Former US Official Alleges Regulators Target Crypto with ‘Debanking’ Campaign
Ruholamin Haqshanas
Last updated: July 6, 2024, 12:30 EDT | 2 min read
A former high-ranking United States government official has accused federal regulators of actively targeting the cryptocurrency industry through a systematic “debanking” strategy.
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 filing, he represented the Blockchain Association in supporting Custodia Bank’s appeal to the U.S. Tenth Circuit Court of Appeals.
Custodia Bank initially applied for a master account in October 2020. After filing a lawsuit against the Federal Reserve in June 2022, citing an “unlawful delay” in processing its application, Custodia’s request was ultimately rejected by the Fed in 2023. The reason given was the bank’s ties to the cryptocurrency sector. In March 2024, a judge upheld the Fed’s decision, denying Custodia the opportunity for further review.
Verrilli’s brief argued that Custodia’s application became entangled in a coordinated effort by regulators to “debank” the digital asset industry. He pointed to statements issued by the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency in January 2023, suggesting that cryptocurrencies might not align with safe and sound banking practices. The rejection of Custodia’s application by the Fed followed these synchronized regulatory pronouncements.
Verrilli contended that Custodia had unwittingly become a casualty in the federal banking authorities’ campaign to isolate the digital asset industry from the broader national economy.
Several other notable figures, 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 filed briefs supporting Custodia’s appeal.
Paul Clement, another former U.S. Solicitor General, submitted 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 decision on Custodia’s appeal is currently pending, with the appellate court expected to issue its ruling in due course. The judges may consider a recent Supreme Court opinion dated June 28, which overturned the Chevron doctrine, thereby potentially influencing the Federal Reserve’s stance on 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 dealing with cryptocurrencies.
Although the resolution had 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 Development for Crypto Industry
In a positive move for the crypto industry, the U.S. House of Representatives recently approved the Financial Innovation and Technology for the 21st Century Act (FIT21). The bipartisan bill aims to establish regulatory frameworks for digital asset markets, providing clarity and structure to the industry. The bill secured a 279-136 vote, indicating broad support across party lines.
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