Crypto-Friendly Bank Ordered by Fed to Limit Risks From Digital Asset Clients

The US Federal Reserve (Fed) has targeted Customers Bank with enforcement action, alleging that it is not properly managing risks from its cryptocurrency clients.

The Pennsylvania lender agreed to fix compliance deficiencies flagged by Fed auditors.

Customers Bank, which does business with several of the most prominent cryptocurrency companies, has been criticized by the US Federal Reserve for not adequately monitoring illegal activities, particularly those related to its digital asset clients.

In an implementation agreement signed by the bank’s senior executives, the Fed noted “significant deficiencies in the bank’s risk management practices and compliance with applicable laws, rules and regulations related to combating money laundering.”

Customers Bank’s client list includes big names like Galaxy Digital (GLXY), Coinbase (COIN), and Circle, and after last year’s tech bank crisis that led to the collapse of major banks serving crypto clients, it’s been hard to find such a friendly institution in the U.S. banking sector. But Customers has shown signs of struggling with crypto relationships. In June, CoinDesk reported that it was reducing its hedge fund activities and limiting crypto deposits.

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

A spokesperson for the bank has not yet responded to a request for comment.

The order says the bank must soon submit a set of written plans and a new approach to compliance to the Fed, including an agreement to ensure that “the Bank collects, analyzes and maintains complete and accurate information for all customers.” The bank must notify the Fed 30 days before undertaking “any new strategic initiative, product, service or third-party relationship related to its digital asset strategy.”

The Fed noted that Customers “have begun taking action to address identified deficiencies.”

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

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