The U.S. Federal Reserve Board (Fed) has officially sanctioned Customers Bancorp, Inc. for serious deficiencies in its risk management and anti-money laundering (AML) compliance practices.
The Pennsylvania-based bank serves clients involved in digital assets and is now required to submit a written plan detailing how it will improve its monitoring of AML regulations. This enforcement action aims to rectify the identified compliance weaknesses which is very essential for maintaining safe banking operations.
Enhanced Oversight for AML and Sanctions Compliance
To comply with the Fed’s directives, Customers Bancorp must enhance its board’s oversight concerning AML and sanctions adherence. The Fed has instructed the bank to bolster its risk management policies specifically regarding its digital asset strategy. It is crucial that personnel behind the bank’s digital asset services possess the necessary expertise and tools to manage these operations adequately. Furthermore, the bank is mandated to amend its customer due diligence program to effectively verify customer identities and identify potential criminal activity.
Regulatory Scrutiny Intensifies for Digital Asset Operations
The Federal Reserve emphasises that these enhancements are critical to mitigating risks associated with the banking system’s potential exploitation. In recent times, the crypto industry has suffered from scrutiny, and the Fed’s interventions signal a robust regulatory approach towards institutions engaging with crypto-related businesses.
Concerns have emerged within the crypto industry regarding the Federal Reserve’s enforcement actions. Various stakeholders have suggested that this could be part of a broader initiative targeting banks that cater to cryptocurrency companies. Notable voices like Matthew Sigel of VanEck and Nic Carter of Castle Island Ventures have expressed the need to phase out crypto-friendly institutions gradually. Despite the pushback, the Federal Reserve contends that such compliance measures are necessary for the stability of the banking sector and to protect against illicit activities.
Customers Bancorp’s Strategic Response to Compliance Demands
Customers Bancorp must also provide a comprehensive strategy detailing how it will improve its digital asset policy. This plan needs to encompass oversight, control, and resource management elements, ensuring that roles and responsibilities related to digital asset operations are clearly defined. The Federal Reserve’s enforcement action highlights the increasing importance of regulatory compliance within the rapidly evolving digital asset industry.
In a response to the Fed’s concerns, Customers Bank has acknowledged the need to address compliance deficiencies related to its crypto clientele. The bank, which has collaborated with notable crypto firms like Galaxy Digital (GLXY), Coinbase (COIN), and Circle, was criticised for insufficiently monitoring for illegal activities among its digital asset clients. The Fed’s enforcement agreement, signed by the bank’s leadership, highlighted significant lapses in the institution’s risk management related to AML laws and regulations.
Amidst an environment where many banks have distanced themselves from cryptocurrency due to last year’s tech-bank crisis, which saw leading crypto-friendly banks fail, Customers Bancorp has taken steps to reassess its crypto engagements. Reports earlier this year indicated that the bank was reducing its hedge fund activities while limiting crypto deposit amounts.
Customers Bank exclusively operates in U.S. dollars and does not conduct cryptocurrency transactions or provide loans for crypto activities. Instead, it has developed a real-time, blockchain-based payment platform known as Customer Bank Instant Token (CBIT), enabling its digital asset clients to execute dollar payments any time of the day. This service was specifically mentioned in the Federal Reserve’s enforcement action.
Strengthening Compliance and Planning for the Future
Moving forward, the bank must submit several written strategic plans to the Federal Reserve shortly, along with a revamped compliance framework. The Fed requires that Customers Bank notifies them 30 days in advance of any new strategic initiatives or changes related to its digital asset approach. The Fed noted that Customers Bank has initiated steps to rectify the acknowledged compliance deficiencies, reflecting an ongoing effort to align with regulatory expectations.
The agencies overseeing the U.S. banking sector, the Fed, the Office of the Comptroller of the Currency, and the Federal Deposit Insurance Corp.—previously issued guidance which aimed at limiting banks’ exposure to the volatile crypto sector. Stay tuned for more updates on this evolving story on the Turkish NY Radio.
