On August 8, the Federal Reserve Board executed an enforcement action against Customers Bank, a Pennsylvania-based financial institution known for its extensive involvement in the crypto sector.

This action has sparked concerns among crypto community members. They see it as an example of the growing regulatory scrutiny facing banks operating in the digital asset space.

Customers Bank Under Fire for AML Compliance Failures

Significant deficiencies drove this enforcement action in Customers Bank’s risk management practices. As revealed in a recent examination by the Federal Reserve Bank of Philadelphia, the bank failed to comply with anti-money laundering (AML) regulations.

A key focus of the action was the bank’s Customer Bank Instant Token (CBIT) service. This facility allows a real-time, blockchain-based payment platform for crypto clients to make US dollar payments 24/7.

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Customers Bank strictly deals with USD. Moreover, it refrains from participating in crypto transactions or offering financial support for crypto-related activities. However, its CBIT service has drawn increased regulatory attention due to its critical role in facilitating transactions for digital asset firms.

In response to the enforcement actions, Customers Bancorp, Customers Bank’s parent company, has committed to a series of corrective actions. These include enhancing board oversight, improving adherence to approved policies, and strengthening the management of its digital asset activities. Customers Bancorp’s Chief Risk Officer Joan Cheney also acknowledged the bank’s challenges.

“We have already begun taking significant steps to strengthen our risk management practices and BSA/AML compliance program,” she stated.

Consequently, the bank’s board must present a detailed plan within 60 days to address the identified issues. Customers Bank will hire a transaction review consultant to analyze the bank’s transaction monitoring activity from March 1 to August 31, 2023. The review aims to determine whether the bank correctly identified and reported suspicious activities.

Customers Bank has become an important partner for numerous crypto firms, including prominent exchanges and stablecoin issuers. The bank’s rise in the crypto space gained momentum after the fall of Silvergate and Signature, both of which had been pillars in providing banking services to the crypto industry.

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Notably, their collapse left a significant void in the market, with many crypto firms scrambling to find new banking partners. With its crypto-friendly stance, Customers Bank was positioned to fill this gap.

It is important to note that concerns about risk management and crypto dealings contributed to the downfall of Silvergate and Signature Bank. Now, the same regulatory pressures are looming over Customers Bank.