The US Federal Reserve seems to be on a mission to play whack-a-mole with crypto-friendly banks trying to offer crypto custodial services. In its latest move, the Fed gave Dallas-based United Texas Bank a firm slap on the wrist with a cease-and-desist order, pointing out some rather “major deficiencies” in how the bank handles anti-money laundering rules while dealing with crypto firms. Looks like they’ll need to brush up on their compliance game!
Fed Blames Crypto Custodial Service Provider for AML Violations
The is a 90-day deadline for the United Texas Bank given by the U.S. Federal Reserve to submit a detailed five-point plan to comply with anti-money laundering (AML) regulations. This notice marks the latest instance of a crypto-supporting bank facing increased scrutiny from U.S. regulators. Just last month, Customers Bank also came under regulatory scrutiny over similar concerns. The crypto industry has begun to express concerns about the growing regulatory pressure on banks serving the crypto sector.
Despite the blame for not complying with Anti-Money Laundering regulations, the recent notice from the US Fed to the United Texas Bank doesn’t specify how it failed to comply while providing crypto custodial service to crypto firms. Yet, the bank has agreed to the notice to avoid legal action.
Regulatory Scrutiny on Question
Crypto enthusiasts are already annoyed with the SEC’s stringent over-sight crypto-related business, the Federal Reserve is joining the forces mirroring the SEC’s actions. Analysts are questioning why both the SEC and the Fed are targeting crypto custodial service providers and discouraging federally regulated banks from offering these services. The U.S. regulator’s scrutiny comes just a day after Swiss Bank ZKB announced its new trading and crypto custody facility for Bitcoin and Ethereum.
Gemini co-founder Tyler Winklevoss joined the critics who expressed disappointment, stating that when VP Kamala Harris said she wanted to “reset” with the crypto industry, it was assumed to be a positive step. However, it appears that the reset has been unfavorable for the industry.
N. Korea Targets Crypto ETFs, FBI Warns
Meanwhile, the growing demand for crypto ETFs in the U.S. has made them a prime target for cybercriminals. The FBI has issued a stark warning about sophisticated hacking attempts by North Korean hackers targeting these crypto ETFs. ConsenSys lawyer Bill Hughes also emphasized the need for crypto ETF issuers to prioritize robust security measures to protect their assets. Additionally, Fox Business journalist Eleanor Terret highlighted the concentration risk associated with many crypto ETF issuers relying solely on Coinbase for their Bitcoin and Ethereum holdings. This centralization could potentially pose a significant threat to the entire market.
Terret also criticized the SEC and U.S. Federal Reserve for discouraging federally regulated banks from offering crypto custodial services through Staff Accounting Bulletin 121. She argued that these policies contribute to a limited pool of custodians, leading to increased centralization and heightened vulnerability. Coinbase’s Chief Legal Officer responded to Terret’s concerns, asserting that Coinbase’s role as a major custodian for ETF issuers is not a cause for concern.
Also Read: ‘Crypto Asset Security’: Ripple Lawyer Takes on SEC For Using Phrase Without Legal Ground‘