Crypto-specialist bank Custodia has been denied access to the Federal Reserve System by the Fed’s board of governors.

The bank applied for a master account to access the US national payments system in October 2020, according to its website. The Federal Reserve’s board voted unanimously to reject Custodia’s application last week.

Custodia’s business model and its focus on crypto assets “presented significant safety and soundness risks”, the Fed said in its announcement. It also expressed concerns around the bank’s risk management framework, including anti-money laundering measures.

Caitlin Long, Custodia’s CEO, said the company was “surprised and disappointed” by the rejection.

“Custodia offered a safe, federally regulated, solvent alternative to the reckless speculators and grifters of crypto that penetrated the US banking system, with disastrous results for some banks,” Long said. “Custodia actively sought federal regulation, going above and beyond all requirements that apply to traditional banks.”

She added that the decision was “consistent with the concerns that Custodia has raised” about how the Fed handles applications, and indicated that this was “an issue we will continue to litigate”.

According to its website, Custodia aimed to “serve as a compliant bridge to the US dollar payments system” and to act as a “custodian of digital assets that can meet the strictest level of institutional custody standards”.

At the start of this year, federal regulators warned that crypto assets could be a contagion risk and banks should tread carefully when conducting business in the sector.

At least two banks that had been involved in providing depositary services to crypto asset companies — including the collapsed FTX — have withdrawn from the sector. Farmington State Bank announced earlier in January that it would pivot back towards traditional community banking, while Metropolitan Commercial Bank plans to exit all crypto activity by the end of this year.