Banks Criticized over Flood Insurance Policies and Cryptocurrency Practices
In a recent development, the Federal Reserve has taken enforcement actions against two community banks in the United States. United Texas Bank in Dallas, Texas, and First Interstate Bank in Billings, Montana, have been issued cease-and-desist orders for violations of their respective acts.
The enforcement order issued to United Texas Bank stems from significant deficiencies found in its risk management and compliance systems, particularly in its dealings with foreign correspondent banking and virtual currency customers. The bank has been instructed to revamp its Anti-Money Laundering (AML) oversight, corporate governance practices, customer due diligence practices, and monitoring and reporting of suspicious activities within 60 days.
The Fed declined to comment beyond the press release and associated orders regarding the specific reasons for the enforcement actions against United Texas Bank. However, Niko Demchuk, head of legal at crypto compliance firm AMLBot, stated that each cease-and-desist order plays a significant role in the market, alerting other banks to review their risk management systems, especially those dealing with crypto assets.
The enforcement order against First Interstate Bank pertains to violations of the National Flood Insurance Act. Each infraction could result in a fine of up to $2,000. The bank must pay $70,000 to the National Flood Insurance Program for repeated violations. The CEO of First Interstate Bank, Kevin Riley, announced his intention to step down in June, although it is unclear if this is related to the enforcement action.
The enforcement orders did not specify whether they were related to Operation Chokepoint 2.0, the alleged coordinated crackdown on crypto firms by the Biden administration. Dan Spuller, head of affairs at crypto lobbying group Blockchain Association, posted on social media that the enforcement order against United Texas Bank was the continuation of Operation Chokepoint 2.0. However, there is no detailed public record or reported enforcement order from the Federal Reserve addressing community banks in Montana and Texas violating the National Flood Insurance Act and Bank Secrecy Act.
The enforcement actions have prompted other banks to review their AML processes, particularly those dealing with crypto assets, as highlighted by AMLBot's Demchuk. It is essential for banks to ensure that all risks are considered and mitigated in their risk management systems, according to Demchuk.
Despite requests for comment, the banks involved in the enforcement actions did not immediately respond. The Texas Department of Banking backed the enforcement order against United Texas Bank.
As always, for precise, current enforcement details, monitoring official Federal Reserve releases or filings with the Federal Financial Institutions Examination Council and related legal notices might be necessary.
- The enforcement order issued to United Texas Bank in dealing with foreign correspondent banking and virtual currency customers raises concerns about cybersecurity in the banking-and-insurance industry, as inadequate risk management and compliance systems can lead to potential financial and security risks.
- The enforcement action against First Interstate Bank for violations of the National Flood Insurance Act emphasizes the importance of adhering to industry regulations, as each infraction could lead to significant fines and potential consequences for business operations and reputation.
- Technology plays a crucial role in ensuring banks maintain robust risk management systems, enabling them to comply with laws, prevent money laundering, and address new challenges like dealing with crypto assets, considering the increased vigilance highlighted by AMLBot's Demchuk.
