Customers Bank has come under scrutiny from the U.S. Federal Reserve for its handling of risks associated with its crypto clients. The Pennsylvania-based bank, known for its business with several major crypto firms, has been directed to address compliance shortcomings highlighted by Fed examiners.
Compliance Concerns
The Federal Reserve’s enforcement action points to significant deficiencies in Customers Bank’s risk management practices, particularly concerning anti-money laundering (AML) laws and regulations. The bank, which serves prominent names such as Galaxy Digital, Coinbase, and Circle, has agreed to rectify these issues.
Specific Issues Highlighted
The enforcement agreement, signed by the bank’s top executives, requires Customers Bank to develop comprehensive compliance plans. These plans must ensure the bank collects, analyzes, and retains complete and accurate information for all customers. Additionally, the bank must inform the Fed 30 days before initiating any new strategic initiatives, products, services, or relationships related to its digital asset strategy.
Previous Challenges
Customers Bank has already faced difficulties in its crypto dealings. In June, reports indicated that the bank was reducing its hedge fund activity and capping crypto deposits. The bank, which operates exclusively in U.S. dollars, offers a real-time, blockchain-based payments platform known as Customer Bank Instant Token (CBIT). This platform enables its crypto clients to make U.S. dollar payments around the clock, a service that was also scrutinized in the Fed’s action.
Moving Forward
The Federal Reserve noted that Customers Bank has begun addressing the identified deficiencies. The bank must soon provide the Fed with written plans and a new compliance approach to ensure ongoing adherence to regulatory standards. The Fed, along with other regulatory bodies such as the Office of the Comptroller of the Currency and the Federal Deposit Insurance Corp., continues to issue guidance to banks to limit their exposure to the crypto sector.
Conclusion
As the crypto industry continues to intersect with traditional banking, regulatory scrutiny remains high. Customers Bank’s recent experience underscores the importance of robust compliance frameworks to manage the unique risks associated with digital assets.
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