The U.S. Federal Reserve has ordered United Texas Bank to stop certain activities, citing major deficiencies in its risk management systems, especially in dealing with cryptocurrency clients.
According to a cease-and-desist order issued on September 4, the Fed found problems with the bank’s governance and oversight during a May examination, highlighting failures in managing risks tied to foreign correspondent banking and virtual currency customers. The Fed pointed out non-compliance with anti-money laundering (AML) regulations, including the Bank Secrecy Act (BSA).
The Fed did not specify the exact nature of the bank’s regulatory failures concerning its crypto clients but mentioned that United Texas Bank started taking steps to address these issues. The bank’s board of directors agreed to create a plan to strengthen oversight and improve compliance with AML and BSA standards.
United Texas Bank, which has 75 employees and manages nearly $1 billion in assets, is now required to submit this plan to the Fed for approval.
“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 including the Bank Secrecy Act,” the Fed wrote in its order.
The Texas bank has previously collaborated with cryptocurrency firms, including the Stellar Development Foundation and Circle’s USDC. MoneyGram, which partnered with Stellar in 2021, used United Texas Bank as the settlement bank for crypto payouts in local currencies via the Stellar blockchain.
This is the second time in a month that the Federal Reserve has taken action against a bank with ties to the crypto industry. It follows a similar order in August against Customers Bancorp and its subsidiary, Customers Bank, for deficiencies in their risk management and AML controls.
The actions fueled speculation within the crypto industry of a broader crackdown, dubbed “Operation Chokepoint 2.0.” Dan Spuller, head of industry affairs at the Blockchain Association, referenced the ongoing scrutiny in a post on social media, stating, “Federal Reserve Enforcement Action: A Cease and Desist Order for United Texas Bank in Dallas as Operation #Chokepoint 2.0 Continues.”
