U.S. Federal Reserve Takes Enforcement Action Against Crypto-Friendly Customers Bank for Risk Management Deficiencies

The U.S. Federal Reserve has issued an enforcement action against Customers Bank, a Pennsylvania-based financial institution known for its connections to the cryptocurrency sector, citing “significant deficiencies” in its risk management and anti-money laundering (AML) practices. The announcement led to a sharp decline in the bank's share price, which fell by more than 20% before recovering by approximately 10% later in the day.

Customers Bank, while not directly involved in accepting cryptocurrencies or providing loans for crypto-related activities, operates a payment platform that allows its cryptocurrency clients to make U.S. dollar transactions around the clock. This platform was a focal point in the Federal Reserve’s enforcement action, with the central bank highlighting “significant deficiencies related to the bank’s risk management practices” in its operation.

The Federal Reserve also pointed out concerns regarding the bank’s “compliance with the applicable laws, rules, and regulations relating to anti-money laundering.” In response to these issues, the enforcement action, which was signed by the bank's top executives, mandates Customers Bank to revamp its risk management procedures concerning its digital assets business. The Federal Reserve has instructed the bank to ensure that its staff possesses the necessary expertise and resources to effectively manage and mitigate risks.

Additionally, the enforcement order requires the bank to promptly address its risk exposures and to enhance its customer due-diligence processes and suspicious activity reporting. Under the terms of the order, Customers Bank must submit a series of written plans to the Federal Reserve, outlining a new approach to compliance and risk management.

The Federal Reserve acknowledged that Customers Bank has already “begun to take measures to address the identified deficiencies in its AML compliance program.”

Customers Bank has emerged as one of the leading crypto-friendly banks, especially after the collapse of its rivals, Silvergate and Signature Bank. Unlike many in the sector, the bank remained relatively unscathed by the collapse of the cryptocurrency exchange FTX, which further increased its appeal to clients within the cryptocurrency industry. Its clientele includes well-known companies such as Galaxy Digital, Coinbase, and Circle.

By fLEXI tEAM