United Texas Bank’s Regulatory Issues

United Texas Bank, linked to the crypto sector, faced “significant deficiencies” in managing risks related to crypto customers, as highlighted by the Federal Reserve.

The central bank examined the Dallas bank in May 2023 and identified shortcomings in governance and oversight by its board of directors and senior management.

“WHEREAS, the Examination identified significant deficiencies related to foreign correspondent banking and virtual currency customers, specifically risk management and compliance with applicable laws, rules, and regulations relating to anti-money laundering (AML)…” stated the bank in a cease and desist order issued on Wednesday. Both the Fed and the bank agreed to this order.

Since then, United Texas Bank has taken measures to enhance its Bank Secrecy Act (BSA) and AML program. The board of directors is required to submit a written plan to strengthen oversight of the bank’s compliance with BSA/AML requirements, as well as revising its customer due diligence program.

The Texas bank has previously engaged with crypto firms, notably the Stellar Foundation and Circle’s USDC. In 2021, MoneyGram partnered with Stellar to enable local currency crypto payouts, with United Texas Bank acting as the settlement bank between Circle and MoneyGram, as reported by The Block.

This action marks the second enforcement against a crypto-connected bank by the Federal Reserve in a month. In August, the Fed noted significant deficiencies in Customers Bancorp, Inc.’s risk management and compliance with AML laws.

Some in the crypto industry have accused the Fed of initiating “Chokepoint 2.0,” speculating about a coordinated crackdown. This sentiment continued after the Wednesday cease and desist order.

Dan Spuller, head of industry affairs at the Blockchain Association, expressed concerns on X regarding the Federal Reserve’s enforcement action, linking it to ongoing regulatory scrutiny of crypto-related banks.