CHEYENNE, Wyoming (AP) — The Federal Reserve Board has rejected a Wyoming cryptocurrency bank’s application for Federal Reserve System membership, officials announced Friday, dealing a setback to the crypto industry’s attempts to generate acceptance into mainstream US banking.
Many in crypto have been looking to Cheyenne-based Custodia Bank’s 2+ year old app as a go-to for crypto banking. The approval would have meant access to the Federal Reserve’s services, including its electronic payments system.
The rejection adds to questions about the viability of crypto banking, particularly in Wyoming, a state that has sought to become a crypto hub. banking, exchange and mining.
Custody’s business model and its focus on cryptocurrencies presented “significant safety and soundness risks” for depositors, the Federal Reserve Board said in a statement.
“The board has previously made clear that such cryptographic activities are most likely inconsistent with safe and sound banking practices,” it added.
The board also expressed doubts about Custodia’s ability to discourage 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 too long on its application. In a statement on Friday, the company said it was “surprised and disappointed” by the rejection and vowed to continue litigating the issue.
“Custodia offered a safe, solvent, and federally regulated alternative to reckless speculators and cryptocurrency scammers who penetrated the US banking system, with disastrous results for some banks. Custodia actively sought federal regulation, going beyond all the requirements that apply to traditional banks,” CEO Caitlin Long said in the statement.
In recent years, Wyoming has passed many laws and regulations that support cryptocurrency and blockchain, the electronic ledgers on which Bitcoin, Etherium, and other cryptocurrencies run. A new law allows state-licensed crypto banks to be called special purpose depository institutions.
Wyoming has licensed four such crypto banks called SPDI or “speedies,” including Custodia. They have shown little public activity while the Custody application was pending.