Regulatory Action Against Customer Bank in Crypto Space
On August 8, the Federal Reserve initiated enforcement action against Customer Bank, a Pennsylvania-based financial institution heavily involved in the cryptocurrency sector. This development has raised concerns within the cryptocurrency community, signaling increased regulatory scrutiny of banks operating in the digital asset space.
Discovering Anti-Money Laundering Issues
The regulatory action was prompted by the discovery of significant deficiencies in Customer Bank’s risk management practices. A recent investigation conducted by the Federal Reserve Bank of Philadelphia revealed that the bank was not in compliance with anti-money laundering (AML) regulations.
Central to the enforcement action is the bank’s Customer Banking Token (CBIT) service, which provides a blockchain-based instant payments platform for cryptocurrency customers. Although Customer Bank does not engage in cryptocurrency trading or provide financial support for such activities, its CBIT services have drawn regulatory attention due to their role in facilitating transactions among digital asset companies.
In response to the regulatory measures, Customer Bank’s parent company, Customer Bancorp, has committed to implementing corrective actions, including enhanced board oversight, improved policy compliance, and better management of digital asset activities. Joan Cheney, Chief Risk Officer of Customer Bancorp, acknowledged the challenges the bank is facing.
Implementing Corrective Measures and Enhancing Compliance
The bank’s board of directors is required to develop a detailed plan within 60 days to address the identified issues. Customer Bank will engage transaction review consultants to analyze its transaction monitoring activities from March 1 to August 31, 2023, ensuring proper identification and reporting of suspicious activity.
The findings of the consultant’s report will serve as a valuable resource for the bank in its future compliance efforts. With an increasing number of cryptocurrency companies relying on customer banks for services, especially after the closure of major banking institutions like Silvergate and Signature, the spotlight on compliance and risk management in the digital asset space has intensified.
Impact on the Crypto Industry and Future Outlook
The collapse of Silvergate and Signature Bank has left a void in the market, prompting many cryptocurrency companies to seek new banking partners. Customer Bank is positioned to fill this gap with its crypto-friendly approach. However, concerns regarding risk management and cryptocurrency trading continue to pose challenges for client banks, as they navigate heightened regulatory pressures in the evolving landscape of digital assets.
