Federal Reserve Issues Cease and Desist to Crypto-Linked United Texas Bank
The Federal Reserve issued a cease and desist order to United Texas Bank over crypto-related risk management deficiencies and AML compliance issues.
Federal Reserve Targets United Texas Bank for Crypto-Related Risks
United Texas Bank, known for its connections to the crypto industry, has been slapped with a cease and desist order by the Federal Reserve following an examination that uncovered significant shortcomings in its governance, particularly regarding crypto customers and risk management. This marks the second enforcement action against a crypto-adjacent bank in just one month, raising concerns within the industry.
The Federal Reserve's May 2023 examination of the Dallas-based bank revealed weaknesses in its foreign correspondent banking practices and in handling virtual currency customers. These deficiencies related to anti-money laundering (AML) compliance, prompting the central bank to step in. Both the Federal Reserve and United Texas Bank agreed to the order, with the bank pledging to strengthen its compliance efforts.
Steps to Improve Compliance and Risk Management
In response to the cease and desist order, United Texas Bank has started making improvements to its Bank Secrecy Act (BSA) and anti-money laundering (AML) programs. The Federal Reserve noted that the bank's board of directors must now file a comprehensive plan detailing how it will enhance its oversight and ensure compliance with BSA/AML requirements. Additionally, the board is required to update the bank's customer due diligence program to address the identified risks.
This enforcement action highlights the Federal Reserve’s concern over how crypto-friendly banks manage risks associated with virtual currencies. Despite the bank's efforts to address these concerns, it remains under close scrutiny by federal regulators.
Crypto Partnerships and Industry Reactions
United Texas Bank has worked with several crypto firms, including partnerships with the Stellar Foundation and Circle's USDC. The bank played a key role in MoneyGram’s integration with Stellar to facilitate crypto payouts in local currencies, acting as the settlement bank between Circle and MoneyGram. However, the recent enforcement action underscores the increasing pressure on banks with crypto affiliations.
This is the second time in a month that the Federal Reserve has issued such an order. In August, Customers Bancorp, Inc. faced a similar situation, with the central bank identifying deficiencies in its risk management and AML compliance.
Critics within the crypto industry have accused the Federal Reserve of engaging in a coordinated crackdown on crypto-related businesses, coining the term "Chokepoint 2.0" to describe these enforcement actions. Dan Spuller, head of industry affairs at the Blockchain Association, referenced this idea in a recent post, suggesting that the central bank's actions are part of a broader strategy to restrict crypto-related activities.
