Swiss Regulator Shuts Down Crypto Bank FlowBank SA

Swiss Regulator Shuts Down Crypto Bank FlowBank SA

FinanceBank

By Jakub Lazurek

14 Jun 2024 (28 days ago)

3 min read

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Swiss regulator FINMA has closed crypto-linked FlowBank SA due to severe financial instability and operational deficiencies, raising concerns about the bank’s health.

The Swiss Financial Market Supervisory Authority (FINMA) has shut down the crypto-linked FlowBank SA, citing financial instability and significant operational issues. This decision highlights serious breaches of the bank’s capital requirements and questions about its overall financial health.

On June 13, FlowBank SA was closed by FINMA due to insufficient capital to operate. The report indicated that the bank was "over-indebted" and unable to meet the necessary capital requirements. FINMA stated, “FlowBank SA no longer has sufficient capital for its operations as a bank. The minimum capital requirements, which must be met at all times, have been significantly and seriously breached.”

FlowBank had been on FINMA’s watchlist since 2021 due to serious regulatory breaches. The bank failed to meet capital requirements and lacked proper organization and risk management. FINMA imposed several measures to restore compliance, including appointing an independent auditor. However, ongoing compliance issues and capital ratio breaches worsened the situation. In June 2023, FINMA appointed an overseer to monitor FlowBank’s activities.

The findings revealed repeated violations and numerous organizational deficiencies, leading to the decision to shut down the bank. FINMA noted that FlowBank engaged in high-risk business relationships and processed large transactions without proper checks.

FlowBank acknowledged its closure in a letter to clients, mentioning the revocation of its bank and securities licenses. FINMA assured that deposits up to 100,000 Swiss francs (around $111,710) are protected, with refunds to be processed within seven working days. The law firm Walder Wyss AG will oversee the bankruptcy process. The status of customers’ crypto deposits remains uncertain and will be determined by the liquidator, who will decide if cryptocurrencies are considered “claims on the bank” or custody assets.

FINMA stated, “FINMA’s primary aim is to protect depositors. The liquidator will repay deposits up to CHF 100,000 (privileged deposits) to clients as quickly as possible. Current calculations suggest these deposits can be fully repaid from the bank’s available funds. We do not expect the Swiss banks’ deposit insurance scheme (esisuisse) to be involved. Client custody accounts will also be segregated and repaid.”

Switzerland, known for its crypto-friendly stance, has several banks supporting digital assets, including AMINA (SEBA), Maerki Baumann, and Swissquote. The closure of FlowBank shows Switzerland’s commitment to strict operational standards for crypto institutions. This action aims to prevent incidents similar to the FTX collapse and ensure that only compliant platforms can operate.

The closure of FlowBank SA by FINMA highlights the importance of strong financial health and strict regulatory adherence in the crypto banking sector. While Switzerland remains a favorable environment for digital assets, the FlowBank case shows the regulatory rigor needed to ensure stability.

Customers can expect protection for their deposits up to the insured limit, but the handling of crypto assets will depend on the liquidation process. As the crypto banking sector evolves, maintaining high compliance and financial health standards will be crucial for these institutions.

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