The recent cease-and-desist order issued by the U.S. Federal Reserve against United Texas Bank (UTB) sheds light on the regulatory challenges faced by financial institutions catering to cryptocurrency companies. The central bank raised concerns about significant deficiencies in UTB’s governance, particularly in its compliance with anti-money laundering (AML) laws and risk management related to virtual currency customers and foreign correspondent banking.
The order, stemming from an examination conducted in May 2023, revealed shortcomings in UTB’s board oversight and senior management’s handling of compliance regulations. The Federal Reserve emphasized that these deficiencies pose risks in foreign correspondent banking and serving virtual currency clientele. The cease-and-desist order obligates UTB to enhance its Bank Secrecy Act (BSA) and anti-money laundering programs, with the institution’s board of directors given 90 days to submit a comprehensive plan for addressing oversight weaknesses and revising the customer due diligence program.
This enforcement action is part of a broader trend of U.S. regulators targeting financial institutions with ties to the cryptocurrency industry. Just recently, Customers Bank, based in Pennsylvania, faced similar scrutiny from the Federal Reserve and agreed to increased regulatory oversight following lapses in anti-money laundering compliance. UTB had gained prominence in the industry after stepping in to fill the void left by the collapse of Signature and Silvergate in 2023, two major U.S. lenders that previously served the crypto sector.
Impact on Crypto Companies
The closure of these institutions has left crypto companies in the U.S. struggling to find banking partners. Many firms have had to consolidate around the few remaining institutions willing to work with them or seek services offshore. Historically, U.S. crypto firms have encountered difficulties in establishing reliable banking relationships, a situation exacerbated by ongoing regulatory crackdowns on financial institutions serving the sector. Enforcement actions have also compelled once crypto-friendly banks to scale back their involvement, as seen in the case of New York-based Metropolitan Bank reducing its crypto services and cutting ties with major clients like Crypto.com.
The recent regulatory action against United Texas Bank underscores the challenges faced by financial institutions navigating the complex and evolving landscape of serving cryptocurrency companies. As regulators intensify their scrutiny, banks catering to the crypto sector must prioritize compliance and risk management to maintain their relationships and credibility in the industry.