On January 27, 2023, the Federal Reserve Board announced its denial of the application by Custodia Bank, Inc., Cheyenne, Wyoming, to become a member of the Federal Reserve System. The Board has concluded that the firm's application as submitted is inconsistent with the required factors under the law.
Custodia is a special purpose depository institution, chartered by the state of Wyoming, which does not have federal deposit insurance. The firm proposed to engage in novel and untested crypto activities that include issuing a crypto asset on open, public and/or decentralized networks. According to the Board’s press release, Custodia’s novel business model and proposed focus on crypto-assets presented significant safety and soundness risks. In addition, the Board 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.
Read the FRB’s press release here.