Former US Official Alleges Regulators Target Crypto with ‘Debanking’ Initiative
Ruholamin Haqshanas
Last updated:
July 6, 2024, 12:30 EDT
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2 min read
A former high-ranking official from the United States government has leveled accusations against federal regulators, claiming they are waging a systematic campaign of “debanking” against the cryptocurrency sector.
Donald Verrilli, who served as the solicitor general of the United States from 2011 to 2016, made these assertions in a recent amicus brief. In this legal filing, Verrilli represented the Blockchain Association in supporting Custodia Bank’s appeal to the U.S. Tenth Circuit Court of Appeals.
Custodia Bank had submitted an application for a master account in October 2020. Following a lawsuit against the Federal Reserve in June 2022, accusing them of an “unlawful delay” in processing their application, Custodia’s request was ultimately denied by the Fed in 2023, citing the bank’s ties to the cryptocurrency realm. A judge upheld the Fed’s decision in March 2024, closing the door on Custodia’s opportunity for review.
Custodia Ensnared in Efforts to Debank Crypto Market
Verrilli’s brief argued that Custodia’s application became entangled in a coordinated and aggressive effort by regulators to “debank” the digital asset industry. He referenced statements by the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency from January 2023, asserting that cryptocurrencies might not align with secure and prudent banking practices. According to Verrilli, the Fed’s denial of Custodia’s application followed these collective declarations from federal regulators.
Verrilli contended that Custodia had unfairly become the target of federal banking regulators aiming to segregate the digital asset industry from the broader national economy, despite Custodia bearing no responsibility for this stance.
Other stakeholders, including former U.S. Senator Pat Toomey, Wyoming Secretary of State Chuck Gray, and members of the U.S. Senate Banking Committee and U.S. House Financial Services Committee, have also submitted similar briefs supporting Custodia’s appeal.
Paul Clement, another former U.S. Solicitor General, filed a brief on behalf of the Digital Chamber and Global Blockchain Business Council, asserting that Custodia had fallen out of favor with federal regulators.
The outcome of Custodia’s appeal is pending, with the appellate court yet to issue its ruling. The judges may also consider a recent Supreme Court decision from June 28, which overturned the Chevron doctrine mandating courts to defer to federal agencies’ interpretations of the law. This decision could potentially influence the Federal Reserve’s handling of Custodia’s master account application.
House to Revisit Resolution on SEC Accounting Rule
In a related development, the U.S. House of Representatives plans to reconsider a resolution on July 10 aimed at overturning an accounting rule imposed by the Securities and Exchange Commission (SEC), which has hindered banks from engaging with cryptocurrencies.
Although the resolution previously passed both the House and Senate, President Joe Biden vetoed it in May. The House now has the opportunity to override the veto with a two-thirds majority vote.
Positive Developments for Crypto Industry
In a positive development for the crypto industry, the U.S. House of Representatives recently passed the Financial Innovation and Technology for the 21st Century Act (FIT21). This bill seeks to establish regulatory frameworks for digital asset markets and garnered bipartisan support, receiving a 279-136 vote. FIT21 aims to create a structured regulatory environment for U.S. crypto markets, offering clarity and coherence to the industry.
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