A man cycles past a store advertising Bitcoin ATMs in Nicosia on September 25, 2024. (Photo … (+)
Two years after the implosion of FTX, financial regulators are still closely monitoring the cryptocurrency sector. In the United States, several targeted enforcement actions have been taken against banks and crypto firms, signaling an increased focus on compliance and risk management in the sector.
After the collapse of Signature Bank and Silvergate, Pennsylvania-based Customers Bank became a key player in the crypto banking space, onboarding clients like Kraken and absorbing approximately $2 billion in crypto customer deposits. One of Customers Bank’s main attractions was its TassatPay-licensed real-time payments system, the same technology that had powered Signature Bank’s Signet. However, Customers Bank found itself under federal supervision and was subject to an enforcement action by the Federal Reserve on August 5, 2024. The action cited “significant deficiencies” in the bank’s risk management practices. bank and in its compliance with anti-money laundering (AML) regulations. particularly with regard to its digital asset services.
Similarly, Dallas-based United Texas Bank has faced regulatory action for its crypto-related activities. On August 28, 2024, the bank was cited for “deficiencies” in its AML compliance and risk management practices, particularly related to virtual currency customers and foreign correspondent banks. United Texas Bank, which serves a number of crypto clients, is also a correspondent bank of Bank Frick, a Liechtenstein-based institution specializing in cryptocurrency services. These enforcement measures reflect regulators’ growing concerns about crypto banks’ ability to manage the unique AML risks posed by digital assets.
At the same time, a multibillion-dollar fine was imposed on TD Bank for non-compliance with AML standards. TD Bank failed to automatically monitor a significant portion of its transactions, leaving 92% of its total trading volume unmonitored between January 1, 2018 and April 12, 2024. This failure allowed “trillions of dollars of annual transactions not to be monitored for potentially suspicious reasons. activity.” Although TD Bank’s shortcomings were not exclusively related to crypto transactions, the enforcement action mentioned a “C customer group”, which allegedly laundered funds from a UK-based cryptocurrency exchange to a Colombian financial entity.
Across the Atlantic, regulatory scrutiny of the crypto sector is also intensifying. In the UK, crypto payments company BCB was the subject of an S166 investigation by the Financial Conduct Authority (FCA) this year, indicating that regulators are paying greater attention to how crypto companies manage risks. BCB is known for providing banking services to some of the largest institutions in the digital assets industry, including Bitstamp, Crypto.com, Gemini, and Kraken. In the EU, there are growing concerns over stablecoin compliance, with reports suggesting that Coinbase could soon delist USDT.
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Critics of these enforcement measures say regulators are applying double standards when it comes to crypto companies. Nic Carter, a well-known voice in the cryptocurrency space, has been particularly vocal about what he calls “Operation Chokepoint 2.0,” claiming that crypto companies in the United States are being unfairly targeted by regulatory measures to political motivation. Others pointed out the disparity in the treatment of Binance and TD Bank. While Binance CEO Changpeng Zhao (CZ) remains in prison amid allegations of anti-money laundering failings, none of TD Bank’s top executives have faced consequences similar, despite the bank’s significant failures in monitoring its transaction volumes.
However, all is not doom and gloom for crypto companies. In Europe, there are signs of regulatory clarity and progress for businesses adapting to a changing landscape. Swiss-based digital assets specialist Sygnum Bank recently registered with Liechtenstein regulators as it prepares for its expansion into the EU. Similarly, Portuguese bank Bison Bank launched Bison Digital, a subsidiary designed to offer regulated services to Europe’s growing digital assets sector. These developments indicate that regulators are not unanimous in their crackdown on the sector.
The past two years have seen a sharp increase in regulatory oversight of the cryptocurrency sector, with a particular focus on banks and institutions that manage digital assets. Enforcement actions against banks like Customers Bank and United Texas Bank in the United States reveal how seriously regulators take the crypto sector. At the same time, increased scrutiny of companies like BCB in the UK and the potential delisting of USDT in the EU further highlight the global nature of this regulatory change.
Despite increased scrutiny, the outlook for crypto banking is not entirely bleak. While businesses in the United States face enforcement, those adopting compliance abroad are finding opportunities to grow. As banks like Sygnum and Bison Digital demonstrate, there is still room for growth in this rapidly evolving sector. The road ahead will undoubtedly be challenging for crypto banks, but the potential for innovation and expansion remains strong for those able to adapt to the new regulatory reality.
