Federal Reserve Orders United Texas Bank to Cease Crypto Dealings Over Risk Management Failures

The United States Federal Reserve has issued a cease-and-desist order against United Texas Bank, citing “significant deficiencies” in the bank’s risk management systems and its dealings with cryptocurrency clients. The order, issued on September 4, follows a May examination that revealed concerns about the bank’s oversight of foreign correspondent banking and virtual currency transactions.

According to the Fed, United Texas Bank, which is known for being crypto-friendly, exhibited deficiencies in complying with anti-money laundering (AML) regulations and the Bank Secrecy Act (BSA). However, the Fed did not provide specific details about how the bank had failed to meet regulatory standards concerning its crypto operations.

The order comes at a time when regulators are increasing their scrutiny of financial institutions engaged with the cryptocurrency sector. United Texas Bank, which manages approximately $1 billion in assets and employs 75 people, has already taken steps to address these issues, according to the Federal Reserve. The bank’s board of directors has agreed to submit a formal plan to improve oversight and ensure compliance with BSA/AML regulations.

The Fed’s action against United Texas Bank follows a similar move in August when Pennsylvania-based Customers Bancorp was also cited for inadequate risk management and anti-money laundering practices in its crypto-related activities. The wave of regulatory actions has reignited accusations of a coordinated effort, dubbed “Operation Chokepoint 2.0,” to stifle banks from engaging with the cryptocurrency industry.

Dan Spuller, head of industry affairs at the Blockchain Association, described the Fed’s actions as a continuation of this campaign. Critics argue that such enforcement efforts disproportionately target crypto-friendly institutions, limiting their ability to innovate and serve clients in the rapidly growing digital asset space.

As regulatory scrutiny intensifies, banks involved with cryptocurrency clients are under increasing pressure to bolster their compliance frameworks. While United Texas Bank works to rectify its governance and risk management deficiencies, the broader question of how U.S. regulators will handle the evolving relationship between traditional banking and the crypto industry remains a contentious issue.

Digital Assets Desk