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U.S. Federal Reserve rejects crypto-focused bank's application to be supervised by central bank

Reuters

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Jan 27 (Reuters) - The U.S. Federal Reserve has rejected crypto-focused Custodia Bank's application to become a member of the Federal Reserve System, saying the bank's proposed business model and focus on digital assets presented significant safety and soundness risks.

Custodia, which is based in Wyoming and is chartered through the state as a special purpose depository institution, lacked a sufficient risk management framework to address the heightened risks associated with crypto, the Fed said, including crypto's potential use in money laundering and terrorist financing activities.

The Fed also issued a policy statement in conjunction with the denial of Custodia Bank's application, clarifying that banks supervised by the central bank with or without deposit insurance are subject to the same limitations on activities, including those related to cryptocurrency.

Reporting by Hannah Lang in Washington; editing by Jonathan Oatis
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