The importance of indirect blockchain exposure for banks – how BLOCKINT emerges as a solution to mitigate the risks
The US Federal Reserve Board has sent a warning to banks about the importance of addressing the risk exposure linked to blockchain transactions through a recent and landmark enforcement action.
On August 8, the US Federal Reserve Board published an enforcement action against Customers Bank, a Pennsylvania-headquartered bank that has earned a reputation as friendly financial institution for innovative companies in the blockchain industry.
This is a landmark enforcement action, sending a warning to banks about the importance of addressing risk exposure involving transfer of value across blockchains.
According to the written agreement the Fed entered into with Customers Bank as part of the enforcement action, in a recent examination the Philadelphia Fed “identified significant deficiencies related to the Bank’s risk management practices and compliance with the applicable laws, rules, and regulations relating to anti-money laundering,” as well as gaps in compliance with US sanctions. The notice indicates that Customers Bank has begun taking steps to addresses these deficiencies but indicates that the bank has committed to undertaking a number of specific measures to bolster its compliance controls related to its business clients whose activity involve blockchain transactions, including:
- ensuring that its board of directors has adequate oversight of the bank’s digital assets strategy;
- improving the quality of management information available to the bank’s board to allow it to monitor for risks in its digital asset-related activities;
- created enhanced compliance policies and procedures to ensure the identification and management of risks related to its digital assets strategy;
- establishing a risk assessment methodology to allow it to measure its exposure to blockchain transactions through its clients;
- improving its customer due diligence processes to enable it to better identify risks; and
- enhancing its ability to identify suspicious activity and potential sanctions breaches.
The Fed’s enforcement action in this case follows numerous pieces of guidance that US banking regulators have issued in recent years warning banks of the importance of taking proactive measures to identify and mitigate blockchain transactions – related risks.
Read full agreement on the Fed’s website: Written Agreement by and among Customers Bancorp, Inc., Customers Bank, and Federal Reserve Bank of Philadelphia