A US federal appeals court has rejected Custodia Bank‘s final legal challenge against the Federal Reserve, ending its five-year battle for a master account. The court ruled the Fed retains discretion over granting accounts, which are essential for direct access to its payment systems. This decision contrasts with Kraken recently receiving a limited master account, suggesting a potential path for other crypto firms.
A US federal court has rejected Custodia Bank’s final attempt to challenge the Federal Reserve’s authority over granting master accounts. This ends the crypto-focused bank’s five-year-long battle for direct access to the central bank’s payment system.
The US Court of Appeals for the Tenth Circuit said in a filing it wouldn’t hear Custodia’s final appeal in a 7-3 vote. Multiple courts have now ruled that the Fed retains discretion over whether to grant master accounts.
Custodia first applied for a master account in October 2020, which allows financial institutions to hold reserves directly at the Fed. After the Fed rejected its application, Custodia argued the Monetary Control Act entitled state-chartered banks to access.
Custodia’s blow comes as Kraken became the first crypto platform to receive a master account from the Federal Reserve Bank of Kansas City. Kraken’s master account enables it to connect to the Fedwire payments system, though it does not include the full range of services available to traditional banks.
The move raised hopes that US regulators could offer “skinny” or limited master accounts to crypto firms. In a strong dissenting opinion, Judge Timothy Tymkovich wrote that “a master account is ‘indispensable’ for a bank’s operations.”
He stated being denied one is “akin to a death sentence.” The judge noted that three months after Custodia’s application, the Fed said Custodia was eligible and told it there were “no showstoppers.” “I do not agree that Reserve Banks have discretion over account applications and would have allowed the mandamus claim to go forward,” he added.
