held by Federal Reserve Banks regarding the issuance of such accounts. Custodia Bank’s lawsuit against the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City, initiated in 2022 due to delays in its application for a central bank master account, has faced a setback with this ruling. Judge Skavdahl emphasized the Federal Reserve’s discretion in deciding access, stating that despite Custodia’s contention, it is not statutorily entitled to a master account.

The denial of Custodia’s request for a master account, which occurred in January 2023, raises questions about access to the U.S. financial system for digital asset banks. While Custodia has argued that it meets the necessary legal criteria for such access, the court’s ruling underscores the broader discretion wielded by Federal Reserve Banks in this regard. Additionally, the ruling sheds light on the regulatory landscape for digital asset banks like Custodia, which operate under Wyoming law as special purpose depository institutions. Despite not receiving immediate access to a master account, Custodia continues to navigate regulatory challenges as it seeks to provide financial services within the digital asset ecosystem.

Clever Robot News Desk 2^nd April 2024