March 28, 2023

Volume XIII, Number 87


March 27, 2023

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Fed Board Denies Crypto Firm’s Bid to Join Federal Reserve System

On January 27, the Federal Reserve Board (FRB) announced that it unanimously voted to deny a crypto firm’s application to become a member of the Federal Reserve System. This denial ends the crypto firm’s 27-month effort to obtain a “master account,” which allows companies to move money through the Federal Reserve System without having to use a federally insured bank.

While not federally-insured, the crypto firm is chartered in the state of Wyoming and operates as a special purpose depository institution. The crypto firm offers a variety of financial services for both U.S. dollars and digital assets, including banking services, custody services, and escrow services. The crypto firm markets its services as tailored to business customers who transact with digital assets that are looking for enhanced regulatory clarity and minimized transactional risk.

In issuing this denial, the FRB noted that the firm’s novel business model and proposed focus on crypto assets presented significant safety and soundness risks. In particular, the FRB expressed concern that the firm proposed to issue crypto assets on open, public, and decentralized networks. The FRB also stated that the crypto firm’s risk management framework was insufficient to address concerns regarding the heightened risks associated with its proposed crypto activities.

Putting it into Practice: This rationale reinforces a recently issued joint statement by the FRB, the FDIC, and the OCC expressing concern over crypto assets and advising caution to due to the various risks that such assets pose to banking organizations. In their joint statement, the federal regulatory authorities stated that crypto assets are likely to be inconsistent with safe and sound banking practices and expressed a commitment to ensuring that risks associated with the crypto asset sector do not migrate to the banking system. The growing concern from federal regulators regarding the soundness of crypto assets mirrors the similarly narrowing focus of state regulators in recent months (see previous blog posts herehere, and here). Companies whose business models involve crypto assets, particularly depository institutions, should continue to be aware of this ongoing regulatory convergence to rein in the crypto asset sector to ensure safety and soundness of financial institutions.

Copyright © 2023, Sheppard Mullin Richter & Hampton LLP.National Law Review, Volume XIII, Number 33

About this Author

Moorari Shah Bankruptcy Lawyer Sheppard Mullin Law Firm

Moorari Shah is a partner in the Finance and Bankruptcy Practice Group in the firm's Los Angeles and San Francisco offices. 

Areas of Practice

Moorari combines deep in-house and law firm experience to deliver practical, business-minded legal advice. He represents banks, fintechs, mortgage companies, auto lenders, and other nonbank institutions in transactional, licensing, regulatory compliance, and government enforcement matters covering mergers and acquisitions, consumer and commercial lending, equipment finance and leasing, and supervisory examinations,...

A.J. S. Dhaliwal Bankruptcy Attorney Sheppard Mullin Washington DC

A.J. is an associate in the Finance and Bankruptcy Practice Group in the firm's Washington, D.C. office. 

A.J. has over a decade of experience helping banks, non-bank financial institutions, and other companies providing financial products and services in a wide range of matters including government enforcement actions, civil litigation, regulatory examinations, and internal investigations.

With a diversified regulatory, compliance, and enforcement background, A.J. counsels financial institutions in matters involving...


Matt Benz is an associate in the Finance and Bankruptcy Practice Group in the firm's Chicago office. 

Areas of Practice

Matt concentrates his practice on both debtor and creditor representations in all aspects of corporate restructuring, bankruptcy and financial distress.