US court rejects blockchain bank’s motion for declaratory judgment

Blockchain | Image: Unsplash

Wyoming’s first SPDI: Custodial Bank’s search for a master account at a Federal Reserve bank faces a setback after the U.S. District Court for the District of Wyoming ruled against the bank’s motion for declaratory judgment. Despite the verdict, Custodia said it remained steadfast and was considering all options, including a possible appeal, according to media reports.

The court’s decision, issued March 29 by Judge Scott Skavdahl, is a critical Federal Reserve Board decision that facilitates access to the Federal Reserve’s payment system, also known as “bank accounts for banks.” Denied Custodial’s request for a master account.

Custodia argued that without this master account, it would be at a disadvantage compared to other banking institutions, especially when providing custody services for crypto assets. The bank emphasized its role in maintaining equal footing in the financial environment, rather than relying on intermediary banks.

However, Judge Skavdahl ruled that Custodial did not have the right to compel the Federal Reserve Bank of Kansas City (FRBKC) to issue a master account, upholding FRBKC’s decision in this matter.

Custodea’s journey toward obtaining a Federal Reserve Master Account began in October 2020 when it submitted its application. The Federal Reserve’s rejection of the application in January 2023, citing concerns about Custodea’s involvement in the cryptocurrency space, was a major setback for the bank.

As one of Wyoming’s first Special Purpose Depositary Institutions (SPDIs), Custodea, also known as a “blockchain bank,” was created to help businesses with crypto assets. However, the path to full integration into the traditional banking system remains difficult for Custodea, as it overcomes regulatory hurdles and legal procedures in its pursuit of equal footing in the financial sector.

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