Former United States government official Donald Verrilli has accused federal regulators of unfairly targeting the cryptocurrency industry through a practice known as “debanking”. Verrilli, who served as the solicitor general from 2011 to 2016, made these claims in an amicus brief supporting Custodia Bank’s appeal to the U.S. Tenth Circuit Court of Appeals. Custodia Bank had applied for a master account in October 2020 and filed a lawsuit against the Federal Reserve in June 2022 after facing delays. However, the Fed rejected Custodia’s request in 2023, citing its connections to the cryptocurrency space. Verrilli argued that this rejection was part of regulators’ efforts to isolate the digital asset industry.
Verrilli’s brief highlighted the statements made by federal regulators in January 2023, where they stated that cryptocurrencies were likely inconsistent with safe banking practices. Following these statements, the Federal Reserve rejected Custodia’s application, leading Verrilli to claim that the bank had become a victim of regulators’ campaign to “debank” the industry. Other prominent figures, including former U.S. Senator Pat Toomey and members of congressional committees, have also filed briefs supporting Custodia’s appeal. The decision on Custodia’s appeal is still pending, and the outcome will be eagerly awaited by stakeholders in the cryptocurrency space.
In a related development, the U.S. House of Representatives is set to reconsider a resolution on July 10 aimed at overturning an accounting rule imposed by the Securities and Exchange Commission (SEC). This rule has hindered banks from handling cryptocurrencies, and the resolution had previously passed in both the House and Senate. However, President Joe Biden vetoed it in May, and now the House has the opportunity to override the veto with a two-thirds majority vote. Additionally, the House recently passed the Financial Innovation and Technology for the 21st Century Act (FIT21) with bipartisan support, aiming to establish regulatory frameworks for digital asset markets.
The FIT21 bill received a 279-136 vote in the House and aims to create a structured regulatory regime for U.S. crypto markets, providing clarity and guidance to industry stakeholders. This positive development in regulatory oversight comes amidst ongoing challenges faced by cryptocurrency firms, such as Custodia Bank, in their dealings with federal regulators. The outcome of Custodia’s appeal will be crucial in determining the future of crypto businesses operating within the regulatory environment in the United States. The industry will be closely watching the appellate court’s ruling and the potential implications of recent changes in government policy on cryptocurrency regulation.
With regulatory scrutiny intensifying in the cryptocurrency sector, stakeholders are increasingly concerned about the impact of “debanking” practices on industry participants. The accusations made by Donald Verrilli and other supporters of Custodia Bank highlight the challenges faced by firms operating in the digital asset space. While the FIT21 bill represents a positive step towards establishing a regulatory framework for crypto markets, the outcome of Custodia’s appeal will shed light on the extent of federal regulators’ influence over the industry. The ongoing debate in Congress over the SEC accounting rule further underscores the complex relationship between cryptocurrency firms and government oversight.
