Fed Orders Texas Bank to Stop Working with Crypto Firms Over Compliance Issues

Jimmy Aki
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The United States Federal Reserve issued a cease and desist order to United Texas Bank over problems with how it manages risks, especially concerning crypto clients. The order, made public on September 4, points to “significant deficiencies” in the bank’s risk management systems and handling of crypto-related transactions.

Bank Secrecy Act and Anti-Money Laundering Concerns

The cease and desist order stated that the bank’s foreign correspondent banking and virtual currency customers raised concerns about compliance with regulations, particularly those related to anti-money laundering (AML) measures under the Bank Secrecy Act (BSA).

The BSA is a key law designed to combat money laundering, and banks must adhere to its regulations to ensure transparency in financial dealings.

According to the Federal Reserve, the issues were discovered during an examination in May. The investigation revealed problems in the bank’s corporate governance, particularly in how its board of directors and senior management supervised the bank’s operations.

The Fed did not provide details about specific failures but stated the need for stronger risk management when dealing with crypto clients. The order instructed the bank’s board of directors to develop a formal plan to strengthen oversight of its compliance with BSA/AML requirements.

Following the Federal Reserve’s findings, United Texas Bank began implementing measures to improve its adherence to the BSA and strengthen its anti-money laundering program.
As part of the cease and desist order, the bank’s leadership is required to ensure tighter control over its processes and improve its compliance with applicable laws.

United Texas Bank, which employs about 75 people and manages assets totaling around $1 billion, has committed to submitting a formal plan to address these issues and enhance board oversight.

The bank’s response reflects a broader trend of financial institutions taking steps to align with regulations as scrutiny of the cryptocurrency industry increases.

This isn’t the first time the Federal Reserve has acted against a bank for crypto-related deficiencies.

In August 2024, a similar order was issued to Customers Bank, a Pennsylvania-based institution. Like United Texas Bank, Customers Bank was flagged for failing to meet risk management and AML standards during an inspection by the Philadelphia Federal Reserve Bank.

Rising Scrutiny on Crypto-Friendly Banks

The enforcement actions by the Federal Reserve have reignited a debate over whether there is a broader push to prevent banks from engaging with the cryptocurrency industry.

Critics have labeled this supposed effort “Operation Chokepoint 2.0,” which they claim is aimed at cutting off the crypto sector’s access to traditional banking services.

Dan Spuller, head of affairs at the Blockchain Association, expressed concern that these recent enforcement actions are part of a larger strategy to limit banks’ involvement with cryptocurrencies.

He further noted that the move against United Texas Bank is a continuation of previous efforts to restrict crypto-friendly financial institutions from operating without heavy regulation.

About Jimmy Aki PRO INVESTOR

Based in the UK, Jimmy is an economic researcher with outstanding hands-on and heads-on experience in Macroeconomic finance analysis, forecasting and planning. He has honed his skills having worked cross-continental as a finance analyst, which gives him inter-cultural experience. He currently has a strong passion for regulation and macroeconomic trends as it allows him peek under the global bonnet to see how the world works.