A trifecta of recent decisions has the potential to significantly impact the power of federal regulators, including the Securities and Exchange Commission (SEC), and benefit crypto banks seeking key rights. The Supreme Court’s rulings in three landmark cases have weakened the authority of federal agencies and set the stage for potential changes in the regulatory landscape. These decisions, coupled with the possibility of a crypto-friendly second Trump Administration and movement in Congress towards pro-crypto legislation, are providing a favorable environment for the cryptocurrency industry.
The first decision, in Securities and Exchange Commission v. Jarkesy, limits the SEC’s ability to fine organizations for fraud without pursuing criminal charges by requiring these cases to be heard in federal courts rather than before administrative law judges. This ruling hampers the SEC’s enforcement resources and style, potentially affecting high-profile cases against companies like Coinbase and Kraken. The second decision, in Loper Bright Enterprises v. Raimondo, overturned the “Chevron deference” doctrine, which had allowed courts to defer to federal agencies’ interpretations of ambiguous laws. The third decision, in Corner Post, Inc. v. Board of Governors of the Federal Reserve System, extended the time frame for challenging agency rules, creating opportunities for businesses, including crypto firms, to challenge decades-old regulations.
These decisions collectively signal a shift in the legal landscape, favoring a more skeptical view of regulatory overreach by federal agencies. Industry experts believe these rulings demonstrate a growing concern over agencies abusing their authority and underscore the need for greater judicial oversight. The implications of these decisions could impact ongoing legal battles within the crypto industry, including Custodia Bank’s lawsuit against the Federal Reserve Bank of Kansas City and the Federal Reserve Board in a bid to secure a coveted “master account” that would grant direct access to the nation’s payment systems.
Custodia, a crypto startup founded by Morgan Stanley veteran Caitlin Long, has faced challenges in obtaining a master account from the Federal Reserve despite holding a Wyoming Special Purpose Depository Institution (SPDI) charter. The company’s lawsuit against the Federal Reserve challenges the denial of its applications for a master account, citing violations of the nation’s traditional dual banking system and the Monetary Control Act of 1980. The Federal Reserve, however, maintains strict guidelines for evaluating applicants for master accounts, with a focus on factors like FDIC insurance and federal regulation.
The ongoing legal battle between Custodia and the Federal Reserve highlights the complexities and challenges facing crypto startups in accessing key financial infrastructure. The outcome of this case could have far-reaching implications for the industry, as access to master accounts and direct payment systems is crucial for fostering innovation and competition in the financial sector. With legal uncertainties and regulatory hurdles still looming, the crypto industry remains at a critical juncture, navigating a shifting legal landscape that could shape its future growth and development. As the industry continues to evolve, the outcome of these legal battles will be closely watched by stakeholders and regulators alike.
