On Wednesday, the Federal Reserve took decisive action against United Texas Bank in Dallas, issuing a cease-and-desist order due to “significant deficiencies” in the bank’s compliance with anti-money laundering (AML) regulations concerning its cryptocurrency clients. This order highlights critical issues in the bank’s governance, customer due diligence, and monitoring of suspicious activities, particularly within its crypto transactions.
@FederalReserve Enforcement Action: A Cease and Desist Order for United Texas Bank in Dallas as Operation #Chokepoint 2.0 Continues
https://t.co/ZeNCsiyevn
— Dan Spuller (@DanSpuller) September 4, 2024
To address these deficiencies and avoid formal proceedings, the bank’s management has agreed to the order and is now required to submit a comprehensive five-part action plan within 90 days. This plan must include measures to ensure adequate staffing and regular reviews of staffing needs to improve AML compliance.
Customers Bank Faces Similar Compliance Challenges
In a related development, Customers Bank, another institution with a crypto-friendly approach, recently faced a similar situation. The Federal Reserve mandated that Customers Bank enhance its AML compliance and meet Bank Secrecy Act standards. The bank was also required to bolster its risk management strategies for digital assets. Following the identification of significant shortcomings, the Fed enforced an action plan demanding detailed improvements.
Increased Scrutiny Drives Banks to Reevaluate Crypto Relationships
The heightened regulatory scrutiny is prompting banks to reassess their relationships with cryptocurrency businesses. The recent closures of crypto-friendly banks such as Signature and Silvergate underscore the risks associated with the crypto sector.
Regulatory bodies like the Federal Reserve and the FDIC are tightening compliance requirements, especially concerning AML and Bank Secrecy Act regulations. This intensified focus is driven by concerns over money laundering, fraud, and the inherent volatility of cryptocurrencies, which present substantial financial and legal risks for banks.
As domestic banking options for crypto companies become increasingly limited, many are turning to international banks or developing their own financial systems. This shift not only presents challenges but also creates new opportunities, potentially accelerating the move toward decentralized financial systems outside traditional banking frameworks.
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