Caitlin Long’s Strong Reaction
Caitlin Long, founder of Custodia Bank, expressed significant concern following the announcement that BNY Mellon has launched a digital custody platform for holding Ether (ETH) and Bitcoin (BTC). Speaking at DC FinTech Week on October 11, Long drew parallels between the actions of BNY Mellon and broader regulatory policies set forth by the Federal Reserve.
BNY Mellon’s Milestone
With this new initiative, BNY Mellon becomes the first large U.S. bank to offer custody services for both digital assets and traditional investments on a unified platform. The bank will manage the storage of private keys and provide bookkeeping services, marking a major step forward in institutional adoption of cryptocurrencies.
Custodia Bank’s Legal Challenge
Custodia Bank, formerly known as Avanti, has been embroiled in legal issues of its own. The institution filed a lawsuit against the Federal Reserve Board of Governors and the Federal Reserve Bank of Kansas City in June, claiming that the 19-month wait for its master account application was an “unlawful delay.” According to U.S. Code, such applications are expected to be processed within one year.
Long’s Critique of Regulatory Inconsistencies
Long criticized the regulatory environment, highlighting that both bank regulators and the SEC have been resistant to the notion of banks and broker-dealers participating in cryptocurrency markets. She stated, “We applied to become a Fed member bank, totally committed to complying with all the requirements of becoming a federally regulated Fed member bank.” Long pointed out the contradiction between the Federal Reserve’s warnings about the risks posed by cryptocurrencies and the recent actions of a Federal Reserve-supervised bank entering the crypto sphere.
Rapid Developments in Regulation
Long referenced a recent paper from the Federal Reserve Bank of New York, released on October 4, titled “The Financial Stability Implications of Digital Assets.” This document raised concerns regarding the potential negative impacts of stablecoins on the financial system, a sentiment that appears to clash with BNY Mellon’s new venture into crypto custody.
Custodia Bank’s Role in the Sector
Custodia Bank was among the first Special Purpose Depository Institutions (SPDIs) created under a 2019 regulatory framework in Wyoming aimed at fostering blockchain banking. Long’s comments underscore the frustration among crypto institutions seeking clarity and fairness in a rapidly evolving regulatory landscape.
Conclusion
The juxtaposition of BNY Mellon’s entry into the cryptocurrency market against the regulatory pushbacks faced by firms like Custodia Bank raises essential questions about the future of crypto regulation in the U.S. As more traditional financial entities engage with digital assets, the dialogue around regulatory consistency and innovation is set to intensify.
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