Federal Appeals Court Rejects Custodia's Bid to Challenge Federal Reserve

A federal appeals court has dealt a blow to crypto bank Custodia in its long-running battle against the Federal Reserve's authority over granting master accounts. In a 7-3 vote, the US Court of Appeals for the 10th Circuit declined to hear Custodia's final appeal on the matter.

However, the decision arrives at a time when the Fed is opening up other avenues for crypto firms seeking access to its payment rails and full services. A regional bank, the Federal Reserve Bank of Kansas City, has recently granted a special new limited account to crypto exchange Kraken. This limited account carries many of the same features as a master account but is not a full one.

The Fed's system has also cracked open the door for crypto firms through its nationwide approach to granting 'skinny' master accounts. However, the process is still in its early stages and it remains unclear when crypto banks can begin applying for such access. Custodia representatives have yet to comment on the court decision but sources close to the matter confirm that they are still pursuing their goal of obtaining a master account.

The case has significant implications for the financial industry, with one judge arguing in dissent that the Fed's authority over master accounts places it 'on the wrong side of the statutes and, likely, that of the Constitution as well.'