The Federal Reserve Board has denied a Wyoming cryptocurrency bank’s application to join the Federal Reserve System, officials announced Friday, inflicting a setback to the crypto industry’s attempts to gain acceptance in the US. traditional US banking system.
Many in the cryptocurrency world have looked to Cheyenne-based Custodia Bank’s more than 2-year-old application as a benchmark for crypto banking. Approval would have meant access to Federal Reserve services, including its electronic payments system.
The denial adds to questions about the viability of crypto banking, particularly in Wyoming, a state that has been trying to become a hub for crypto banking, exchanges and mining.
Custody’s business model and focus on cryptocurrencies presented “significant security and soundness risks” for depositors, the Federal Reserve Board said in a statement.
“The board has previously clarified that such cryptographic activities are very likely inconsistent with safe and sound banking practices,” he added.
The board also expressed doubts about Custody’s ability to deter money laundering and terrorist financing through cryptocurrencies.
Custody sued the Federal Reserve Board and the Federal Reserve Bank of Kansas City in Wyoming federal court last year, accusing them of taking an unreasonably long time to file its request. In a statement on Friday, the company said it was “surprised and disappointed” by the rejection and pledged to continue discussing the matter.
“Custodia has offered a secure, federally regulated and solvent alternative to reckless cryptocurrency speculators and scammers who have penetrated the US banking system, with disastrous results for some banks. Custody has actively sought federal regulation, going beyond all requirements that apply to traditional banks,” CEO Caitlin Long said in the statement.
Wyoming has passed many laws and regulations in recent years in favor of cryptocurrencies and the blockchain, the electronic ledgers on which Bitcoin, Etherium and other cryptocurrencies run. A new law allows state cryptocurrencies called special purpose depository institutions.
Wyoming has leased four of these cryptocurrencies called SPDI, or “speedies,” including Custody. They showed little public activity while Custody’s application was pending.
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