US Fed Issues Cease-and-Desist to Texas Bank

• The US Federal Reserve has placed a cease and desist order on United Texas Bank.
• The regulator believes the bank needs stronger AML and risk management measures.

On Wednesday, the US Federal Reserve issued a cease-and-desist order to Dallas-based United Texas Bank over its crypto services to customers. With the growing scrutiny of key players in the ecosystem, this order might have a major impact on the broader industry.

United Texas Bank Comes Under Scrutiny

Per the notice, the Federal Reserve claimed there are inefficiencies in risk management and compliance with Anti-Money Laundering (AML) rules for United Texas Bank’s crypto customers. The bank was issued a cease-and-desist order in place of formal proceedings for settlement purposes. 

Additionally, the bank was given 90 days to submit a five-point action plan acceptable to the Feds to comply with AML standards. For example, the bank must ensure the provision of adequate resources for sufficient staffing levels and periodic reevaluation of resource and staffing needs. The bank’s latest financial report shows total asset holdings of about $1 million and 75 employees.

Meanwhile, the notice omitted information about how the bank’s crypto operations violated AML laws. It, however, noted the bank’s leadership agreement with the cease-and-desist order. The notice is the latest in the Federal Reserve’s recent crackdown on crypto-friendly banks. 

Last month, Customers Bank attracted similar attention from US authorities. The Pennsylvania-based lender consented to the Federal Reserve’s close supervision of its dealings with crypto companies.

Since the collapse of Silvergate Bank and Signature Bank, US crypto firms have struggled to find other banks willing to accept them as clients. Numerous traditional finance players blamed the collapse on the bank’s exposure to crypto. 

Implications of the Federal Reserve’s Crackdown on the Industry

Since then, many crypto firms have been compelled to consolidate around the few banks willing to accept crypto clients. Those that could not cope chose to move their companies offshore. 

Shortly after the collapse of Silvergate and Signature, the Federal Reserve expanded the scope of its Novel Activities Supervision Program. 

This program was created to improve the monitoring of crypto operations concerning the lenders that the agency monitors, as noted in our earlier post. Specifically, the program restricts crypto-related operations for banks committed to serving crypto firms. 

Notably, crypto companies have historically found banking partnerships difficult in the US. The situation has worsened in recent months, with the Fed cracking down on the remaining lenders serving industry stakeholders.

While the Feds’ measures are crucial to ensure banks adhere to crucial standards, critics claim they can also limit the growth of crypto firms. Industry advocates have expressed fear that regulators and lawmakers might attempt to cut crypto off from the banking industry.

If this perceived fear reverberates across the crypto ecosystem, it might lead to reduced participation from investors and traders. With the crypto market already experiencing intense volatility, this could further put pressure on asset valuation.