Digital banks keep dealing with a lot of painful regulatory measures and impediments when applying for their operating permits; however, in this case, the Bitcoin Bank Custodia decided to deal with that issue… in a court of law.
On May 7, Caitlin Long’s Bitcoin Bank Custodia filed a lawsuit against the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City, accusing them of illegally delaying its application to open a master account that would allow the bank to operate legally in the country. Caitlin Long is also founder of Avanti Financial Group, the second crypto bank to legally operate in the United States besides Kraken.
According to the lawsuit, Custodia claims that the FED is acting against its own legal stipulations since, according to their own words, the issuance of the document requested by the bank “ordinarily takes [five to seven] business days.” However, they have managed to find ways to delay its issuance.
The Application Process is More Than 19 Months Behind Schedule
The lawsuit focuses on a 19 month delay that Custodia has had to bear when applying for a document that any other bank could have obtained in less than a week.
That is why the bank says the Fed “clearly violated the [one]-year statutory deadline for doing so.” They even indicated that they had received the routing number issued by the American Bankers Association (ABA), which is only given to financial institutions eligible to open a master account.
On top of that, Custodia claims the Fed is delaying its applications in the interest of legacy financial institutions “whose interests are represented on the Board of Directors of the Kansas City Fed.”
This master account is of vital importance to the bank, as it would allow direct access to the Fed without the need to go through intermediary banks, being able to streamline its operations by providing a secure bridge between digital assets and the U.S. dollar payment system.
Custodia Has Been Compliant With US Regulatorions For Years
According to the lawsuit document, the Kansas City Fed had knowledge of Custodia’s business plan many months before its application, and until 2021 they never mentioned any drawbacks. This situation changed completely when the Board asserted control over the decision-making processes, violating the 1-year legal deadline to approve the application.
In addition, Custodia indicated that according to federal law, they are clearly eligible to have access to the FED, and the same law prohibits the Board from discriminating against these types of institutions.
This litigation pretends to bring to light not only the impermissible delay that has been perpetrated on Custodia by the FED Board “but also the fact that the defendants have an unregulated process for deciding who can compete in the financial services market.”