The New York State Department of Financial Services (NYDFS) has confirmed that cryptocurrency was not a factor in the recent closure of Signature Bank’s New York branch. The bank announced that it was closing the branch without any specific reason given, but rumors circulated that the branch had required increased compliance measures due to its association with cryptocurrency firms. However, NYDFS Superintendent Linda A. Lacewell has now confirmed that cryptocurrency played no role in the bank’s decision to close its branch.
Signature Bank’s Ties to Crypto Had Nothing to do with Its Closure, says NYDFS Superintendent
Adrienne A. Harris, the Superintendent of the New York State Department of Financial Services (NYDFS), dismissed the theory that the bank’s affiliation with crypto-related businesses was the reason for its closure, calling it “ludicrous.” The bank had disclosed severe operational difficulties last month and was subsequently shut down by American regulators to prevent further issues.
The head of the NYDFS granted an interview, where she assured relevant watchdogs closed Signature Bank down because it had multiple uninsured deposits and lacked liquidity management protocols to honor withdrawal requests. She completely denied any connection between the bank’s relation to the crypto industry and its failure.
In contrast, the NYDFS has called on companies to segregate customers’ cryptocurrency holdings from their own assets, as mingling could cause a considerable financial loss for investors.
Harris spoke in detail regarding the cryptocurrency sector, arguing that it still lacks maturity, despite its growing popularity. She said that her team discovered that numerous firms’ compliance programs in the field comprised “reams of paper” and Excel spreadsheets. She believes such companies must use the right technology, including blockchain analytics tools, and employ trained staff to operate them.
The closure triggered multi-million losses for several crypto-focused firms, as they had exposure to the bank when it collapsed. The US-based exchange Coinbase had $240 million in corporate cash at Signature, while the blockchain infrastructure platform Paxos had $250 million stuck.
The bankrupt crypto lender Celsius Network is next on the list. The committee of unsecured creditors stated that all depositors would be “made whole.”
Bottom Line
Despite the growing popularity of cryptocurrency, there is still a lack of maturity regarding Bank Secrecy Act-anti-money-laundering compliance, and cybersecurity. Companies in the sector must use the correct technology and employ qualified personnel to ensure safe operations. However, Signature Bank’s closure was unrelated to the bank’s affiliation with crypto-related businesses, as the NYDFS superintendent has claimed.