U.S. Federal Reserve rejects crypto-focused bank's application to be supervised by the Fed

FILE PHOTO: The U.S. Federal Reserve building is pictured in Washington, March 18, 2008. REUTERS/Jason Reed/File Photo

(Reuters) -The U.S. Federal Reserve on Friday rejected crypto-focused Custodia Bank's application to become a member of the Federal Reserve System, saying the bank's proposed business model and focus on digital assets presented significant safety and soundness risks.

Custodia, which is based in Wyoming and is chartered through the state as a special purpose depository institution, lacked a sufficient risk management framework to address the heightened risks associated with crypto, the Fed said, including crypto's potential use in money laundering and terrorist financing activities.