A federal appeals court has dismissed Custodia Bank’s last attempt to challenge the U.S. Federal Reserve’s authority regarding master accounts. This ruling comes just days after the Fed granted a limited master account to the crypto exchange Kraken.
The U.S. Court of Appeals for the 10th Circuit voted 7-3 against Custodia’s appeal, which sought to question the Fed’s exclusive power to decide on master account applications. This decision marks another setback for Custodia, which has been embroiled in legal battles with the Fed for several years.
Master accounts allow financial institutions to access the central bank’s payment systems directly, eliminating the need for intermediary banks. Such accounts are highly sought after by crypto banks, including Custodia, which is chartered in Wyoming.
While Custodia’s legal efforts have faltered, the Fed has recently opened new pathways for crypto firms. Notably, the Federal Reserve Bank of Kansas City issued a limited master account to Kraken, making it the first crypto entity to receive such an account, albeit not a full master account.
In addition, the Federal Reserve board is in the early stages of developing a policy for “skinny” master accounts, which would likely mirror the Kansas City model. The timeline for when crypto banks can apply for these accounts remains uncertain.
Custodia has not publicly commented on the court’s decision, but sources indicate that the bank is still seeking access to master accounts. In a dissenting opinion, Judge Timothy Tymkovich argued that the Reserve Banks’ discretion over master accounts should be subject to review, highlighting the broader implications for the financial industry.
Analysts suggest that Kraken’s success could pave the way for other crypto firms to obtain master accounts, though the process may vary depending on the region within the Federal Reserve system. A comprehensive national policy from the Fed could accelerate approvals for limited accounts.
Custodia Bank's challenge against the Federal Reserve's authority over master accounts has been rejected by a federal appeals court. This ruling coincides with the Fed's recent move to grant a limited master account to Kraken, suggesting a potential shift in the regulatory landscape for crypto firms.