- The US Federal Reserve has directed United Texas Bank to stop providing crypto services because of compliance issues, including anti-money laundering.
- This action affirms a rising trend of enhanced regulatory actions towards banks that engage with cryptocurrency firms.
- This approach is criticized by many in the industry among them being Ripple’s CTO who called it a threat to the growth of the crypto industry.
The Federal has demanded United Texas Bank to stop offering crypto services because of the various issues it has raised on anti-money laundering conduct. On 4th of September, in a detailed statement, the Fed mentioned that some weaknesses were associated with virtual currency customers which held operations back. And this decision has triggered other questions regarding the general impacts on the crypto industry, especially when considering that it has occurred alongside other measures against other banks.
Federal Reserve’s Concerns with Risk Management
The Federal Reserve’s order focuses on United Texas Bank’s failures in managing risk associated with crypto trading. The Fed alleges that the bank did not pay adequate attention to issues related to foreign correspondent banking relationships and the Bank Secrecy Act. Which is a significant piece of legislation passed in the United States of America to prevent money laundering. The examination also showed that the bank had not adequately addressed virtual currency customers that should have been compliant with the regulations.
The rejection by the Fed follows what seems to be a continued policy by the government to assess banks that are interested in carrying out operations in the cryptos arena, due to perceived so-called risks from the side of the crypto firms. United Texas Bank received this attention from the Fed to ensure that other financial institutions dealing in cryptocurrencies need to have a better enhanced compliance and risk management policy.
Industry Reaction and Ripple CTO’s Criticism
Ripple’s Chief Technology Officer, David Schwartz, has also taken to social media to express his disappointment and disapproval of the Fed’s actions, labeling this move as a form of regulation by stealth. According to Schwartz, regulators should not threaten to shut down banks such as United Texas and rather address issues directly with crypto firms. He noted that these actions could lead to restricted banking services for the crypto companies hence putting a halt on the growth of the industry.
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Schwartz’s worries are similar to similar sentiments around the crypto community as some of its leaders think that the government may be using Chokepoint 2.0 to regulate the industry.
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