The U.S. Federal Reserve recently issued a cease-and-desist order against United Texas Bank (UTB), uncovering significant deficiencies in the bank’s governance. These deficiencies primarily revolved around the bank’s adherence to anti-money laundering (AML) laws and its risk management practices related to virtual currency customers and foreign correspondent banking. The order was a result of an examination conducted in May 2023, which shed light on the Dallas-based company’s shortcomings in board oversight and senior management’s handling of compliance regulations.
The cease-and-desist order obligates UTB to enhance its Bank Secrecy Act (BSA) and anti-money laundering programs to ensure compliance with applicable laws and regulations. Additionally, the institution’s board of directors has been given 90 days to submit a comprehensive plan addressing the strengthening of oversight and revising its customer due diligence program. This enforcement action is part of a broader trend of U.S. regulators targeting financial institutions with ties to the cryptocurrency industry, signaling a stricter regulatory environment for such entities.
UTB had gained prominence in the crypto sector after filling the gap left by the collapse of two major U.S. lenders, Signature and Silvergate, in 2023. With these closures, crypto companies have faced challenges in finding reliable banking partners in the U.S., leading them to consolidate around the remaining institutions willing to work with them or seek offshore services. The ongoing crackdown on financial institutions serving the crypto sector by regulators has further exacerbated the difficulties faced by U.S. crypto firms in securing banking relationships.
The regulatory pressure has not only affected UTB but also other banks like Customers Bank and Metropolitan Bank. Customers Bank, a Pennsylvania-based lender, recently agreed to increased regulatory oversight after lapses were identified in its anti-money laundering compliance. Similarly, Metropolitan Bank reduced its crypto services and severed ties with major clients like Crypto.com, illustrating the broader impact of regulatory actions on once crypto-friendly banks.
The Federal Reserve’s enforcement actions against UTB and other financial institutions highlight the increasing scrutiny and regulatory challenges faced by banks serving the crypto industry. Compliance with anti-money laundering laws and regulations has become a focal point for regulators, necessitating banks to strengthen their oversight and risk management practices to avoid similar enforcement actions in the future.
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