US Federal Reserve Targets Crypto-Friendly Banks Twice In A Month

The US Federal Reserve issued a cease and desist order against the United Texas Bank (UTB) in Dallas. 

This enforcement action against UTB is not an isolated incident. 

It marks the second time in less than a month that the Federal Reserve has taken action against a bank with significant crypto dealings.

Previously, Customers Bank faced scrutiny over its blockchain-based digital payment solution, CBIT (Customers Bank Instant Token). 

This pattern of enforcement highlights the Federal Reserve’s approach towards banks engaging in crypto-related activities.

Federal Reserve issues cease and desist to United Texas Bank that services Crypto Industry.

Reason : "“The Examination identified significant deficiencies related to foreign correspondent banking and virtual currency customers, specifically risk management and compliance with… pic.twitter.com/hF8gNCN0GD

— Vivek S (@VivekChirps) September 11, 2024

The situation with UTB casts a spotlight on Custodia Bank too –  a Wyoming-based entity that has been striving for access to the Federal Reserve’s master accounts. 

Custodia Bank, led by CEO Caitlin Long, has been vocal about the challenges it faces in gaining federal approval.

The bank’s application was rejected by the Federal Reserve in January 2023, with the Fed citing concerns over Custodia’s plans to engage in “novel and untested crypto activities” that could pose significant risks to banking safety and soundness.

Federal Reserve Points Out Bank’s Failure To Adhere To Anti-Money Laundering Laws

The decision from the Federal Reserve emphasizes how UTB failed to adequately manage risks and adhere to anti-money laundering laws, including the Bank Secrecy Act. 

The fact that UTB has ties to prominent crypto organizations like Circle—the creator of the USDC stablecoin—and the Stellar Development Foundation makes these shortcomings all the more of a concern to the Federal Reserve. 

Both organizations have been significant players in the blockchain and cryptocurrency space. Stellar was rumored to be involved in a potential acquisition of MoneyGram International.

Announced on 4 September 2024, the order follows an investigation by the Texas Department of Banking that began in May 2023.

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UTB Given 90 days By Federal Reserve To Submit Compliance Plan

The investigation apparently uncovered substantial deficiencies in UTB’s corporate governance and oversight. These particularly included the bank’s dealings with foreign correspondent banking and virtual currency customers.

Additionally, the bank must demonstrate compliance with regulations issued by the Treasury Department’s Office of Foreign Assets Control (OFAC) within 60 days. 

According to the US Federal Reserve, these regulations are crucial for ensuring adherence to US economic sanctions against foreign entities.

However, supporters of the crypto industry, including high-profile legal experts like former US solicitors general Paul Clement and Don Verrilli, contend that the current regulatory framework unfairly marginalizes digital asset companies.

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Disclaimer: Crypto is a high-risk asset class. This article is provided for informational purposes and does not constitute investment advice. You could lose all of your capital.