The Federal Reserve issued a cease-and-desist order to the crypto-friendly United Texas Bank in Dallas on Wednesday.

This action addresses what the Fed describes as 'significant deficiencies' in the bank's compliance with anti-money laundering (AML) regulations, particularly concerning cryptocurrency clients.

The bank's management agreed to the order to avoid formal proceedings. To achieve AML compliance, they must submit a detailed five-part action plan within 90 days. This plan includes ensuring proper staffing and regularly reviewing staffing needs.

Key Compliance Issues

In the order, the Fed identified issues in governance, customer due diligence, and monitoring suspicious activities, especially in the bank's crypto transactions.

While United Texas Bank aimed to support virtual asset businesses, its compliance and risk management failed to meet the Federal Reserve's standards.

Similar Challenges for Other Banks

Recently, Customer Bank encountered a comparable challenge. The Fed required this bank, also known for its crypto-friendly policies, to strengthen its compliance with anti-money laundering laws and meet Bank Secrecy Act standards.

Additionally, the bank must improve its risk management for digital assets. After identifying significant shortcomings, the Fed enforced an action demanding that Customers Bank submit detailed improvement plans.

Banks are becoming more cautious due to stricter regulatory oversight.

Rising Risks and Stricter Oversight

Operating crypto-friendly banks carries risks, as the closures of Signature and Silvergate have indicated. Agencies like the Federal Reserve and FDIC are enforcing stricter rules, particularly in anti-money laundering and Bank Secrecy Act regulations.

This increased official scrutiny stems from concerns about money laundering, fraud, and the volatile nature of cryptocurrencies, which create significant financial and legal risks for banks.

Future Outlook for Crypto Banking

With fewer domestic banking options, crypto companies are turning to international banks or developing their financial systems.

This shift presents both challenges and opportunities. Crypto's decentralized nature may encourage the creation of solutions outside traditional banking, accelerating the industry's move toward decentralized financial systems.