Custodia’s Caitlin Long Blasts Fed Over BNY Mellon Entering Crypto

BNY Mellon, the oldest and largest Wall Street bank, announcing its crypto custody service yesterday was bitter news for Caitlin Long.

The founder and CEO of crypto bank Custodia spent 22 years on Wall Street before moving back to Wyoming to work in blockchain. In 2020, at the dawn of the COVID-19 pandemic, she founded Avanti Bank, which would later become Custodia. At the time, it was only the second such crypto bank to have received a state banking charter, allowing it to custody both traditional and crypto assets.

And for the past two and a half years, Long has been waiting for a decision on her bank's application for a master account with the Federal Reserve, which would enable the bank to function like its traditional competitors, who lend out customer fiat deposits. In fact, the company filed a lawsuit in June, over what it calls the Fed's "patently unlawful delay."

"You will see a filing from my company in that lawsuit pertaining to the announcement this morning because the Federal Reserve filed filings last week talking about the risk to the financial system from crypto and then today a Federal Reserve-supervised bank holding company enters crypto," Long said while speaking on a panel at a DC Fintech Week event on Tuesday. "We've been waiting two and a half years to do that. And look at what the Fed actually said last week versus what it did today."

Tyler Lindholm, state policy director for Senator Cynthia Lummis and former co-chair of the Wyoming Blockchain Task Force, described the situation as evidence of favoritism on the part of the Fed. "This is the Federal Reserve picking winners and losers," he tweeted yesterday. "They 'picked' the oldest bank in the U.S. to custody but have blocked Fintech startup banks in Wyoming."

BNY Mellon said yesterday that it got approval to begin offering a crypto custody service from the New York Department of Financial Services, but didn't mention any federal regulators.

"We have an active and positive dialogue with regulators," a spokesperson told Decrypt in an email.

All federally chartered banks have a master account, which allows them to send payments to the Fed. If Custodia's application were approved, it would bring crypto into the U.S. banking system in a very big way.

Last month, the Fed announced the adoption of a framework for "fintech firms and other novel financial firms" to obtain master accounts. The announcement laid out different tiers of access, but stressed that institutions "should not present or create undue credit, operational, settlement, cyber or other risks" to the financial system.

But now, BNY Mellon, which has a master account already, will hold crypto on behalf of its clients.

BNY Mellon said yesterday that it got approval to begin offering a crypto custody service from the New York Department of Financial Services, but didn't mention any federal regulators.

"We have an active and positive dialogue with regulators," a spokesperson told Decrypt in an email.

All federally-chartered banks have a master account, which allows them to send payments to the Fed. If Custodia's application were approved, it would bring crypto into the U.S. banking system in a very big way.

Last month, the Fed announced the adoption of a framework for "fintech firms and other novel financial firms" to obtain master accounts. The announcement laid out different tiers of access, but stressed that institutions "should not present or create undue credit, operational, settlement, cyber or other risks" to the financial system.

But now, BNY Mellon, which has a master account already, will hold crypto on behalf of its clients.