The US Federal Reserve has denied a request from cryptocurrency financial institution Custodia Financial institution to rethink its membership utility to the Federal Reserve System, whereas a district court docket has allowed a lawsuit between the 2 events to proceed to play out.

The central financial institutionannounced its membership denial on Feb. 23, noting the Federal Reserve Board beforehand determined that Custodia’s utility “was inconsistent with the required components underneath the regulation.”

@federalreserve broadcasts it has denied the request by Custodia Financial institution, Inc., for reconsideration of the Board’s determination final month on its utility to be supervised by the Federal Reserve: https://t.co/ZYNUEoLeN1

— Federal Reserve (@federalreserve) February 23, 2023

The Fed rejected Custodia’s utility to develop into a member in January, round 4 years after it utilized for it in 2019. Board guidelines enable candidates to request a reconsideration of membership selections.

On the time of the rejection, the Fed claimed Custodia had an “inadequate” administration framework.

It additionally cited a joint declaration it made alongside the Federal Deposit Insurance coverage Company and Workplace of the Comptroller of the Forex that claimed cryptocurrencies have been “inconsistent with secure and sound banking practices.”

Custodia has said it needs to hitch the Federal Reserve System so it may be regulated underneath the requirements that apply to conventional banks and open a path for different crypto-banks that want to be held to those self same heightened requirements.

Cointelegraph contacted Custodia, which declined to touch upon the matter.

Lawsuit to play out

Earlier this week, on Feb. 22, a Wyoming District Courtroom choose denied a movement from the Fed board to dismiss a lawsuit from Custodia over a more-than-two-year delay for a Federal Reserve grasp account.

A grasp account would enable Custodia to entry the Federal Reserve fee methods with out utilizing a third-party financial institution. The Fed denied Custodia’s grasp account utility on Jan. 27, greater than two years after it utilized for the grasp account in October 2020.

IMF exec board endorses crypto coverage framework, together with no crypto as authorized tender

The Fed then moved to dismiss the case as a result of account denial making the lawsuit moot. Nevertheless, Custodia filed a proposed amended complaint on Feb. 17, alleging the Fed unfairly singled out and rejected its utility as a part of a “concentrated and coordinated” effortwith President Joe Biden’s administration and requested the court docket to overturn the choice.

In a Feb. 17 assertion, Custodia spokesperson Nathan Miller mentioned the grievance “zeroes in on the core authorized situation: whether or not Congress even granted the Fed discretion to resolve grasp accounts in any respect.” He added the Fed “compelled the hand” of the crypto-bank, “which tried each avenue to discover a cheap path ahead.”

The choose has ordered Custodia to file its first amended grievance to the court docket by March 1.