The U.S. Federal Reserve recently issued a cease-and-desist order against United Texas Bank (UTB), a financial institution known for catering to crypto companies. The central bank pointed out significant deficiencies in UTB’s governance, particularly in relation to anti-money laundering (AML) laws and risk management connected to virtual currency customers and foreign correspondent banking. This action comes after an examination conducted in May 2023 brought to light various shortcomings within the Dallas-based company.
The investigation identified key issues with board oversight and senior management’s handling of compliance regulations at UTB. These deficiencies were deemed to pose risks in the areas of foreign correspondent banking and virtual currency clientele. The cease-and-desist order specifically highlighted inadequate risk management and compliance with laws and regulations related to anti-money laundering within the institution.
As a result of the order, UTB is now required to enhance its Bank Secrecy Act (BSA) and anti-money laundering programs. The Federal Reserve has given the institution’s board of directors a 90-day deadline to submit a comprehensive plan addressing the strengthening of oversight and the revision of its customer due diligence program. This enforcement action is part of a broader trend where U.S. regulators are closely scrutinizing financial institutions with ties to the cryptocurrency industry.
Impact on the Crypto Sector
United Texas Bank had gained prominence in the crypto industry by filling the gap left by the collapse of major U.S. lenders such as Signature and Silvergate. With the closure of these institutions, crypto companies have faced challenges in finding reliable banking partners within the United States. Many firms have had to consolidate around the remaining institutions willing to work with them or explore offshore options due to the regulatory environment.
Challenges for Crypto Firms
Historically, U.S. cryptocurrency firms have encountered difficulties in establishing stable banking relationships, a situation that has been exacerbated by ongoing regulatory crackdowns on financial institutions serving the sector. Enforcement actions against these institutions have forced some once crypto-friendly banks to reduce their involvement with the industry. For example, Metropolitan Bank, based in New York, recently scaled back its crypto services, including severing ties with major clients like Crypto.com.
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