US Fed Targets Crypto-Friendly Texas Bank with Cease-and-Desist Action

Crypto Reporter

Shalini Nagarajan

Crypto Reporter

Shalini Nagarajan

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Shalini is a crypto reporter who provides in-depth reports on daily developments and regulatory shifts in the cryptocurrency sector.

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Last updated: 

September 4, 2024

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The Federal Reserve issued a cease-and-desist order to crypto-friendly United Texas Bank in Dallas on Wednesday. This action targets “significant deficiencies” in the bank’s compliance with anti-money laundering regulations related to its crypto clients.

The bank’s management agreed to the order to avoid formal proceedings. Now, they are required to submit a detailed five-part action plan within 90 days to achieve AML compliance. This plan includes ensuring proper staffing and regularly reviewing staffing needs.

In the order, the Fed identified issues in governance, customer due diligence and monitoring suspicious activities, especially in the bank’s crypto transactions. This indicates that while United Texas Bank aimed to support virtual asset businesses, its compliance and risk management in the sector failed to meet the Federal Reserve’s standards.

Fed Recently Ordered Customers Bank to Strengthen Compliance

Recently, Customers Bank encountered a comparable challenge. The Fed required the bank, also known for its crypto-friendly policies, to strengthen its compliance with anti-money laundering laws and meet Bank Secrecy Act standards. Additionally, the bank must improve its risk management for digital assets.

After identifying major shortcomings, the Fed enforced an action demanding that Customers Bank submit detailed improvement plans.

Stricter Oversight Forces Banks to Rethink Crypto Relationships Amid Rising Risks

Banks are becoming more cautious due to stricter regulatory oversight. The closures of crypto-friendly banks like Signature and Silvergate have highlighted the risks associated with crypto businesses.

Agencies like the Federal Reserve and FDIC are now enforcing tighter compliance, particularly in anti-money laundering and Bank Secrecy Act regulations. This increased focus stems from concerns about money laundering, fraud, and the volatile nature of cryptocurrencies, which create significant financial and legal risks for banks.

With fewer domestic banking options, crypto companies are turning to international banks or developing their own financial systems. This shift presents both challenges and opportunities.

The decentralized nature of crypto may push the creation of solutions outside traditional banking, accelerating the industry’s move toward decentralized financial systems.