Turmoil in the global financial system

According to reputable sources, Signature bank, a New York-based full-service commercial bank was recently seized by regulators and was apparently being investigated by US prosecutors prior to the closure of the bank. Bloomberg reported that prosecutors were reviewing the bank’s efforts to detect money laundering with regard to crypto activities. The bank’s collapse followed the recent demise of Silvergate Capital Corporation which also traded in cryptocurrencies and the fall of Silicon Valley bank.

Specifically, Justice Department investigators in Manhattan and Washington were probing whether Signature bank had sufficient processes in place to detect acts of money laundering by some of their clients with specific reference to scrutinising clients when they opened accounts and the effectiveness of their ongoing monitoring of transactions.

Bloomberg further sited that it was not clear when the investigation of Signature bank commenced or if the investigation had any impact on the decision by US regulators to close the bank. However, the regulators did state that they have lost faith in management after the bank failed to provide “reliable and consistent data.”

This is a fair point in light of the regulatory regime’s repeated past warnings to firms which deal in crypto or related cash to be vigilant in flagging potential acts of money laundering. Bloomberg stated that banks, in particular are obligated to point out any suspicious transactions to federal authorities in a timely manner. The media outlet also added that regulators have been compelling banks and other regulated firms to pull back from digital currencies and related assets in an effort to avoid potential risks to the broader financial system.

Michael Driscoll, assistant director in charge of the FBI’s New York field office recently stated that “The FBI and our partners remain steadfast in our commitment to keeping cryptocurrency markets – as with any financial market – free from illicit activity.”

According to Bloomberg, Silvergate Capital Corporation is currently under investigation by the Justice Department regarding previous dealings with the fallen FTX exchange and Alameda Research and the collapse of Silicon Valley bank is being investigated by federal prosecutors to determine if executives of the bank violated the trading rules of stock sales. Also, Signature bank did not disclose any of the inquiries in its most recent filings.

Added to this, when FTX collapsed in November 2022, executives from Signature bank commented that they intended to shed as much as $10 billion in digital asset deposits from clients which, 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 operating officer, Eric Howell, was “We’re going to be involved but we’re going to be involved 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 limiting customer’s crypto transfers due to concerns regarding possible scams. Reuters reported that the bank commenced to limit customer transfers to crypto asset exchanges to 5000 pounds per 30-day period, with a limit of 1000 pounds per day. Stuart Skinner, head of fraud protection at NatWest stated that "We have seen an increase in the number of scams using cryptocurrency exchanges and we are acting to protect our customers." The bank added that UK-based consumers have lost 329 million pounds in crypto crimes during 2022.

Breaking the cycle?

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

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

Lysis Group has the experience and expertise to help firms, on a global scale to manage their screening and monitoring requirements in a cost-effective manner. We provide analysts with vast experience and a thorough understanding of anti-money laundering (AML) and financial crime controls within the financial services industry and other regulated industries such as the crypto asset industry.?