Recently, the Federal Reserve issued a cease and desist order to United Texas Bank (UTB) on Aug. 29, directing it to stop offering crypto services. This action came after an examination conducted by the Federal Reserve Bank of Dallas and the Texas Department of Banking in May 2023.
The examination identified alleged deficiencies in UTB’s corporate governance, oversight, and compliance with anti-money laundering (AML) regulations. Specifically, issues were raised regarding the bank’s risk management, compliance with the Bank Secrecy Act (BSA), and AML requirements. Furthermore, concerns were raised about foreign correspondent banking and virtual currency customers.
Plans for Compliance
As a response to the findings, UTB must submit several plans to achieve compliance within a specified timeframe. Within 90 days, the bank’s board of directors must present a plan demonstrating compliance with BSA and AML rules. Additionally, within 60 days, UTB must address a broader set of requirements, including strengthening board oversight, implementing a corporate governance plan, and revising its BSA/AML compliance program.
UTB is also required to develop an enhanced customer due diligence program, improve its suspicious activity monitoring and reporting system, and enhance compliance with Office of Foreign Assets Control (OFAC) regulations within 60 days. The bank must provide quarterly progress reports detailing its actions to comply with the orders.
The cease and desist order comes after UTB had already begun taking measures to strengthen its BSA/AML compliance program and reduce its risk profile. In a similar enforcement action, Customers Bank based in Pennsylvania was also targeted by the Federal Reserve for similar reasons. This crackdown has raised concerns in the crypto industry.
Following the enforcement actions by the Federal Reserve, Gemini’s co-founder criticized the crackdown, suggesting that it confirmed the existence of “Operation Choke Point 2.0.” This operation, as explained by U.S. Senator Bill Hagerty, is believed to be a coordinated effort by the Biden administration to restrict the crypto industry through financial regulations.
The cease and desist order issued to UTB highlights the increasing scrutiny and regulatory challenges faced by crypto-friendly institutions. As the industry continues to evolve, compliance with financial regulations and AML requirements is crucial for maintaining the integrity of the financial system.