Cryptocurrency bank Custodea, founded by Caitlin Long, remains unable to access the Federal Reserve’s payments rails after an appeals court ruled against its years-long effort to obtain a so-called “master account” with the U.S. central bank.
The 10th Circuit Court of Appeals ruled Friday that a Wyoming special purpose depository institution cannot force the Fed to grant it master account access, upholding a lower court’s ruling last year against Custodia.
“We conclude that the plain language of the relevant statutes provides the Federal Reserve with discretion to deny requests from eligible entities to access master accounts, and we therefore reject the custodian’s attempt to undermine the Fed’s ability to protect our nation’s financial system through the exercise of its discretion to deny access to master accounts,” the decision said.
Mr. Custodia sued the Fed in 2022, initially arguing that the Fed was taking too long to evaluate master account applications, and later amending his lawsuit after the Fed refused to move forward with opening the account. Mr. Custodia argued that the Fed lacked the legal ability to deny master account applications.
A federal judge ruled against Custodia last year, ruling that the Fed does not have to grant master accounts to all eligible depository institutions. The company filed an appeal soon after, and a three-judge panel heard the parties’ arguments in January of this year.
In a statement posted to X, Custodia said: “We expected to win the game, [10th] Today at the circuit we received the next best thing – a strong objection. ”
Throughout this process, Mr. Custodia has argued that the language of the law governing master accounts means the Fed has no choice but to grant eligible depository institutions access to the accounts. Several judges are currently dissenting from that interpretation.
Friday’s ruling pointed to both governing law surrounding the Fed and an amendment by former Sen. Pat Toomey (R-Pennsylvania), both of which give the Fed discretion in these matters, according to an opinion written by Judge David Ebell.
Mr. Custodia also sought to claim that the Kansas City Federal Reserve Bank, which serves as the regulator, illegally coordinated with the entire Federal Reserve Board and former President Joe Biden’s administration to deny the applications. Both the district court and the appellate court said they found these arguments unpersuasive.
“Custodia does not point to anything in the record that would allow it to conclude that FRBKC was not the one who made the final decision regarding Custodia’s master account application in this case,” the filing states.
“Custodia has the option of filing a motion for reconsideration by the court. [10th] We are actively considering it,” the company said in a statement.
Although the Fed has not formally moved to allow crypto-friendly depository institutions direct access to master accounts, Fed President Chris Waller suggested in a recent speech that the central bank could devise “skinny master accounts” that crypto companies and similar types of companies could use to access the Fed’s payments rails without exposing the Fed to broader systemic risk.
Read more: Governor Waller: US Fed proposes ‘skinny’ master account idea to ’embrace disruption’