United Texas Bank Faces Federal Action for AML Failures in Crypto Dealings

• The Federal Reserve ordered United Texas Bank to shut down and filed a cease and desist order.
• This measure requires  Texas Bank to produce a wide-ranging action plan for addressing governance and compliance issues.
• It is part of a trend where regulators target banks that accept cryptocurrencies, similar to recent actions against customers’ banks.

The Federal Reserve has taken action against United Texas Bank in Dallas, issuing a cease and desist order in sticking to anti money laundering (AML) regulations, particularly in its dealings with cryptocurrency clients. 

United Texas Bank’s Compliance Shortcomings

On September 3, the Fed issued the order in response to identified gaps in the bank’s governance, customer due diligence, and monitoring of suspicious activities, especially in transactions involving digital assets. 

The deficiencies related to foreign correspondent banking and virtual currency customers led to the support of the Cease and Desist Order agreed upon by the bank and the Federal Reserve. According to a Fed release, the order requires United Texas Bank to support its AML compliance program to meet federal and state legal standards, which the bank has already begun addressing.

The order requires United Texas Bank to submit a complete five-part action plan within 90 days to address these defects. This plan must include measures to ensure adequate staffing for compliance functions and regular assessments to determine staffing needs.

United Texas Bank’s management agreed to the order to avoid formal proceedings. The bank now faces the challenge of aligning its compliance and risk management practices with federal expectations, particularly in the rapidly evolving cryptocurrency sector.

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Broader Implications for Crypto-Friendly Banks

United Texas Bank is not the only financial institution facing the effects. Recently, Customers Bank, another bank known for its crypto-friendly approach, was also instructed by the Fed to improve its obedience to AML laws and the Bank Secrecy Act. This directive included mandates to enhance the bank’s risk management systems for digital assets.

Senior management for monetary policy and bank regulation, such as the Federal Reserve and the Federal Deposit Insurance Corporation, have demonstrated increasing concerns with financial and legal risks associated with cryptocurrencies. The shutting down of other banking establishments that are friendly to cryptocurrency, such as Signature and Silvergate, has exposed these risks, and regulators have tightened operational requirements to avert such happenings.