- Custodia was one of the first Special Purpose Depository Institutions (SPDIs).
- Custodia applied for a Federal Reserve master account in October 2020.
Federal Reserve Board of Governors and Federal Reserve Bank of Kansas City are being sued by Wyoming-based digital asset bank Custodia for “unlawful delay” in processing its master account application. Wyoming-based Custodia (previously Avanti) was one of the first Special Purpose Depository Institutions (SPDIs), or “blockchain banks,” to be created.
One-year Deadline Breached
Bank was formed in 2020 by Caitlin Long, an early supporter of Bitcoin (BTC), to offer bank accounts for cryptocurrency enterprises and act as a link between them and the US dollar payment system. Custodia applied for a Federal Reserve master account in October 2020, 19 months ago. To use Federal Reserve payment methods without the need for a third-party bank, Custodia would open an account with the Federal Reserve Bank.
According to the complaint, the Federal Reserve breached a one-year deadline for completing the application and even said that a decision would be made within five to seven business days on the master account application.
To put it another way, Custodia believes the Kansas City Fed bank was poised to accept this application in spring 2021 before Federal Reserve Board authority was exercised, causing it to be effectively derailed. There was no other alternative left for Custodia than to take the Federal Reserve and its Kansas City bank to court and force them to approve its master account within 30 days.
Custodia will provide digital asset custody services in conjunction with the final settlement of US-dollar payments. Its service includes clearing payments directly with the Federal Reserve, which it claims would minimize expenses, risk, and settlement delays. As a result of the setback, Custodia has been compelled to cooperate with another financial institution that already has a master account.
