Fed gives cold shoulder to firm engaging in ‘novel crypto activities’ for membership in system, citing safety, soundness risks

An application was denied from a Wyoming crypto-centered depository institution to become a member of the Federal Reserve System after the Federal Reserve Board determined the firm’s business model and focus “presented significant safety and soundness risks,” the agency said Friday.

The Fed said the application by Custodia Bank, Inc., Cheyenne – which the agency described as a special purpose depository institution, chartered by the state of Wyoming, which does not have federal deposit insurance – proposed to engage in “novel and untested crypto activities that include issuing a crypto asset on open, public and/or decentralized networks.”

The Fed said that the firm’s application was “inconsistent with the required factors under the law.” The agency indicated that it reached that conclusion after having previously “made clear that such crypto activities are highly likely to be inconsistent with safe and sound banking practices.”

The Fed said it also found that Custodia’s risk management framework was insufficient to address concerns regarding the heightened risks associated with its proposed crypto activities, “including its ability to mitigate money laundering and terrorism financing risks.”

The Fed said its order would be released following a review for confidential information.

Federal Reserve Board announces denial of application by Custodia Bank, Inc. to become a member of the Federal Reserve System