A federal appeals court rejected crypto bank Custodia’s final bid to challenge the US Federal Reserve’s authority over granting master accounts, but the decision comes at a time when the central bank is opening other avenues for such accounts.
A Federal Reserve master account grants access to the central bank’s payment pathways and full services, allowing an institution to eliminate intermediation agreements, which is why it has been coveted by emerging crypto banks such as Custodia Bank, founded in Wyoming. The bank has been fighting with the Federal Reserve for years over the initial rejection of its master account application and, subsequently, over whether the central bank should have the final say on whether or not to grant such access.
The US Court of Appeals for the Tenth Circuit revealed on Friday that it declined to hear Custody’s final appeal on that point in a 7-3 vote. However, the latest in a series of legal defeats comes as the Federal Reserve system opened the door to crypto companies’ master accounts.
First, a regional bank, the Federal Reserve Bank of Kansas City, recently granted crypto exchange Kraken a new limited special account. Although it is not a full master account, it has many of the same features and Kraken is the first crypto company to get one for its banking arm.
At the same time, the national Federal Reserve board is working on a new policy to welcome crypto firms and others into so-called “thin” master accounts that would likely be similar to the Kansas City approach. That process is still in the early stages, so it’s unclear when crypto banks can start applying.
Representatives for Custodia did not immediately respond to a request for comment on Friday’s court decision. A person familiar with its efforts said Friday that the bank is still seeking access.
In a dissenting opinion distributed by the court, one of the justices argued why the rehearing should have been granted. “To hold that the Reserve Banks have non-reviewable discretion over master accounts puts us on the wrong side of the statutes and, probably, the wrong side of the Constitution,” wrote Justice Timothy Tymkovich. “The consequences of the case for the financial industry and its impact on the state-federal balance in banking regulation make it exceptionally important.”
Kraken’s success prompted analysts to predict that other crypto names could soon join them on the lists of companies with master accounts, but some who have followed the years-long battle say it will be slow and will depend on which region of the reserve bank system they are in. The real rush of approvals may wait for the Federal Reserve to establish a nationwide approach to limited accounts.
Read more: Cryptobank Custodia presents a petition for a new hearing with all appellate judges
