Ex-US Official Claims Regulators are Aiming at Cryptocurrency through ‘Debanking’ Efforts

A former official of the United States government has alleged that federal regulators are focusing on the cryptocurrency sector through a strategy of “debanking.”

Donald Verrilli, who held the position of solicitor general of the United States from 2011 to 2016, made these assertions in a recent amicus brief, where he represented the Blockchain Association in favor of Custodia Bank’s appeal to the U.S. Tenth Circuit Court of Appeals.

Custodia Bank submitted a request for a master account in October 2020 and later initiated a lawsuit against the Federal Reserve in June 2022, claiming an “unlawful delay” in the processing of its application.

Nevertheless, the Fed denied Custodia’s request in 2023, citing the bank’s ties to the cryptocurrency sector.

A judge affirmed the Fed’s decision in March 2024, denying Custodia the chance to have its application reviewed.

Custodia Caught in Efforts to Debank Crypto Market

Verrilli’s submission contended that Custodia’s application was ensnared in the regulators’ assertive and coordinated attempts to “debank” the digital asset sector.

He referenced comments made by the Federal Reserve, the Federal Deposit Insurance Corporation, and the Office of the Comptroller of the Currency in January 2023, which suggested that cryptocurrencies were likely at odds with safe and sound banking practices.

The Fed’s rejection of Custodia’s application followed these synchronized statements from the federal regulators.

Verrilli maintained that Custodia had become a target of federal banking regulators’ initiative to detach the digital asset sector from the wider national economy, despite having no wrongdoing on its part.

Other individuals, 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 in support of 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, indicating that Custodia had fallen out of favor with federal regulators.

The decision regarding Custodia’s appeal is still pending, and it is uncertain when the appellate court will deliver its ruling.

The judges may also consider a Supreme Court opinion from June 28 that invalidated the Chevron doctrine, which mandated that courts defer to federal agencies’ interpretations of the law.

This opinion could potentially be pertinent to the Federal Reserve’s decision on Custodia’s master account application.

House to Reconsider Resolution Regarding SEC Accounting Rule

In a related matter, the U.S. House of Representatives is scheduled to revisit a resolution on July 10 aimed at overturning an accounting rule set by the Securities and Exchange Commission, which has impeded banks from dealing with cryptocurrencies.

The resolution had previously been approved in both the House and Senate, but President Joe Biden vetoed it in May.

The House now has the chance to override the veto with a two-thirds majority vote.

In a positive development for the crypto sector, the U.S. House of Representatives recently passed the Financial Innovation and Technology for the 21st Century Act (FIT21).

The legislation seeks to establish regulatory frameworks for digital asset markets. It garnered bipartisan support, achieving a 279-136 vote. The FIT21 bill aims to create a regulatory structure for U.S. crypto markets, offering further clarity and organization to the industry.

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