Custodia sues Fed in push for master account approval

Custodia Bank has filed a lawsuit against the Federal Reserve Board and the Kansas City Fed in an effort to have its application for a master account approved.

Custodia, which acts as a custodian for digital assets, filed its lawsuit on Jane 7 in the U.S. District Court of Wyoming. The company, formerly known as Avanti Bank, claims that the Fed has “unlawfully” delayed a decision for 19 months despite a one-year statutory deadline for a response. 

Having the master account is “critical” to Custodia’s business because it “would allow Custodia to directly access the Federal Reserve, rather than going through an intermediary bank," the lawsuit says. The company says that the master account would also reduce its costs. 

Custodia claims the Fed has been acting “in complete secrecy, whenever and however” it using “standardless” procedures. The lawsuit notes that the Fed's paperwork says that decisions on master accounts normally take five to seven business days. 

Delayed approval “is resulting in substantial, ongoing injury to Custodia,” the lawsuit claims. It “has forced Custodia to defer its solo entry into the financial services market in favor of a decidedly second-best and far more expensive alternative: launching with a correspondent bank — which has a master account — while Custodia awaits a decision on its long-pending application.”

The lawsuit coincides with the introduction of the Responsible Financial Innovation Act, which includes a provision that would entitle any state-chartered depository institution to an account at a Federal Reserve bank, regardless of whether they are federally insured or supervised.

Custodia was created in 2020 by former Morgan Stanley executive Caitlin Long. The venture has raised $44 million, including $37 million in Series A funding in March 2021. 

Custodia received a routing number from the American Bankers Association in February.