Wyoming-based Custodia Bank has received a major boost after being granted certification to operate as a System and Organization Controls 2 compliant bank. Two months ago, it reduced its operations due to an unfavorable crypto policy framework.

The announcement was contained in a January 8 official press release, which announced that Custodia Bank had achieved the coveted SOC 2 Type II certification. The certification adds a new feather to the firm’s cap following the successful completion of the Type I audit.

Custodia Bank Has Fought Several Legal Battles

The SOC 2 Type II certificate is a cybersecurity compliance recognition offered by the American Institute of Certified Public Accountants that shows the status of a company’s internal security controls. The much-coveted certification among technology companies comes after assessing a company’s capacity to store client data and process it safely.

Custodia Bank is a crypto-friendly financial institution focusing on crypto payments and banking and offering custody solutions for US commercial customers. Commenting on the development, Custodia Bank chief executive officer Caitlin Long admitted that receiving the SOC 2 Type II certification was a milestone, seeing that only a few banks in the United States have sought them and granted approval. Long stated, “But as the ‘gold standard’ for technology companies’ security controls, SOC 2 Type II certifications are critical for serving the most tech-forward clients. Custodia is proud to have obtained both the Type I and Type II certifications.”

The crypto-friendly Custodia Bank has fought several legal battles to try and remain afloat and ended up announcing a strategic decision to scale down operations in November 2024. The decision came in the wake of a board vote responding to significant crypto policies by the incoming administration in Washington, D.C. The bank stated it was taking the step in anticipation of a paradigm shift in US crypto policy.

Ongoing Lawsuit against the Federal Reserve

Despite the far-reaching decision, Custodia Bank retained its banking charter, Bitcoin custody platform, API-based real-time payments, a patent for bank-issued stablecoins, and compliance and operational records. CEO Long, the bank’s co-founder, expressed satisfaction with her team’s dedication and resilience, emphasizing their efforts to promote services for their clients despite the not-too-friendly crypto policy framework.

The grant of the SOC 2 Type II certificate comes as the bank prepares for its lawsuit against the Federal Reserve, whose oral submissions are scheduled for January 21, 2025. The legal actions the bank is facing highlight the challenges and hurdles that crypto-focused financial institutions face in the emerging landscape of US-based financial regulations.

New US Administration Brings a Ray of Hope

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Custodia Bank sued the US Federal Reserve in June 2022 over compliance issues relating to an application it made for a master account with the Federal Reserve Bank in Kansas City. With a master account, the bank could have direct access to the Federal Reserve instead of going through third-party intermediary banks. Custodia lost the initial lawsuit and filed an appeal and will be required to make its oral submissions on January 21, 2025.

Banks offering crypto-related services continue to face serious challenges, with the FDIC and CFTC periodically writing letters asking them to pause or refrain from providing crypto-related services due to existing regulatory uncertainties. Such moves have always stoked the fires of skepticism and oftentimes made crypto look like dirty money within the halls of power. However, the anticipated changes in the political landscape as Donald Trump enters the White House have brought hope, with most believing there could be light at the end of the tunnel.

Conclusion

While receiving the SOC 2 Type II certification is an outstanding achievement, Custodia Bank is still pushing on with the legal issues against the Federal Reserve. The accreditation highlights the bank’s dedication to the highest security standards and deep focus on confidentiality and availability. With crypto-friendly Paul Atkins taking over the SEC, only time will tell whether the crypto industry will experience the highly-anticipated shift now that the proverbial light has been flipped on.

Frequently Asked Questions (FAQs)

Does the US support crypto?

The US government has laws regarding cryptocurrencies, but due to an unclear regulatory framework, the government has been working on drafting and amending legislation to create a clearer regulatory policy.

Is it legal to use crypto in the US?

Using cryptocurrencies in the United States is legal, and people can buy, sell, or own them without a problem.

Is cryptocurrency regulated in the US?

Different government agencies regulate crypto on the federal and state levels. However, the regulations may vary from one state to another.

Do US banks accept cryptocurrency?

While some banks acknowledge crypto, others don’t allow customers to deal with it due to its volatility and unclear regulatory framework.