According to reputable sources, Signature bank, a New York-based full-service commercial bank wasrecently seized by regulators and was apparently being investigated by USprosecutors prior to the closure of the bank. Bloomberg reported thatprosecutors were reviewing the bank’s efforts to detect money laundering withregard to crypto activities. The bank’s collapse followed the recent demise ofSilvergate Capital Corporation which also traded in crypto currencies and thefall of Silicon Valley bank.

Specifically, Justice Departmentinvestigators in Manhattan and Washington were probing whether Signature bankhad sufficient processes in place to detect acts of money laundering by some oftheir clients with specific reference to scrutinising clients when they openedaccounts and the effectiveness of their ongoing monitoring of transactions.

Bloomberg further sited that it was notclear when the investigation of Signature bank commenced or if the investigationhad any impact on the decision by US regulators to close the bank. However, theregulators did state that they have lost faith in management after the bank failed to provide “reliableand consistent data.”

This is a fair point inlight of the regulatory regime’s repeated past warnings to firms which deal incrypto or related cash to be vigilant in flagging potential acts of moneylaundering. Bloomberg stated that banks, in particular are obligated to pointout any suspicious transactions to federal authorities in a timely manner. Themedia outlet also added that regulators have been compelling banks and otherregulated firms to pull back from digital currencies and related assets in aneffort to avoid potential risks to the broader financial system.

Michael Driscoll, assistantdirector in charge of the FBI’s New York field office recently stated that “TheFBI and our partners remain steadfast in our commitment to keepingcryptocurrency markets – as with any financial market – free from illicitactivity.”

According to Bloomberg,Silvergate CapitalCorporation is currently under investigation by the Justice Departmentregarding previous dealings with the fallen FTX exchange and Alameda Researchand the collapse of Silicon Valley bank is being investigated by federalprosecutors to determine if executives of the bank violated the trading rulesof stock sales. Also, Signature bank did not disclose any of the inquiries inits most recent filings.

Added to this, when FTXcollapsed in November 2022, executives from Signature bank commented that theyintended to shed as much as $10 billion in digital asset deposits from clientswhich, at the time, included more than a fifth of its deposits. In fact,according to Bloomberg, the exact words from the bank’s then chief operatingofficer, Eric Howell, was “We’re going to be involved but we’re going to beinvolved in a much more thoughtful way moving forward.”

Another well-established major retail and commercial bank,Britain’s NatWest, is also in the spotlight and stated that they are limitingcustomer’s crypto transfers due to concerns regarding possible scams. Reuters reportedthat the bank commenced to limit customer transfers to crypto asset exchanges to5000 pounds per 30-day period, with a limit of 1000 pounds per day. StuartSkinner, head of fraud protection at NatWest stated that "We have seen an increase in the number of scamsusing cryptocurrency exchanges and we are acting to protect our customers."The bank added that UK-based consumers have lost 329 million pounds in cryptocrimes during 2022.

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Breaking thecycle  

Regulations serve as the backbone of strongfinancial systems and the main objective of regulators are to protect the consumers,the firms, shareholders, investors, and the market itself but this type ofprotection, in a regulated system, can only be effective, if everyone is partof the system and adhere to the rules.

Therefore, from areputational point of view and to avoid hefty fines, it is imperative thatfirms remain compliant by implementing robust financial crime frameworks andconstantly evaluate and mitigate all identified risks. Even well-established,global firms must review and test their controls on a regular basis to ensureits effectiveness.

Lysis Group has theexperience and expertise to help firms, on a global scale to manage theirscreening and monitoring requirements in a cost-effective manner. We provideanalysts with vast experience and a thorough understanding of anti-moneylaundering (AML) and financial crime controls within the financial servicesindustry and other regulated industries such as the crypto asset industry.

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