The Federal Reserve denied Custodia Bank’s request that it reconsider the crypto-focused bank’s application to be supervised by the Fed, the central bank announced on Thursday.

The Fed last month denied the Cheyenne, Wyoming-based bank’s application to become a member of the Federal Reserve System. Hours after the Fed’s denial last month, the Federal Reserve Bank of Kansas City announced its decision to reject the bank’s separate request for a Fed master account.

Custodia, which was granted a special-purpose depository institution license in Wyoming in 2020, claims access to the Fed’s payments system is vital to its ability to operate effectively and efficiently.

Custodia is currently engaged in a legal battle against the central bank and the Kansas City Fed. The bank sued the two institutions in June, alleging an “unlawful delay” to its request to join the central bank’s payments system.

In its initial denial last month, the central bank said Custodia’s crypto-focused business model “presented significant safety and soundness risks.”

The Fed on Thursday noted it had previously decided that Custodia’s application “was inconsistent with the required factors under the law.”

Meanwhile, Custodia inches closer to potentially facing the two institutions in court after a district judge on Wednesday denied a Fed motion to dismiss the bank’s lawsuit against the central bank.

In a filing, U.S. District Judge Scott Skavdahl wrote the Fed’s motion to dismiss Custodia’s lawsuit is “denied as moot.”

In the same filing, the judge granted Custodia’s request to file an amended complaint. In that complaint, the bank claims the two institutions lack the authority to deny Custodia’s master account application. 

The bank’s amended complaint also accuses the Federal Reserve Board of orchestrating the bank’s master account rejection.

Nathan Miller, a spokesperson for Custodia, said the amended complaint “zeroes in on the core legal issue: whether Congress even granted the Fed discretion to decide master accounts at all.”

“It’s unfortunate that the Fed forced the hand of Custodia Bank, which tried every avenue to find a reasonable path forward,” he said in a statement last week.

The judge ordered Custodia to submit its amended complaint by March 1.