Bank Custodia accused the Fed of favoritism against BNY Mellon | Techy Kings

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The Federal Reserve’s grant of BNY Mellon the ability to guard clients’ crypto assets is an example of regulators showing favoritism toward incumbent financial institutions, digital asset bank Custodia Bank said in a court brief filed today.

BNY Mellon announced this week it is set to start accepting customer cryptocurrencies, the culmination of an initiative launched by the bank February 2021 to develop a multi-asset digital custody and administration platform to hold, transfer and withdraw crypto on behalf of asset management clients.

The move makes BNY Mellon the first US-based systemically important financial institution (SIFI) to hold digital currencies and allow clients to use a single custody platform for traditional and crypto holdings, the bank said.

Custodia’s dollar and digital bank, which has been waiting 2½ years for the Fed’s master account, sued the Federal Reserve in June over what he claimed was an “unlawful delay” in processing his application.

The Fed’s own standard form agreement states the process should take five to seven business days, the Wyoming-based bank alleged in the complaint.

BNY Mellon’s announcement on Tuesday prompted Custodia to file additional briefs, urging the court to take note of the development, claiming it was “consistent with allegations of favoritism” raised by Custodia over the summer.

While participating as a panelist at Fintech Week DC, Custodia Bank CEO Caitlin Long spoke about BNY Mellon’s crypto announcement and accused the Fed of hypocrisy.

“You will see a filing from my company in a lawsuit related to this morning’s announcement because the Federal Reserve filed a filing last week talking about risks to the financial system from crypto and then today a bank holding company that is supervised by the Federal Reserve is entering crypto,” Said Long. “We’ve been waiting two and a half years to do it.”

Custodia, formerly known as Avanti, was granted a special purpose depository institution (SPDI) license in Wyoming in 2020, and is seeking access to the Federal Reserve banking system to clear US dollar transactions without the need to use an intermediary bank.

The bank said access to master accounts was essential to its ability to operate effectively and efficiently.

Referring to a reported Fed released Last month in which it warned about the risks and challenges digital assets pose to the financial system, Long said BNY Mellon’s crypto announcement showcased a lack of regulatory consistency.

“Look at what the Fed actually said last week versus what it did today,” Long said.

In its lawsuit, Custodia said BNY Mellon’s announcement directly refutes the Fed’s argument that “allowing banks with master accounts to provide custody services for digital assets poses systemic risks that require additional evaluation, thus justifying an indefinite delay.”

The move is an example of the Federal Reserve “picking winners and losers,” tweets Tyler Lindholmstate policy director for Sen. Cynthia Lummis, R-WY, whose office is spearheading legislation that would create a regulatory framework for digital assets.

“They ‘picked’ the oldest bank in the US to guard but have blocked Fintech startup banks in Wyoming,” said Lindholm, former co-chair of the Wyoming Blockchain Task Force.



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