The Federal Reserve said Custodia Bank's model did not address risk management, soundness or other concerns in an 86-page order explaining its rejection of the bank's application for membership at the Fed. cheyenneligon reports
At the time of Custodia’s denial, the Federal Reserve issued a brief statement explaining its position that Custodia’s “novel business model and proposed focus on crypto-assets presented significant safety and soundness risks,” and that the bank did not have a sufficient risk management framework to address crypto-related risks like money laundering and terrorism financing., however, is the first time the central bank has expanded on its reasoning for the denial.
“Recent events, including the bankruptcies of crypto-asset intermediaries Celsius, Voyager, BlockFi, and FTX, have highlighted that the global and largely unregulated or noncompliant crypto-asset sector lacks stability and that dislocations in the sector can result in stress at financial institutions focused on serving the crypto-asset sector,” the Board reasoned.
Custodia has pushed back on the Fed’s rejection, both through its ongoing lawsuit and in a statement Friday which called the order “the result of numerous procedural abnormalities, factual inaccuracies that the Fed refused to correct, and general bias against digital assets.”
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