Swiss Crypto Bank FlowBank Ordered to Close by FINLA
In A Nutshell
FlowBank, a crypto-friendly Swiss bank, has been compelled to shut down by the Swiss Financial Market Supervisory Authority (FINMA) due to significant breaches in regulatory standards, particularly in maintaining the minimum capital required for its operation. The decision comes after a detailed investigation revealed the bank’s financial instability and inability to meet the necessary capital requirements, leading to an order for its closure and liquidation.
Background and Operations of FlowBank
Established in 2020, FlowBank aimed to bridge the gap between traditional banking and the burgeoning field of cryptocurrencies by offering crypto trading services. As a banking partner for Techteryx and the stablecoin issuer behind TrueUSD (TUSD), FlowBank quickly became a notable player in the crypto banking sector. Additionally, it had associations with CoinShares, a crypto asset management firm, and reportedly provided banking services to Binance, the world’s largest cryptocurrency exchange. With assets totaling $760 million (Swiss francs 680 million), more than 22,000 client accounts, and approximately 140 global employees, FlowBank marked a significant presence in the industry.
Regulatory Challenges and Enforcement Actions
The regulatory scrutiny of FlowBank began in October 2021, just a year after its launch. FINMA identified severe violations relating to the bank’s capital requirements, which are essential for operational integrity and client protection. Despite appointing an independent auditor to guide FlowBank towards regulatory compliance, further issues emerged in June 2023, leading to the discovery of “numerous higher-risk business relationships” and the processing of large transactions without proper due diligence.
Implications for FlowBank’s Clients and the Crypto Industry
FINMA has prioritized the protection of FlowBank’s clients, ensuring that those with deposits up to $111,710 (100,000 Swiss francs) will be safeguarded and aiming to facilitate the recovery of those funds swiftly. The closure of FlowBank underscores the challenges and risks associated with integrating cryptocurrency services within traditional banking frameworks, highlighting the need for robust regulatory compliance and risk management strategies.
Our Take
The forced closure of FlowBank by FINMA serves as a cautionary tale for the crypto banking sector. It underscores the importance of adhering to regulatory standards and maintaining operational integrity, especially in the rapidly evolving and risk-prone domain of cryptocurrency. For crypto-friendly banks and financial institutions, this event highlights the necessity of rigorous due diligence, capital adequacy, and the implementation of effective risk management practices. As the industry continues to mature, the balance between innovation and regulatory compliance will be paramount in ensuring the sustainability and trustworthiness of crypto banking services.
Sources
– Swiss Financial Market Supervisory Authority (FINMA) Statement
– Techteryx and TrueUSD
– CoinShares
