Increased Regulatory Scrutiny on Customer Bank: A Closer Look
On August 8, the Federal Reserve took enforcement action against Customer Bank, a Pennsylvania-based financial institution known for its extensive involvement in the cryptocurrency space.
The move caused concern among members of the cryptocurrency community. They see this as an example of increased regulatory scrutiny of banks operating in the digital asset space.
Discovering Anti-Money Laundering Issues
The action was taken following the discovery of serious deficiencies in the client bank’s risk management practices. A recent investigation by the Federal Reserve Bank of Philadelphia found that the bank failed to comply with anti-money laundering (AML) regulations.
Central to the move is the bank’s Customer Banking Token (CBIT) service. The feature provides a blockchain-based instant payments platform that allows cryptocurrency customers to make payments 24/7.
Compliance Measures and Corrective Actions
In response to these regulatory actions, Customer Bank’s parent company, Customer Bancorp, committed to take a series of corrective actions. This includes increased board oversight, improved compliance with approved policies, and enhanced management of digital asset activities. Joan Cheney, Customer Bancorp’s chief risk officer, also acknowledged the difficulties the bank faces.
“We have begun taking significant steps to strengthen our risk management practices and BSA/AML compliance program,” she said.
Implications for the Cryptocurrency Industry
Customer banks have become important partners for many cryptocurrency companies, including well-known exchanges and stablecoin issuers. The rise of customer banks in the cryptocurrency space has gained further momentum following the decline of Silvergate and Signature, which were mainstays of banking services in the cryptocurrency industry.
The collapse of two banks in particular has left a huge void in the market, and many cryptocurrency companies are scrambling to find new banking partners. Customer Bank is positioned to fill this gap with its crypto-friendly stance.
Notably, concerns about risk management and cryptocurrency trading led to the downfall of Silvergate and Signature Bank. Now, customer banks face the same regulatory pressures.
