The United States Federal Reserve Issues Cease and Desist Order to United Texas Bank
The Federal Reserve has issued a cease and desist order to United Texas Bank due to deficiencies in the bank’s risk management systems, especially in its dealings with crypto clients. The order, dated September 4, follows an examination of the bank in May. The examination revealed issues within the bank’s corporate governance structure and identified oversights by the board of directors and senior management.
The Federal Reserve highlighted “significant deficiencies” in the bank’s practices related to foreign correspondent banking and virtual currency customers. Specifically, the report noted deficiencies in risk management and compliance with anti-money laundering (AML) measures and the Bank Secrecy Act (BSA).
- United Texas Bank’s Response
- The bank has taken steps to strengthen its adherence to BSA and AML requirements.
- The bank’s board of directors has agreed to submit a plan to enhance board oversight of BSA/AML compliance.
Impact of Cease and Desist Order on the Market
Niko Demchuk, the Head of legal at crypto compliance firm AMLBot, emphasized the broader significance of a cease and desist order beyond the receiving party and its customers. He mentioned that each order plays a crucial role in the market. Other banks will seek more insights on what exactly led to non-compliance with current AML regulations to enhance their own internal processes.
The mention of crypto assets in the order will prompt other banks dealing with crypto assets to review their risk management systems to ensure all risks are appropriately considered and mitigated. Despite these developments, Demchuk does not believe that crypto banking itself is in danger. He highlighted that banks with robust AML processes should not be concerned.
Regulatory Scrutiny of Crypto-Friendly Banks
The most recent quarterly report of United Texas Bank indicates that it has 75 employees and manages around $1 billion in assets. The enforcement action against the bank is part of a broader trend of regulatory scrutiny focused on banks involved in cryptocurrency-related activities.
In a similar move in early August, the Federal Reserve took action against Customers Bancorp and its subsidiary, Customers Bank, based in Pennsylvania. This action highlighted deficiencies in risk management systems and AML practices. These regulatory actions have sparked discussions within the cryptocurrency community about the connection between traditional banking and the crypto industry.
- Community Response
- Some advocates have characterized these regulatory actions as “Operation Chokepoint 2.0,” suggesting a coordinated effort to restrict banking services to the crypto industry.
- The Bank for International Settlements (BIS) also issued a warning about risks faced by banks from permissionless blockchains in August.
Hot Take: Conclusion for Crypto Enthusiasts
The recent cease and desist order issued by the United States Federal Reserve to United Texas Bank underscores the growing regulatory scrutiny faced by banks involved in cryptocurrency-related activities. This regulatory action highlights the importance of robust risk management systems and compliance with AML measures for banks dealing with crypto assets. Crypto enthusiasts should stay informed about regulatory developments in the banking sector to understand the potential impact on the broader crypto industry.
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