• The U.S. Federal Reserve targeted Customers Bank with an enforcement action saying it wasn't properly handling the risks from its crypto customers.

• The Pennsylvania lender agreed to fix the compliance shortcomings flagged by Fed examiners.

Customers Bank, which has done business with several of the most prominent crypto firms, has been called out by the U.S. Federal Reserve for inadequately policing illicit activity, particularly with digital asset clients.

In an enforcement agreement signed by the bank's top executives, the Fed noted "significant deficiencies related to the Bank’s risk management practices and compliance with the applicable laws, rules, and regulations relating to anti-money laundering."

Customers Bank's client list has included top names such as Galaxy Digital (GLXY), Coinbase (COIN) and Circle, and in the wake of last year's tech-bank crisis that saw the demise of leading banks serving crypto customers, such a friendly institution has been difficult to find in the U.S. banking sector. But Customers had already shown signs of struggling with its crypto relationships. In June, CoinDesk reported it was cutting hedge fund activity and had capped its crypto deposits.

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The Pennsylvania-based lender, which is owned by Customers Bancorp (CUBI), deals only in U.S. dollars and does not accept cryptocurrency or make loans to support crypto activities. It offers its dozens of digital asset firm clients a real-time, blockchain-based payments platform called Customer Bank Instant Token (CBIT) that lets those crypto clients make U.S. dollar payments around the clock. That service was highlighted in the enforcement action.

A spokesman for the bank didn't immediately respond to a request for comment.

Under the order, the bank has to soon provide the Fed a series of written plans and a new approach to compliance, including an agreement to "ensure that the Bank collects, analyzes, and retains complete and accurate information for all customers." The bank must notify the Fed 30 days in advance of taking on "any new strategic initiative, product, service, or relationship with third parties related to the digital asset strategy."

The Fed noted that Customers "has begun to take measures to address the identified deficiencies."

The agencies that oversee banking in the U.S. – the Fed, Office of the Comptroller of the Currency and Federal Deposit Insurance Corp. – have previously issued guidance to banks meant to limit their exposure to the crypto sector. Last year, the Fed said it was revamping its own digital assets approach, having its new “novel activities supervision program” – with specialized experts – help the regular banking supervisors monitor the overlap of the crypto sector with the banking system.

Read More: No Crypto Banking Port Has Really Opened Up in This U.S. Storm