The Federal Reserve issued a cease and desist order against Dallas-based cryptocurrency-friendly United Texas Bank on Wednesday. The action is aimed at addressing “significant deficiencies” in the bank’s compliance with anti-money laundering regulations for its cryptocurrency customers.
The bank’s executives agreed to the order to avoid formal proceedings. Now they must submit a detailed five-part action plan within 90 days to achieve AML compliance. The plan includes ensuring adequate staffing and regularly reviewing staffing needs.
In the order, the Fed identified problems in management, customer due diligence and monitoring of suspicious activity, especially in the bank’s cryptocurrency transactions. This indicates that while United Texas Bank was intended to support businesses dealing with virtual assets, its compliance and risk management in this sector did not meet Federal Reserve standards.
Fed recently ordered Customers Bank to strengthen compliance
Customers Bank recently encountered a similar challenge. The Fed required the bank, also known for its cryptocurrency-friendly policies, to strengthen compliance with anti-money laundering regulations and meet Bank Secrecy Act standards. In addition, the bank must improve its risk management of digital assets.
After identifying serious deficiencies, the Fed forced action, demanding that Customers Bank submit detailed plans for improvement. Tighter supervision forces banks to rethink cryptocurrency relationships amid rising risks
Banks are becoming more cautious due to tighter regulatory oversight. Closures of cryptocurrency-friendly banks such as Signature and Silvergate have highlighted the risks associated with cryptocurrency activities.
Agencies such as the Federal Reserve and FDIC are now enforcing stricter compliance, particularly with regard to anti-money laundering regulations and the Bank Secrecy Act. This increased focus stems from concerns about money laundering, fraud and the volatile nature of cryptocurrencies, which pose significant financial and legal risks for banks.
Faced with fewer domestic banking options, cryptocurrency companies are turning to international banks or developing their own financial systems. This shift creates both challenges and opportunities.
The decentralized nature of cryptocurrencies may push the development of solutions outside of traditional banking, accelerating the industry’s shift to decentralized financial systems.
