Custodia Faces Regulatory Pressure Amid Crypto Debanking Concerns
Former U.S. Solicitor General Donald Verrilli has accused federal regulators of unfairly targeting the cryptocurrency sector through a practice known as “debanking.” Verrilli made these assertions in a recent legal brief filed on behalf of the Blockchain Association, supporting Custodia Bank’s appeal to the U.S. Tenth Circuit Court of Appeals.
Legal Challenges and Regulatory Obstacles
Custodia Bank applied for a master account in October 2020. However, it later sued the Federal Reserve in June 2022, alleging undue delays in processing its application. The Federal Reserve rejected Custodia’s request in 2023, citing its ties to the cryptocurrency industry. A federal judge upheld this decision in March 2024, denying Custodia a review of its application.
Verrilli’s Allegations and Regulatory Actions
Verrilli argued that Custodia’s application became entangled in a coordinated effort by federal banking regulators to sideline the digital asset industry from the broader economy. According to Verrilli, this effort followed public statements by the Federal Reserve, Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency in January 2023, suggesting cryptocurrencies were incompatible with sound banking practices.
Broad Support and Legislative Developments
Various parties, including former Senator Pat Toomey and members of congressional banking committees, have supported Custodia’s appeal. Legislative efforts, such as the Financial Innovation and Technology for the 21st Century Act (FIT21), aim to establish clearer regulatory frameworks for U.S. crypto markets. FIT21 recently passed the House with bipartisan support, signaling a potential shift in regulatory clarity for the industry.
Future Outlook and Legal Implications
The outcome of Custodia’s appeal remains pending. Recent Supreme Court decisions challenging federal agency interpretations of law could influence the case. Additionally, the House of Representatives plans to revisit resolutions impacting SEC accounting rules, which have implications for banks handling cryptocurrencies.
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