Digital asset bank Custodia has filed a lawsuit against the Federal Reserve, accusing the central bank of unlawfully delaying a decision on its master account application, Forbes reported on 7 June.
The complaint accuses the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City of delaying Custodia’s application process for a master account — which provides institutions with direct access to the Fed’s payment system — for 19 months. This, the company claims, violates the one-year statutory deadline, and breaches the schedule on the filings, which states that a decision usually takes between five and seven business days. The complaint reads:
“There is a black-box bureaucratic process with no clear rules or standards for processing applications, no clear lines of accountability or responsibility between the Board and Kansas City Fed, and no clear end to Custodia’s application saga in sight.”
Custodia noted in the complaint that its application was filed with the Kansas City Fed in 2020, and that it received a confirmation that its application was completed and contained “no showstoppers”. In the spring of 2021, however, the Federal Reserve Board of Governors stepped in and took control over the decision-making process, which started the delay. As Custodia has now “exhausted all informal means of obtaining a decision on its application”, it has filed this complaint with the hopes of receiving a court order compelling the Fed’s of approving its master account within 30 days.
The digital bank has noted that a master account is “vital” to its ability to operate effectively, and that obtaining one will allow it to “sharply reduce its costs” and bring new products and options to its users. The company is currently partnered with another bank that already has a master account, but this “solution” introduces counterparty credit and settlement risks that it wishes to avoid.