The recent cease-and-desist order issued by the U.S. Federal Reserve against United Texas Bank (UTB) has shed light on the significant deficiencies in the bank’s governance, particularly its adherence to anti-money laundering (AML) laws and risk management related to virtual currency customers and foreign correspondent banking. This order, stemming from an examination conducted in May 2023, has brought to the forefront UTB’s shortcomings in board oversight and senior management’s handling of compliance regulations.
The Federal Reserve’s order obligating UTB to enhance its Bank Secrecy Act (BSA) and anti-money laundering programs signals a pressing need for the bank to strengthen its compliance practices. Moreover, the institution’s board of directors has been given a strict timeline of 90 days to submit a comprehensive plan aimed at bolstering oversight and revising its customer due diligence program.
This enforcement action against UTB is indicative of a broader trend where U.S. regulators are tightening their grip on financial institutions with ties to the cryptocurrency industry. Just recently, Customers Bank, a Pennsylvania-based lender, faced similar scrutiny from the Federal Reserve, leading to heightened regulatory oversight due to identified lapses in anti-money laundering compliance.
UTB’s prominence as a banking partner for crypto companies stemmed from filling the void left by the collapse of Signature and Silvergate in 2023, two major U.S. lenders that previously served the crypto sector. Following the closure of these institutions, crypto firms have encountered difficulties in finding reliable banking partners within the U.S. ecosystem. As regulatory crackdowns persist, many companies have resorted to consolidating around the limited remaining banks willing to engage with them or exploring offshore alternatives.
The cease-and-desist order against UTB and regulatory actions against other institutions have not only highlighted the challenges faced by U.S. crypto firms in accessing banking services but have also influenced once crypto-friendly banks to reevaluate their involvement in the sector. An example of this shift is Metropolitan Bank, a New York-based institution that began scaling back its crypto services and relationships with major clients like Crypto.com due to mounting regulatory pressures.
The Federal Reserve’s enforcement measures against United Texas Bank underscore the increasing scrutiny faced by financial institutions serving the cryptocurrency industry. As regulatory oversight tightens and compliance expectations rise, banks operating in this space must prioritize governance, risk management, and anti-money laundering efforts to navigate the evolving landscape successfully.
Leave a Reply