As a partner of the stablecoin TrueUSD (TUSD) and the exchange Binance, the Swiss Monetary Authority (FINMA) forced the crypto bank FlowBank into bankruptcy proceedings yesterday (13), saying that it seriously violated the minimum capital standards required to operate a bank and was over-indebted. And there is almost no possibility of bankruptcy and reorganization.

FlowBank was shut down by the Swiss Financial Supervisory Authority: high-risk business caused trouble

In its latest statement, FINMA pointed out that it had forced the initiation of bankruptcy proceedings for the crypto bank FlowBank on June 13, saying that it no longer had enough funds to continue to maintain the bank’s operations.

FINMA stated that FlowBank can no longer afford the funds required for its business operations, and there is no prospect of restructuring. It is even more worried that the bank may become insolvent:

We found that FlowBank had serious regulatory violations, particularly in relation to capital requirements, organizational structure and risk management.

Among them, the following oblique statements from the regulatory agency seem to be alluding to the cryptocurrency business undertaken by the company:

The bank entered into many high-risk business relationships and processed large transactions without thorough evaluation.

It is reported that FlowBank holds approximately US$760 million in assets and has more than 22,000 users.

Users with a deposit of less than 100,000 Swiss francs will have priority in repayment. What about cryptocurrencies?

In addition, FlowBank stated on its official website that users with deposits of less than 100,000 Swiss francs (approximately US$111,000) will be protected and will be prioritized for repayment within 7 working days.

FINMA also emphasized in the statement that the bank's existing funds will be able to repay the above-mentioned users in full, so the Swiss Bank Deposit Insurance Scheme (esisuisse) will not be involved in assisting.

However, some people are worried that it may become difficult for some users to repay their crypto assets:

FINMA stated that whether cryptocurrencies can be regarded as custodial assets treated as securities and also be classified in insolvency proceedings depends on the liquidator.

Has always been a partner of TUSD and Binance

As a bank heavily funded by crypto asset management company CoinShares, FlowBank has been providing cryptocurrency trading services for many years.

It is reported that the bank is a partner bank of Techteryx, the issuer behind the controversial stablecoin TrueUSD (TUSD), and is said to provide crypto asset custody services to Binance.

(Can bank deposits be used as futures collateral? Bloomberg: Binance is negotiating with local banks in Switzerland)

Are cryptocurrencies really in trouble?

FlowBank, established in 2020, was placed on the watch list by FINMA a year later, saying that it violated regulatory regulations and operated many high-risk businesses. In response, the agency appointed independent auditors to monitor its compliance process and financial activities, but violations have been repeatedly discovered in the past two years.

It was not until March this year that FINMA finally ordered the revocation of FlowBank’s license, but while it was waiting for it to take effect, news of bankruptcy broke out.

However, is it really the so-called "high-risk business" of cryptocurrency that is causing trouble? Perhaps there is nothing inherently wrong with financial products, but improper allocation of investment portfolios and changes in interest rate policies, whether traditional banks, crypto banks or exchanges, may face financial crises.

In March last year, the United States faced the collapse of three banks, Silvergate, Silicon Valley Bank (SVB) and Signature Bank, in just one month. It also showed that if traditional finance does not handle asset management properly, there will still be a risk of runs or bankruptcy.

(In-depth analysis｜What is the difference between the collapse of Credit Suisse and SVB? How can exchanges do better than traditional banks?)

This article: Swiss crypto bank FlowBank was declared bankrupt by the local monetary authority. Is cryptocurrency in trouble? First appeared in Chain News ABMedia.