Regulatory Action Against Customer Bank Raises Concerns in Cryptocurrency Community
On August 8, the Federal Reserve took enforcement action against Customer Bank, a Pennsylvania-based financial institution heavily involved in the cryptocurrency space. This move has sparked concerns among members of the cryptocurrency community, signaling increased regulatory scrutiny of banks operating in the digital asset space.
Discovery of Anti-Money Laundering Issues
The enforcement action was prompted by the discovery of significant deficiencies in the risk management practices of Customer Bank. A recent investigation by the Federal Reserve Bank of Philadelphia revealed that the bank was not compliant with anti-money laundering (AML) regulations.
Central to the regulatory action is the bank’s Customer Banking Token (CBIT) service. This feature offers a blockchain-based instant payments platform for cryptocurrency customers to transact 24/7.
Corrective Actions and Compliance Efforts
In response to the regulatory scrutiny, Customer Bancorp, the parent company of Customer Bank, has committed to a series of corrective actions. These include enhanced board oversight, improved compliance with approved policies, and better management of digital asset activities. Joan Cheney, Chief Risk Officer of Customer Bancorp, acknowledged the challenges faced by the bank.
“We have begun taking significant steps to strengthen our risk management practices and BSA/AML compliance program,” she said.
The bank’s board of directors must now devise a detailed plan within 60 days to address the identified issues. The hiring of transaction review consultants will analyze the bank’s transaction monitoring activities from March 1 to August 31, 2023, ensuring the correct identification and reporting of suspicious activity.
Impact on Cryptocurrency Companies and Banking Partnerships
Customer banks have become vital partners for many cryptocurrency companies, including exchanges and stablecoin issuers. With the recent collapse of Silvergate and Signature Bank, there is a growing need for new banking partners in the cryptocurrency space. Customer Bank aims to fill this gap with its crypto-friendly services.
The downfall of Silvergate and Signature Bank due to concerns about risk management and cryptocurrency trading underscores the regulatory pressures faced by customer banks.
