Global: Federal Reserve Issues Cease and Desist Order to Texas Bank Over Crypto Dealings

The United States Federal Reserve has issued a cease and desist order to United Texas Bank, citing “significant deficiencies” in the bank’s risk management systems and its dealings with cryptocurrency clients.

In a directive dated September 4, the Federal Reserve revealed that an examination conducted in May uncovered critical shortcomings in the bank’s corporate governance and oversight mechanisms. The order specifically highlighted failures in the bank’s board of directors and senior management in managing risks associated with foreign correspondent banking and virtual currency customers.

According to the Federal Reserve, United Texas Bank had inadequately addressed key aspects of its risk management, particularly concerning compliance with anti-money laundering (AML) regulations and the Bank Secrecy Act (BSA). The deficiencies pertained to the bank’s internal procedures for monitoring and controlling risks linked to its crypto-related clients.

While the Fed did not explicitly detail how the bank had failed in its regulatory obligations regarding crypto dealings, it stressed that the bank’s risk management protocols fell short of the required standards.

In response to the findings, United Texas Bank has begun implementing measures to strengthen its adherence to the BSA and enhance its AML compliance program. The bank’s board of directors has committed to submitting a formal plan to the Federal Reserve aimed at bolstering board oversight in line with BSA/AML requirements.

United Texas Bank, which manages approximately $1 billion in assets and employs around 75 staff members, has taken additional steps to address these deficiencies as part of the regulatory mandate.

This enforcement action follows a similar one issued by the Federal Reserve in August against Pennsylvania-based Customers Bancorp and its subsidiary, Customers Bank, for shortcomings in risk management and AML practices. Both banks are known for their crypto-friendly operations and have faced scrutiny in recent examinations.

The recent wave of regulatory actions against banks with cryptocurrency ties has reignited concerns about what some in the crypto industry describe as “Operation Chokepoint 2.0”—a perceived government effort to restrict banks from engaging with the cryptocurrency sector. Dan Spuller, head of policy at the Blockchain Association, voiced concerns that the Fed’s actions against United Texas Bank signal the continuation of this trend.

As the U.S. government continues to tighten regulatory oversight on the cryptocurrency sector, banks with crypto clients are facing increased pressure to ensure their compliance frameworks meet the evolving standards set by regulators.