Crypto had nothing to do with Signature Bank’s shutdown: New York Finance Regulator

Adrienne A. Harris – Superintendent of the New York State Department of Financial Services (NYDFS) – said the assumption that the bank’s ties to crypto-related businesses were behind the closure is “ridiculous”.

The financial institution revealed serious operational difficulties last month and was shut down by US regulators to prevent further problems.

Crypto wasn’t the reason

The head of the NYDFS assured in a recent interview that the watchdogs in question shut down Signature Bank because it had multiple uninsured deposits and lacked liquidity management protocols to accommodate withdrawal requests.

As such, she completely scrapped the notion that the organization’s relationship with the crypto industry had anything to do with its failure:

“The idea that the takeover of Signature was about crypto and this is ‘Choke Point 2.0’ is really ridiculous.”

On the other hand, NYDFS has previously encouraged companies to separate their customers’ holdings of cryptocurrency from their own assets, as commingling can lead to a significant financial loss for investors.

“Furthermore, the department expects a VCE custodian to make its standard disclosures and customer agreements readily available to customers on its website, in a manner consistent with New York law,” the watchdog added.

Harris spoke in detail about the cryptocurrency sector, arguing that it still lacks maturity despite its growing popularity. She said her team found that the compliance programs of a number of firms in the field consisted of “lots of paper” and Excel spreadsheets:

“There is still a lack of maturity around the Bank Secrecy – Anti-Money Laundering Act [compliance] and cyber security. We look forward to the day when these systems mature and scale as the business side does.”

She believed that such companies must use the right technology, including blockchain analytics tools, and hire trained staff to operate them.

The affected devices from the signature collapse

The closure triggered multi-million losses for many crypto-focused firms since they had exposure to the bank. US-based exchange Coinbase had $240 million in corporate cash at Signature, while blockchain infrastructure platform – Paxos – had $250 million committed.

The bankrupt crypto lender – Celsius Network – is next on the list. The committee of unsecured creditors stated that all depositors will be “whole.”

Featured image courtesy of Bloomberg