Recently, the U.S. Federal Reserve took action against United Texas Bank (UTB) due to 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. An examination conducted in May 2023 revealed shortcomings in board oversight and senior management’s handling of compliance regulations. The central bank highlighted these deficiencies as posing risks in both foreign correspondent banking and virtual currency clientele.
As a result of the examination findings, the Federal Reserve issued a cease-and-desist order against UTB, requiring the institution to enhance its Bank Secrecy Act (BSA) and anti-money laundering programs. Additionally, the board of directors has been given 90 days to develop a comprehensive plan addressing strengthening oversight and revising the customer due diligence program. This enforcement action is part of a broader trend of U.S. regulators targeting financial institutions with ties to the cryptocurrency industry.
Impact on Crypto Companies
UTB had gained visibility in the industry after stepping in to fill the gap left by the collapse of Signature and Silvergate in 2023, two of the largest U.S. lenders that previously served the crypto sector. With the closure of these institutions, crypto companies have faced challenges in finding reliable banking partners in the U.S. Many firms have had to consolidate around the few remaining banks willing to work with them or seek services offshore. The ongoing crackdown by regulators on financial institutions serving the sector has made it even more difficult for U.S. crypto firms to secure banking relationships.
The recent action against UTB is not an isolated incident. Last month, Customers Bank, a Pennsylvania-based lender, also faced scrutiny from the Federal Reserve for lapses in anti-money laundering compliance. This trend of increased regulatory oversight has led once crypto-friendly banks to reduce their involvement with the industry. For example, New York-based Metropolitan Bank scaled back its crypto services, including cutting ties with major clients like Crypto.com. The continued pressure from regulators is reshaping the landscape of banking services available to the cryptocurrency sector.
The cease-and-desist order issued against UTB by the Federal Reserve underscores the growing scrutiny and regulatory challenges faced by financial institutions serving the cryptocurrency industry. The deficiencies identified in governance and compliance reflect broader issues within the sector that continue to impact banking relationships for crypto companies in the United States. As regulators intensify their enforcement efforts, banks and other financial institutions will need to navigate complex compliance requirements to support this evolving industry.