A US federal court rejected Custodian Bank’s final attempt to challenge the Federal Reserve’s authority to issue key accounts – effectively ending the crypto-focused bank’s five-year fight for direct access to the central bank’s payment system.
The U.S. Court of Appeals for the 10th Circuit said in a filing Friday that it would not grant Custodia’s final appeal in the case by a 7-3 vote.
Custody first applied in October 2020 for the main account, which allows financial institutions to hold reserves directly at the Federal Reserve and access its payment rails, which allow them to complete transactions without relying on intermediary banks.
After the Fed denied its master account request, the Custodian sued, arguing that the Monetary Control Act gave state-chartered banks the right to access federal services and therefore the master account.
However, multiple courts have now ruled that the Fed retains the discretion to issue key accounts.
Custodia’s move comes as Kraken became the first crypto platform to receive a primary account from the Federal Reserve Bank of Kansas City on March 4.
Kraken’s basic account allows it to connect to the Fedwire payments system, although it does not include the full range of services available to traditional banks.
The move raised hopes that U.S. regulators may offer “lean” or limited accounts to cryptocurrency firms.
Banks have not been given basic accounts that are like a “death sentence”.
While only three judges sided with Custodia, one of them, Judge Timothy Tymkovich, wrote a strong dissenting opinion, stating that “a master account is ‘mandatory’ for the bank’s operations” and that denying it is “like a death sentence”.
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He noted that three months after Custodia’s application in October 2020, the Fed said Custodia was acceptable and told it there were “no objections” to its application.
He added, “I do not agree that the Reserve Banks were discretionary about the account requests and would have allowed the mandamus suit to go forward.”
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