The Federal Reserve has issued a cease-and-desist order against United Texas Bank for failures in managing cryptocurrency-related risks and non-compliance with BSA and AML laws, demanding a strengthening of its compliance program.
The investigation reportedly revealed deficiencies in managing relationships with foreign financial institutions and crypto clients, forcing the bank to submit a plan to enhance supervision and due diligence of its activities.
This incident is part of a broader crackdown on financial institutions linked to the crypto ecosystem, marking the second similar action.
United Texas Bank, a Dallas-based bank known for its ties to the crypto industry, is now under a cease and desist order issued by the US Federal Reserve.
This action comes as part of an increased crackdown on financial institutions involved in the digital asset sector, marking the second similar case in a month.
Download the complete order here.
Serious failures in risk management?
An investigation conducted by the Federal Reserve in May 2023 uncovered “significant failures” in the bank’s governance, particularly regarding the management of cryptocurrency-related clients. These failures include gaps in managing risks associated with virtual currency operations, as well as inadequate compliance with the requirements of the Bank Secrecy Act (BSA) and anti-money laundering (AML) rules.
In the order issued by the Fed, it is stated that the bank failed to meet regulatory obligations in managing banking relationships with foreign financial institutions and due diligence towards its crypto clients. In response to this situation, the bank has committed to strengthen its compliance program for BSA and AML, while reviewing its customer due diligence program.
Next steps imposed by the Federal Reserve
Following this review, the management of United Texas Bank must now provide a written plan to the Federal Reserve detailing the measures that will be taken to strengthen the supervision of compliance with BSA and AML regulations. Among these measures, improving the customer due diligence program will be crucial, with a particular focus on monitoring risks associated with cryptocurrencies.
While the bank has not publicly commented on this decision, it will also be required to submit a comprehensive report on the implementation of the Fed’s recommendations.
Increasing crackdown on crypto-associated banks
This cease and desist order follows another similar incident that took place in August 2023, involving Customers Bancorp, another institution with significant ties to the crypto industry. In both cases, the Fed cited failures in risk management and compliance with anti-money laundering rules.
Some members of the cryptocurrency industry have criticized these actions, considering them part of a broader strategy of coordinated crackdown, often referred to as “Chokepoint 2.0.” This term refers to a series of actions that could be interpreted as attempts to isolate players in the digital asset sector from the traditional financial system.
The role of United Texas Bank in the crypto ecosystem
Prior to this order, United Texas Bank played an active role in settlement infrastructures for crypto companies such as the Stellar Foundation and Circle, the issuer of USDC. In particular, the bank facilitated transactions between Circle and MoneyGram, enabling cryptocurrency-based local currency payments via the Stellar network.
With this second enforcement action within a month, it appears that US regulators are intensifying their scrutiny of financial institutions associated with cryptocurrencies. The question that remains is whether this trend will curb banking relationships between the crypto sector and banks or whether it will encourage banks to strengthen their compliance while continuing to support companies in the digital ecosystem.
