The U.S. Federal Reserve recently issued a cease-and-desist order against United Texas Bank (UTB) for significant deficiencies in its governance, particularly in its adherence to anti-money laundering (AML) laws and risk management related to virtual currency customers and foreign correspondent banking. The central bank’s examination in May 2023 revealed shortcomings in UTB’s board oversight and senior management’s handling of compliance regulations.
The cease-and-desist order, agreed upon by UTB and the Federal Reserve, puts forth obligations for the institution. UTB is required to enhance its Bank Secrecy Act (BSA) and anti-money laundering programs. Additionally, the institution’s board of directors has been given 90 days to submit a comprehensive plan addressing the strengthening of oversight and the revision of its customer due diligence program.
UTB had gained prominence recently by filling the gap left by the collapse of other major U.S. lenders that previously served the crypto sector. This enforcement action by the Federal Reserve signifies a broader trend of U.S. regulators targeting financial institutions with ties to the cryptocurrency industry. Last month, Customers Bank, a Pennsylvania-based lender, also came under similar scrutiny from the Federal Reserve.
The closure of major banks like Signature and Silvergate in 2023 has resulted in a limited number of American financial institutions willing to work with crypto companies. As a result, many firms have had to either consolidate around the remaining banks or seek banking services offshore. Historically, U.S. crypto firms have faced difficulties in establishing reliable banking relationships, which has been exacerbated by the ongoing crackdown by regulators on financial institutions serving the sector.
Enforcement actions by regulatory bodies have led to once crypto-friendly banks reducing their involvement in the sector. For example, Metropolitan Bank, based in New York, scaled back its crypto services and severed ties with major clients like Crypto.com last year. This shift in attitude among financial institutions highlights the challenges faced by the crypto industry in securing banking services in the United States.
The Federal Reserve’s cease-and-desist order against United Texas Bank serves as a stern warning to financial institutions catering to the crypto sector about the importance of compliance with anti-money laundering laws. This enforcement action underscores the ongoing challenges faced by crypto companies in securing reliable banking relationships and the increasing regulatory scrutiny faced by institutions serving this industry.
