Former US Official Accuses Regulators of Targeting Crypto with Debanking Campaign

A former United States government official has accused federal regulators of deliberately targeting the cryptocurrency industry through a coordinated debanking campaign. Donald Verrilli, who served as the Solicitor General of the United States from 2011 to 2016, raised these claims in a recent amicus brief. Verrilli represented the Blockchain Association in support of Custodia Bank’s appeal to the U.S. Tenth Circuit Court of Appeals. The allegations suggest that federal regulators are attempting to isolate the digital asset industry from the broader national economy, raising significant concerns within the crypto community.

Allegations of Coordinated Efforts

Donald Verrilli’s accusations center around what he describes as “aggressive, coordinated efforts” by federal regulators to debank the cryptocurrency industry. In his amicus brief, Verrilli pointed to statements made by the Federal Reserve, the Federal Deposit Insurance Corporation (FDIC), and the Office of the Comptroller of the Currency (OCC) in January 2023. These statements claimed that cryptocurrencies were likely inconsistent with safe and sound banking practices. Verrilli argued that these coordinated statements were part of a broader strategy to undermine the crypto sector.

The case of Custodia Bank is a focal point in these allegations. Custodia applied for a master account with the Federal Reserve in October 2020 but faced significant delays and eventual rejection in 2023. The Fed cited Custodia’s connections to the cryptocurrency space as a reason for the rejection. Verrilli contends that Custodia’s application was unfairly caught in the crosshairs of the regulators’ campaign against the digital asset industry.

Other prominent figures have also voiced support for Custodia’s appeal. 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 filed similar briefs. These filings underscore the growing concern among policymakers and industry stakeholders about the perceived targeting of the crypto sector by federal regulators.

Impact on the Crypto Industry

The allegations of a debanking campaign have significant implications for the cryptocurrency industry. If true, these actions by federal regulators could stifle innovation and hinder the growth of the digital asset sector. The inability to access traditional banking services poses a substantial challenge for crypto businesses, which rely on these services for various operational needs. The rejection of Custodia’s application for a master account is seen as a broader signal to the industry about the regulatory environment they face.

The crypto community has expressed concerns that such regulatory actions could drive innovation and investment away from the United States. Entrepreneurs and investors may seek more favorable jurisdictions with clearer and more supportive regulatory frameworks. This potential exodus could have long-term consequences for the U.S. economy, as the digital asset industry represents a significant and growing sector.

Despite these challenges, some industry leaders remain optimistic about the future of crypto in the U.S. They argue that increased regulatory scrutiny could ultimately lead to clearer guidelines and a more stable environment for businesses. However, the path to achieving this balance remains uncertain, and the outcome of Custodia’s appeal will be closely watched by all stakeholders.

Legal and Regulatory Developments

The legal battle surrounding Custodia Bank’s application for a master account is ongoing, with the U.S. Tenth Circuit Court of Appeals set to make a decision. The outcome of this case could have far-reaching implications for the regulatory landscape of the cryptocurrency industry. A ruling in favor of Custodia could challenge the current approach of federal regulators and potentially pave the way for more inclusive policies.

In a related development, the U.S. House of Representatives is set to reconsider a resolution on July 10 to overturn an accounting rule imposed by the Securities and Exchange Commission (SEC). This rule has hindered banks from handling cryptocurrencies, further complicating the regulatory environment for the industry. The resolution’s outcome could influence the broader regulatory approach to digital assets and impact the availability of banking services for crypto businesses.

The recent Supreme Court opinion overturning the Chevron doctrine, which required courts to defer to federal agencies’ interpretation of the law, could also play a role in the appellate court’s decision. This opinion may provide a new legal framework for challenging regulatory actions and could be relevant to Custodia’s case.

The accusations of a debanking campaign against the cryptocurrency industry highlight the ongoing tensions between regulators and the digital asset sector. The outcome of Custodia Bank’s appeal and other related legal developments will be critical in shaping the future regulatory landscape. As the industry navigates these challenges, the balance between innovation and regulation will remain a key focus for all stakeholders.